Initial Public Offering (IPO): Pre-Effective Amendment to Registration Statement (General Form) — Form S-1 Filing Table of Contents
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SIDHU SPECIAL PURPOSE CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of
incorporation or organization)
6770 (Primary Standard Industrial
Classification Code Number)
26-1315540 (I.R.S. Employer
Identification No.)
Center City Executive Centre
607 Washington Street Reading, Pennsylvania19601
(610) 478-2300 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Jay S. Sidhu
Chief Executive Officer
Sidhu Special Purpose Capital Corp.
Center City Executive Centre
607 Washington Street Reading, Pennsylvania19601
(610) 478-2300 (Name, address, including zip code, and telephone number, including area code, of agent for service)
The Commission is requested to send copies of all communications to:
Sunjeet S. Gill, Esq.
Stevens & Lee
485 Madison Avenue
20th Floor New York, New York10022
(212) 319-8500
Douglas S. Ellenoff, Esq.
Kathleen L. Cerveny, Esq.
Stuart Neuhauser, Esq.
Ellenoff Grossman & Schole L.L.P.
150 East 42nd Street, 11th Floor New York, NY10017
(212) 370-1300
Approximate date of commencement of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
CALCULATION OF REGISTRATION FEE
Proposed
Maximum
Proposed Maximum
Offering
Aggregate
Amount of
Title of Each Class of
Amount Being
Price per
Offering
Registration
Security Being Registered
Registered
Security
Price (1)
Fee
Units, each consisting of one share
of common stock, $0.0001 par value,
and one warrant (2)
10,350,000 units
$
10.00
$
103,500,000
$
4,067.55
(4)
Common stock included in the units (2)
10,350,000 shares
—
—
—
(3)
Warrants included in the units
10,350,000 warrants
—
—
—
(3)
(1)
Estimated solely for the purpose of calculating the registration fee.
(2)
Includes 1,350,000 units, consisting of 1,350,000 shares of common stock and 1,350,000
warrants, which may be issued upon exercise of a 45-day option granted to the underwriters to
cover over-allotments, if any.
(3)
No fee pursuant to Rule 457(g).
(4)
Previously paid.
The Registrant hereby amends this registration statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED __________, 2008
PRELIMINARY PROSPECTUS
9,000,000 Units
Sidhu Special Purpose Capital Corp.
$90,000,000
Sidhu Special Purpose Capital Corp. is a newly organized blank check company formed for the
purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination with one or more currently unidentified domestic or
international operating businesses, which we refer to as a business combination. Our efforts in
identifying a prospective target business will not be limited to a
particular industry or geography, except as otherwise described in
this prospectus, but we will
focus our efforts on identifying, performing due diligence on, and effecting a business combination
with one or more businesses which operate in the depository institutions sector and other
businesses which operate in the broader financial services industry.
Our sponsor, WNH Holdings, LLC, is controlled by our chairman and chief executive officer, Jay
S. Sidhu, who served as chief executive officer of Sovereign Bancorp,
Inc., or Sovereign, from 1989
to 2006. During his tenure at Sovereign, Sovereign identified, acquired and integrated 27 banking
and thrift operations, including two of the largest bank branch divestitures in U.S. history
and three other financial services businesses. Mr. Sidhu was largely responsible for designing,
overseeing and executing Sovereign’s growth from a small financially challenged thrift with assets
of approximately $600 million that generated proceeds in an initial public offering of
approximately $24 million in 1986 to a financial institution with over $90 billion in assets, a
market capitalization of approximately $12 billion and more than 785 branch locations spanning from
Maryland to New Hampshire in 2006.
If
we are unable to complete a business combination within 24 months from the date of this
prospectus, but have entered into a letter of intent or a definitive agreement with respect to a business
combination within 18 months from the date of this prospectus, we
may seek stockholder approval to extend the period of time to complete a business combination by up
to an additional six months. In order to extend the period of time to
up to 30 months (i) we must have entered into a letter of
intent or a definitive agreement for a business
combination within 18 months from the date of this prospectus, (ii) holders
of a majority of our common stock sold in this offering must approve
the extension and (iii)
conversion rights must be exercised with respect to less than 35% of the shares sold in this
offering, each as described in this prospectus. If we fail to sign a
letter of intent or a definitive agreement within
such 18-month period or if we fail to complete a business combination
within such 24-month period
(or up to 30 months if our stockholders approve an extension), we will liquidate and
distribute the proceeds held in the trust account described below to our public stockholders. To
date, our efforts have been limited to organizational activities as well as activities relating to
this offering. We do not have any specific business combination under consideration and we have
not (nor has anyone on our behalf) contacted any prospective acquisition candidate or had any
discussions, formal or otherwise, with respect to such a transaction.
This is an initial public offering of our units. Each unit has an offering price of $10.00
and consists of one share of our common stock and one warrant. Each warrant entitles the holder to
purchase one share of our common stock at a price of $6.50. Each warrant will become exercisable
on the later of our completion of a business combination and , 2009 [one year
from date of prospectus]; provided that we have an effective registration statement covering the
common stock issuable upon exercise of the warrants and a current prospectus is available. The warrants will expire on
, 2012
[four years from date of prospectus], or earlier upon redemption.
Our
sponsor has agreed to purchase 425,200 units, or the sponsor units, from us at a
price of $10.00 per unit ($4,252,000 in the aggregate) in a private
placement that will occur immediately prior to the closing of this offering. The proceeds from the sale of the sponsor
units will be deposited into a trust account and subject to a trust
agreement described below, and will be part of the funds distributed to our public stockholders in
the event we are unable to
complete a
business combination. Each unit so purchased by our sponsor will
consist of one share of our common stock and one warrant to purchase
one share of common stock. The sponsor units and the component shares of
common stock and warrants, will be substantially similar to the units being sold in this offering, except
that, until the completion of a business
combination, the sponsor units will be
placed in escrow and (with limited exceptions) may not be transferred, assigned or sold. In
addition, the warrants included in the sponsor units will not be redeemable by us as long as they are held by our sponsor
or its permitted transferees.
There
is presently no public market for our units, common stock or
warrants. We have applied to have our units listed on the American Stock Exchange under
the symbol “FIE.U” on or
promptly after the date of this prospectus. The common stock and warrants comprising the units
will begin separate trading ten business days (or as soon as practicable thereafter) following the
earlier to occur of (1) the expiration or termination of the
underwriters’ over-allotment option
and (2) its exercise, subject in either case to our having filed a Current Report on Form
8-K with the Securities and Exchange Commission, or the SEC, containing an audited balance sheet
reflecting our receipt of the gross proceeds of this offering, including the proceeds from the
underwriters’ over-allotment option, if applicable, and having issued a press release announcing
when such separate trading will begin. Once the securities comprising the units begin separate
trading, we anticipate that the common stock and warrants will be traded on the American Stock
Exchange under the symbols “FIE”
and “FIE.W,” respectively. We cannot assure you that our
securities will be or will continue to be listed on the American Stock Exchange.
Investing in our securities involves risks. See “Risk Factors” beginning on page 30.
Per Unit
Total
Public Offering Price
$
10.00
$
90,000,000
Underwriting
Discounts and Commissions(1)
$
0.65
$
5,850,000
Proceeds, before expenses, to us
$
9.35
$
84,150,000
(1)
Includes the underwriters’ deferred
discount and commission of 3.25% of the gross proceeds
from the units offered to the public, or $0.325 per unit ($2,925,000 in the aggregate), payable to
the underwriters only upon completion of a business combination.
Does not include a corporate finance fee of 0.5% of the gross
proceeds from the units offered to the public, or $0.05 per unit
($450,000 in the aggregate) payable to the underwriters upon
completion of the offering. For information concerning
underwriting compensation, see “Underwriting.”
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Of
the net proceeds we receive from this public offering and the sale of the
sponsor units, approximately $90,000,000 (approximately $10.00 per unit) will be deposited into a trust
account (of which $2,925,000 or $0.325 per unit is
attributable to the underwriters’
deferred commission and discount) maintained by Mellon Bank, N.A.,
acting as account agent. The
underwriters will not be entitled to any interest earned on the deferred fees. The funds held in
trust (net of taxes and up to $2,400,000 of interest earned on the trust account that is permitted
to be disbursed to us for working capital purposes) will not be released from the trust account
until the earlier of the completion of a business combination or our liquidation, except to satisfy
stockholder conversion rights as described in this prospectus.
The
underwriters are offering the units for sale on a firm commitment basis. The underwriters
expect to deliver our securities against payment in New York, New York on or about
, 2008.
We
have granted our underwriters, for whom Maxim Group LLC is serving as
the representative, a 45-day option to purchase up to 1,350,000 additional units
solely to cover over-allotments, if any (over and above the 9,000,000 units referred to above).
Maxim Group LLC
Sole Bookrunner
EarlyBirdCapital, Inc.
Griffin Financial Group LLC
The date of this prospectus is , 2008.
No dealer, salesperson or any other person is authorized to give any information or make any
representations in connection with this offering other than those contained in this prospectus and,
if given or made, the information or representations must not be relied upon as having been
authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the securities offered by this prospectus, or an offer to sell
or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which the
offer or solicitation is not authorized or is unlawful. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of our securities.
Until , 2008 (25 days after the commencement of this offering), all dealers
that effect transactions in our common stock, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a
prospectus when acting as underwriter and with respect to their unsold
allotments or subscriptions.
You should rely only on the information contained in this prospectus. We have not authorized
anyone to provide you with different information. We are not making an offer of these securities
in any jurisdiction where the offer is not permitted.
Unless otherwise stated in this prospectus:
•
references to “we,”“us,”“our,”“company” or “our company” refer to Sidhu Special
Purpose Capital Corp.; references to “we,”“us,”“company” or “our company” in the
context of a business combination can also mean (i) an entity formed to effect the
business combination or (ii) the surviving entity in the business combination, which
may include the target company or business or its parent;
•
references to our “sponsor” refer to WNH Holdings, LLC, a Pennsylvania limited
liability company, whose role and function has been to form Sidhu Special Purpose Capital Corp., to assist with the
recruiting of independent directors, to assist with the structuring of the offering, to provide the
capital necessary to fund the filing fees and other pre-offering expenses and to purchase the
initial shares and sponsor units;
•
references to our “management” or our “management team” refer to Jay S. Sidhu, our
chairman, president and chief executive officer, and James D. Hogan, our chief
financial officer;
•
references to “Griffin Financial” refer to Griffin Financial Group LLC, an affiliate
of one of our directors. Griffin Financial is serving as a co-manager
in this offering and is an M&A advisory firm specializing in the
depository institutions sector primarily in the Mid-Atlantic region of the United
States;
•
references to the “initial shares” refer to the
2,587,500 shares of our common stock
(giving effect to our stock splits described below) previously issued to our sponsor for
an aggregate purchase price of $25,000 (up to 337,500 of which are subject to
forfeiture if and to the extent the underwriters’ over-allotment option is not
exercised);
•
references to the “sponsor units” refer to the
425,200 units to be purchased
from us by our sponsor at a price of $10.00 per unit ($4,252,000 in
the aggregate) in a private placement that will occur immediately
prior to the closing of this offering. Each unit consists of one share of common stock and
one warrant to purchase one share of common stock. We refer to the
shares of common stock and warrants included in the sponsor units as
“sponsor shares” and “sponsor warrants,”
respectively;
•
references to a “business combination” mean our initial business combination,
through a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or other similar business combination, with one or more currently
unidentified domestic or international operating businesses, together having a fair
market value of at least 200% of our net assets held in trust (net of
taxes, the underwriters’ deferred commission and discount held in
trust, and up to
$2,400,000 of interest earned on the trust account that is permitted to be disbursed to
us for working capital purposes, which includes $7,500 per month for
up to 24 months
(or up to 30 months in the event our stockholders approve an extension) for office
space, administrative and technological services and secretarial
support) at the
time of the execution of the definitive agreement for our business combination, although this may entail
simultaneous acquisitions of several operating businesses;
•
references to the “completion” or “consummation” of a business combination refer to the date of the
closing of a business combination transaction which may include
simultaneous closings of one or more target companies;
•
references to our “existing stockholders” refer to
our sponsor and its permitted transferees; and
•
references to “public stockholders” refer to holders of shares of our common stock
acquired either as part of the units sold in this offering or in the after market, and
may include our sponsor or our officers or directors to the extent that they purchase
or acquire such common stock in this offering or in the aftermarket.
Unless otherwise stated in this prospectus, the information in this prospectus and all per
share information has been adjusted to reflect (i)a 28,750 for 1 stock split that was effected on
February 27, 2008 and (ii) a 0.6 for 1 reverse stock split that was
effected on July 11, 2008. In addition, unless otherwise stated in this prospectus, the information in
this prospectus assumes that the underwriters will not exercise their over-allotment option and that
our existing stockholders will forfeit 337,500 of the 2,587,500 initial shares of common stock
issued to our existing stockholders in connection with our formation
for approximately $0.010 per
share.
Market data and other statistical information used throughout this prospectus are based on
independent industry publications, government publications, reports by market research firms or
other published independent sources. Some data are also based on our good faith estimates which are
derived from our review of the independent sources listed above.
This summary only highlights the more detailed information appearing elsewhere in this
prospectus. As this is a summary, it does not contain all of the information that you should
consider in making an investment decision. You should read this entire prospectus carefully,
including the information under “Risk Factors” and our financial statements and the related notes,
before investing.
Proposed Business
General
We are a newly organized blank check company formed under the laws of the State of Delaware
for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination with one or more currently unidentified domestic or
international operating businesses, which we refer to as a business combination. To date, our
efforts have been limited to organizational activities, as well as activities related to this
offering.
Our efforts in identifying prospective target businesses will not be limited to a particular
industry or geography, except as otherwise described in this
prospectus, but we will focus our efforts principally on identifying, performing due diligence on,
and effecting a business combination with one or more businesses which operate in the depository
institutions sector, primarily in the United States, and other businesses which operate in the
broader financial services industry. Our emphasis will be on institutions located in states which
have favorable demographics, are under served or are otherwise experiencing substantial industry
consolidation.
We will also seek to acquire financial services businesses in the emerging
markets of Eastern Europe and Asia, including businesses involved in the rapidly growing money
remittance business.
However, we may enter into a business combination with a target business outside
the financial services industry if our board of directors determines that such a transaction is in
our best interests and the best interests of our public stockholders.
Our chairman and chief executive officer, Jay S. Sidhu, was the former Chairman and CEO of
Sovereign Bancorp, Inc., or Sovereign. In his capacity as CFO and COO of Sovereign from 1986 to
1989 and CEO of Sovereign from 1989 until October 2006, Mr. Sidhu was largely responsible for
designing, overseeing and executing Sovereign’s growth from a small financially challenged thrift
with assets of approximately $600 million that generated proceeds in an initial public offering of
approximately $24 million in 1986 to a financial institution with over $90 billion in assets, a
market capitalization of approximately $12 billion and more than 785 branch locations spanning from
Maryland to New Hampshire in 2006.
We do not have any specific business combination under consideration. Our sponsor, officers
and directors and their respective affiliates have neither individually identified or considered a
target business for us nor have they had any discussions regarding possible target businesses for
us among themselves or with our underwriters or other advisors. We have not (nor has anyone on our
behalf) contacted any prospective acquisition candidate or had any discussions, formal or
otherwise, with respect to such a transaction. We have not (nor have any of our agents or
affiliates) been approached by any candidates (or representatives of any candidates) with respect
to a possible business combination with us.
We
will have until 18 months from the date of this prospectus to sign a
letter of intent or definitive agreement for a business combination
and 24 months (or up to 30 months if our
stockholders approve an extension)
from the date of this prospectus to complete a business combination. If we fail to complete a
business combination within the required time frame, our corporate existence will, in accordance
with our amended and restated certificate of incorporation, cease except for the purposes of
winding up our affairs and liquidating.
Financial Services Industry and Depository Institutions Sector
The financial services industry represents the largest segment in the U.S. economy as measured
by market capitalization, with an aggregate market capitalization of
approximately $2.8 trillion as
of August 8, 2008. In 1981, financial services companies
represented approximately 5.80% of the total
market capitalization of the S&P 500 compared to approximately
13.6% as of August 8, 2008. The
financial services industry includes entities of various types that provide a broad array of
financial services to their customers, including, among others, commercial banks, savings banks,
specialty finance companies, commercial credit companies, mortgage brokers and mortgage lending
companies, consumer finance companies, non-bank lending companies, insurance companies, reinsurance
companies, private equity firms, hedge funds, investment management firms, money management firms, funds of funds firms, brokerage firms, investment banks, registered investment adviser firms,
investment management consulting companies, business development companies, venture capital
companies, money remittance businesses, small business
investment companies and businesses that provide support services for financial service companies. Such support services include cash management, trade finance,
liquidity management, custody and fund services, clearing services, depository and agency/trust
services, transaction and payment processing, credit, debit and prepaid card processing, ATM and
point-of-sale processing, check verification and guarantee and prepaid card services. In addition
to having unique return, growth and leverage characteristics, the various types of entities in the
financial services industry respond to different economic and competitive forces, and, as a result,
market imbalances and cycle-related investment opportunities may exist in almost any economic
environment.
United
States Depository Institutions
The depository institutions sector of the U.S. financial services industry had an aggregate
market capitalization of approximately $1.0 trillion as of August 8,2008. Additionally, the
depository institutions sector represented approximately 6.8% of the total market capitalization of
the S&P 500 as of August 8, 2008. The depository institutions sector has historically traded
at, and continues to trade at, a discount to the S&P 500 as measured by price to earnings ratios,
even though the sector’s earnings have historically been more stable and have grown faster than
corporate earnings of other industries in the aggregate.
Despite substantial consolidation over recent years, the global depository institutions
landscape remains highly fragmented. For example, in the United States alone, there are over 7,600
independent commercial and savings banks. Additionally, approximately 92% of all banks in the
United States are classified as community banks by the Federal Deposit Insurance Corporation, or
the FDIC. We believe that many of these banks are too small for, or otherwise not relevant to,
large publicly traded commercial and savings banks or involve niches or strategic situations,
driven by non-economic factors, which make a sale to, or purchase by, these larger publicly-traded
institutions not practicable. Although there has been an increase in investment and interest in
the depository institutions sector by financial sponsors, including private equity and hedge funds
and other blank check companies, such investment continues to comprise a small percentage of
overall merger and acquisition activity in the depository institutions sector.
This sector has recently experienced decreasing valuations due to industry-wide concerns over
asset quality, capital and liquidity and is experiencing intense competition for loans and
deposits, exacerbated by pressures on net interest margin resulting from yield curve, competition
and asset generation issues.
We believe that investments in depository institutions involve less risk than many other
sectors because bank operations and capital levels are subject to stringent federal and/or state
banking laws, are examined on a regular basis and are supervised by regulators who have broad
remedial and enforcement powers. As a result, we believe opportunities exist to take advantage of
pricing and market inefficiencies. In addition, we believe the large number of publicly traded
institutions within this sector creates opportunities to take advantage of missed and improper
pricing scenarios.
The
depository institutions sector has experienced tremendous consolidation over the last 10 years as many
banks endeavored to seek size and scale. Consolidation is relatively new to the depository
institutions sector, and only a portion of the expected consolidation process has occurred,
providing future opportunities for exit events for bank investments. In addition, federal and
state governments imposed geographic restrictions on consolidation in the banking sector until the
1980s (intrastate) and 1990s (interstate). In contrast to the over 7,600 independent commercial
and savings banks remaining in the U.S., the banking sector has experienced substantial
consolidation in other countries. For example, as of August 8, 2008, we believe, due primarily to consolidation,
Canada had only 93 banks remaining, all of
Europe had only 1,821 banks remaining and all of Asia had only 863 banks remaining. Because there
are significantly more depository institutions located in the U.S. compared to markets in other
parts of the world, including Canada, Europe and Asia, we believe that the pool of suitable targets
for our initial business combination is greater in the U.S. than in other countries.
Consolidation has resulted in dozens of large banks and thrifts and thousands of community
banks and thrifts in the geographic markets in which we will focus our search. As the difference
in size between large banks and thrifts and community banks and thrifts continues to increase, the
“scarcity” value of regional banks and thrifts with size and scale increases as well. We believe
that substantial opportunities exist to grow these small banking institutions into “scarce”
regional banks and thrifts which will command value maximizing acquisition premiums from larger
banks and thrifts, especially in favorable geographic markets.
Financial
Services Industry in the Emerging Economies of Eastern
Europe and Asia
With the
emerging market economies of Eastern Europe and Asia continuing to
experience robust growth, capital inflows to these regions
represent a significant percentage of the emerging economies of Eastern
Europe, 20% of gross domestic product (GDP) on average, and Asia, just
under 50% of GDP on average. As investment in the regions have
increased, bank-intermediated lending has
increased exponentially, from $427.6 billion in December 2005 to $898.6
billion in December 2007 to developing Eastern European countries and
from $470.0 billion in December 2005 to $818.1 billion in December 2007 to
developing Asian countries. According to the Bank of International
Settlement, bank lending to the region continues to grow despite
financial turmoil in the United States, Western Europe and Japan.
Because the economies in these regions continue to grow at a
faster pace than more developed countries and banks in these regions do
not face competition in lending from the non-bank sector, we believe
opportunities exist to acquire an attractive financial services company
in Eastern Europe and Asia.
Money
Remittance Businesses
Money
remittance businesses seek to provide immigrants with fast,
reliable and convenient ways to send money back to their native
countries. It is estimated that about 200 million immigrants are
living outside their native countries, of which individuals and
households representing 150 million people regularly send remittances
to their relatives in their native countries.
According to the World Bank, these immigrants are responsible for
$337 billion in remittance flows globally, of which $251 billion
has gone to developing countries, representing a 118% increase from 2002.
By 2050, the number of immigrants worldwide is expected to grow to 280
million, leading to greater remittance volume and transactions.
As sector participants continue to differentiate themselves
from one another by tailoring services for each particular
type of money transfer and focusing on major corridors of remittances,
such as the Mexico-United States corridor and the South Asia-Gulf Cooperation
Council countries corridor, we believe established market participants, such
as banks and money transfer operators, will continue to be challenged by
an ever-growing number of new players, replete with new consumer-friendly technologies based around mobile phones that promise to make remittances
cheaper, safer and more reliable.
Business Strategy
We will initially focus our search for an initial business combination on banks, thrifts and
other financial institutions in the U.S., with an emphasis on institutions located in states that
have favorable demographics, are under served or are otherwise experiencing substantial industry
consolidation. In particular, we will emphasize the geographic markets that meet the foregoing
criteria along the Mid-Atlantic, Southeastern and Pacific seaboards, as
well as Southwestern border states and Southern Gulf states, all of which have enjoyed substantial household income and
population growth, including significant growth in the population of under served ethnic groups.
We refer to these markets as our target markets. However, we may enter into a business combination
with a target business outside these geographic markets if our board of directors determines that
such a transaction is in our best interests and the best interests of our public stockholders
including a business combination with financial services businesses
in the emerging markets of Eastern Europe and Asia, including
businesses involved in the rapidly growing money remittance business.
We believe we can benefit from the experience and expertise of the members of our management
in investing capital in and managing operating companies with successful enterprises and business
platforms, and that their skills in investing, financial structuring, risk underwriting, due
diligence and implementing financial controls will be valuable in our efforts to complete our
initial business combination.
We intend to focus our efforts on acquiring one or more privately held or publicly traded
banks and/or thrifts which are undervalued or have unresolved
financial or regulatory challenges. There
are more than 6,200 privately held banks and thrifts in the U.S. and
over 1,400 publicly traded
banks and thrifts. The average price to tangible book value of all exchange-listed U.S. banks and
thrifts was 123.8% as of August 8, 2008. As of such date, there
were 650 banks and
thrifts in the U.S. that were trading below 123.8% of their tangible
book value, 452 of which were
trading below 100% of their tangible book value, many of which are in
our target markets. In addition, as of August 8,2008, there were more than 100 banks and thrifts under supervisory agreements or memoranda of
understanding with their respective regulators.
We believe that sellers’ pricing expectations have, and will continue to, come down, driven
primarily by competitive factors, asset quality, net interest margin, and asset generation issues.
Therefore, we will focus primarily on three types of opportunities in connection with our initial
business combination: a “buy and fix” strategy, a “buy and rollup” strategy, and a “private to
public” strategy. However, we may enter into a business
combination with one or more target businesses that
do not meet any or all of these criteria if we believe such target
businesses have the potential to
create significant stockholder value.
•
“Buy and Fix” Strategy. This involves (i) identifying institutions that are
undervalued, or are financially challenged and operating under agreements with their
banking regulators, but which can be positioned to provide our stockholders with
superior, sustainable returns over the intermediate or long term, (ii) identifying
their balance sheet or operating problems, (iii) fixing those problems, and (iv)
enhancing value by growing the institution via organic growth and/or by acquisition for
so long as the net present value and prospects of the institution to our stockholders
are greater than exiting the investment through a sale.
•
“Buy and Rollup” Strategy. This involves indentifying institutions located in
strategically important markets which are positioned and have the infrastructure and
ability to serve as the vehicle for a multi-bank rollup strategy. In this strategy,
stockholder value will be driven off (i) an internal rate of return assessment of any
potential acquisition target, (ii) target pricing, cost savings and revenue enhancement
potential from consolidation, and (iii) the availability of other acquisition
opportunities that would permit the acquired institution to yield superior, sustainable
returns. This strategy contemplates follow on investments by the acquired institution,
including acquisitions of specialty finance or fee income driven businesses, in order
to diversify their revenues or to improve their yield on earning assets. This strategy
of creating value would be pursued as long as the net present value and prospects of
the institution to our stockholders are greater than exiting the investment through a
sale.
•
“Private to Public” Strategy. This involves (i) identifying privately held
institutions that can be acquired at a purchase price multiple that is less than the
trading multiple ascribed to comparable exchange listed institutions, and (ii)
enhancing value by improving operations and growing the institution via organic growth
and/or by acquisition, including acquisitions of specialty finance or fee income driven businesses in order to diversify their revenues or to improve
their yield on earning assets. This strategy of creating value would be pursued as
long as the net present value and prospects of the institution to our stockholders
are greater than exiting the investment through a sale.
Additionally, we may also seek to acquire banks, thrifts and other businesses that have
strong, experienced management teams. We will focus on management teams with a proven track record
of driving growth and enhancing profitability. We believe that the operating expertise of our
officers and directors will complement, not
replace, the target’s management team. Although it is possible that one or more of our initial officers or directors will remain associated in some
capacity with us following a business combination, it is unlikely that any of them will devote
their full efforts to our affairs prior to or subsequent to a business combination.
We also intend to employ both an opportunistic and structured proactive acquisition strategy.
We plan to leverage industry expertise and an extensive network of relationships throughout the
U.S., Europe and Asia to source and execute a business combination. We will also use research and
analytical tools to systematically identify target institutions and to seek to generate attractive
risk-adjusted returns. Consistent with an opportunistic strategy, we will seek, preferably on a
“first look, noncompetitive basis,” acquisitions of banks, thrifts and other financial service
companies in the United States and the emerging economies of Eastern
Europe and Asia where we believe we can increase their value through improved financial performance,
organic growth and/or by in-market or contiguous market “bolt on” acquisitions.
We anticipate that target business candidates will be brought to our attention from various
sources, including CEOs and other senior executive officers who participate in the industry,
investment bankers, private equity funds, leveraged buyout funds, management buyout funds and other
members of the financial and banking community. Target businesses may be brought to our attention
by such unaffiliated sources as a result of being solicited by us through calls or mailings. These
sources may also introduce us on an unsolicited basis to target businesses they think we may find
attractive, since many of these sources will have read this prospectus and know what types of
businesses we are targeting. Our officers and directors, as well as their affiliates, may also
bring to our attention target business candidates that they become aware of through their business
contacts as a result of formal or informal inquiries or discussions they may have, as well as by
attending trade shows or conventions. We expect to receive opportunities that may not be generally
available to others as a result of the industry relationships and experience of Mr. Sidhu, our
chairman and chief executive officer.
Although we intend to focus our efforts on effecting a business combination with a depository
institution located in the United States or a financial services
company in Eastern Europe or Asia, we are not limited as to the type of business or industry
in which a target business is primarily engaged or the country in which such target business
operates. If we are unable to negotiate a business combination with an acquisition candidate that
we deem to be attractive in the depository institutions sector or in the broader financial services
industry after having expended a reasonable amount of time and effort to identify such a candidate,
we may then decide to more actively seek opportunities in other industries. We anticipate that we
may actively expand our focus to candidates outside of the depository institutions sector and the
financial services industry during the latter half of the 18-month period that we have to
sign a letter of intent or a definitive agreement for a business combination. However, we will at all times consider candidates outside of
the depository institutions sector or the financial services industry that might otherwise be
brought to our attention if, in the judgment of our management team, such candidates have similar
market positions, purchase price valuations, industry consolidation opportunities, management
teams, growth and earnings potential or other financial or market characteristics than acquisition
opportunities in the depository institutions sector or the broader financial services industry
available to us at such relevant time. The criteria we will use in considering candidates outside
of the financial services industry will be substantially similar to the criteria we will use in
considering candidates within the financial services industry. In addition, any such business
combination opportunities outside the financial services industry would be of the same size as any
business combination opportunity considered by us in the financial services industry. At present,
we are not able to ascertain (i) what opportunities, if any, in industries outside of the financial
services industry may be presented to us, (ii) how much time and effort we may expend prior to
determining that we may not be able to identify favorable investment opportunities in the financial
services industry or (iii) which other industries we may choose to examine with the objective of
identifying a favorable investment opportunity. In the event we elect to pursue an investment
outside of the depository institutions sector and the financial services industry, we expect that
our management, in conjunction with our board of directors, will engage in discussions to identify,
based upon their respective familiarity with the business climate in general and specific
industries in particular, one or more other industries which are likely to include a significant
number of companies that would be attractive acquisition candidates. In the event we elect to
pursue an investment outside of the depository institutions sector or the financial services
industry, our management’s expertise in these areas would not be directly applicable to the
evaluation or operation of such investment, and the information contained herein regarding the
depository institutions sector and financial services industry would not be relevant to an
understanding of the business that we elect to acquire.
Mr. Sidhu
has significant contacts with financial institutions and other
businesses in India and
other countries, including in Eastern Europe and Asia, and may become aware of opportunities to effect a business combination with
companies located outside of the United States. Our management does not have significant
experience in evaluating or managing a business other than a depository institution and is not
familiar with the regulatory, economic or other factors that affect the operations of a business
outside of the financial institution sector or operating outside of the United States. See “Risk
Factors— Risks Related to Our Structure as a Development Stage Company” and “— Risks Relating to
Our Business Combination.”
Competitive Strengths
We believe we have the following competitive strengths:
Unique Platform for Deal Generation.
We will seek to capitalize on the significant acquisition and operating experience and
contacts of our chairman and chief executive officer, Jay S. Sidhu. Mr. Sidhu is the former
Chairman and CEO of Sovereign. In his capacity as CFO and COO of Sovereign from 1986 to 1989 and
CEO of Sovereign from 1989 until October 2006, Mr. Sidhu was largely responsible for designing,
overseeing and executing Sovereign’s growth from a small financially challenged thrift with assets
of approximately $600 million that generated proceeds in an initial public offering of
approximately $24 million in 1986 to a financial institution with over $90 billion in assets, a
market capitalization of approximately $12 billion and more than 785 branch locations spanning from
Maryland to New Hampshire in 2006. In building the nation’s 17th largest financial institution by
assets and one of the most valuable banking franchises in the Mid-Atlantic and Northeast regions of
the U.S., Mr. Sidhu created significant value for Sovereign investors by developing and executing
organic growth and acquisition strategies which emphasized (i) opportunistic geographic targeting,
(ii) creative acquisition pricing, and (iii) superior integration strategy and execution. During
his tenure at Sovereign, Sovereign identified, acquired and integrated 27 banking and thrift
operations, including two of the largest bank branch divestitures in U.S. history to date,
and three other financial services businesses.
Mr. Sidhu has an agreement with Sovereign that prohibits him from, among other things,
directly or indirectly, owning more than 4.9% of a publicly traded banking institution located in
any county which was contiguous to a branch, office or other facility of Sovereign as of October
2006. The covenant not to compete expires upon the earlier of (i) a change in control of Sovereign
or (ii) October 11, 2011. Because our efforts to identify and complete an initial business
combination will be significantly broader than Sovereign’s geography and because our efforts are not confined to the depository institutions sector, we do not expect
that Mr. Sidhu’s non-competition obligation will have a material impact on our ability to find and
complete a business combination, nor do we expect Mr. Sidhu’s non-solicitation obligation to have a
material impact on us. See “— Conflicts of Interests and Contractual Restrictions” below
regarding this non-solicitation obligation.
In addition to Mr. Sidhu, we will seek to capitalize on the significant banking and other
experience and relationships of Griffin Financial, an affiliate of Joseph M. Harenza, chief
executive officer of Griffin Financial and a member of our board of directors. Griffin Financial
is an M&A advisory firm specializing in the depository institutions sector in the Mid-Atlantic
region of the United States. Its members have over 150 years of combined
transaction and operations-related experience in the financial services industry and have participated in
transactions with a value of over $30 billion over the past 10 years. Griffin Financial also has
significant expertise in the manufacturing and distribution, building products, higher education
finance and healthcare industries.
We believe the skills and expertise of Mr. Sidhu, other members of our management, and our
sponsor and its affiliates, their collective access to acquisition opportunities and ideas, their
contacts and their transactional experience will contribute to our ability to successfully
identify, price and complete an acquisition. However, none of these individuals have been or
currently are principals of, or affiliated with, a blank check company, and therefore we can give
no assurance that their past successes will be repeated in the context of a special purpose
acquisition company. Also, the past experience of Mr. Sidhu, other members of our management, our
sponsor and its affiliates and members of our board does not guarantee that we will be successful
in completing a business combination. There are numerous risks and uncertainties detailed
elsewhere in this prospectus that could impact our ability to complete a business combination
outside of the control of such individuals. We cannot assure you that we will be able to complete
a business combination at all or on terms favorable to us, nor can we guarantee that we will be
successful following the completion of a business combination. See “Risk Factors — Risks Relating
to Our Business Combination”.
Proactive Deal Identification and Potential Deal Evaluation
Our management and our sponsor and its affiliates consist of experienced bank operations
professionals, each with substantial segment and technical expertise in their respective areas who
will assist us in connection with evaluating transactions and related due diligence reviews, as
well as monitoring post-transaction operations and enhancing and accelerating growth. They have
successfully integrated over 50 transactions in the depository institution sector and worked
together and with others in senior management positions to drive post-acquisition value. We
believe another distinguishing feature is that the backgrounds of our officers, directors and our
sponsor and its affiliates provide an exceptional mix of sector-specific knowledge and hands-on
experience necessary, in our judgment, to effectively source, structure, complete and provide
operational oversight over businesses. They have knowledge and hands-on experience with (i) the
bank and thrift regulatory landscape and related, complex compliance issues specific to the sector,
(ii) complex financial accounting principles as they apply to depository institutions, (iii) risk
management, (iv) head count, salary and employee benefits optimization, (iv) asset/liability
management, (v) asset origination and credit quality, (vi) risk management and credit policy and
(vii) finance, financial structuring and tax provision mitigation.
We
intend to identify, review and analyze banks
and thrifts in each target market, taking into account factors such as area demographics,
competition, asset size, performance and balance sheet metrics compared to peers, trading price as
a function of reported tangible book value, exit premiums for comparable transactions as a function
of reported tangible book value and future availability of acquirers
to facilitate an exit.
Accounting and Regulatory Aspects of Deal Identification and Evaluation
Accounting practices in the financial services industry are extremely complex and replete with
nuances with substantial implications. The regulatory trends and constraints impacting a potential
acquisition are critical components of due diligence in the financial services industry. The
experience of our management and our sponsor and its affiliates in analyzing regulatory risk
provides us with (i) knowledge of key issues important to regulators, (ii) an understanding of the
underlying potential business complications in a regulatory situation and (iii) access to
regulators. Additionally, through our sponsor, we have access to professionals with similar
backgrounds. We believe that this ability to analyze complex regulatory risk provides us with a
competitive advantage, particularly over generalist firms who may lack the expertise of
sector-focused resources.
Present Market Conditions
Over the last few years, changes in interest rates and in the slope of the yield curve, or the spread between short-term and
long-term interest rates, have put pressure on net interest income, which
has resulted in a deterioration of banks’ earnings and a significant reduction in market
valuations. Asset generation has been highly competitive, which has led to lower yields on earning
assets, lengthening of maturities and softening of underwriting standards and a shift in mix to
more real estate based loans. We believe that macroeconomic factors, coupled with recent turmoil
in the markets relating to bank and thrift liquidity, credit quality, capital and sustainability of
earnings is also impacting pricing for stock of banks, thrifts and
other financial services companies. As asset quality has become a concern of both buyers and
sellers, historically unwilling sellers may be forced to seek significant sources of capital and/or become willing sellers in
the near-term, which we believe will lead to unprecedented opportunities for financial buyers,
including blank check companies, that have been structured to become bank or thrift holding
companies. We believe that continued asset quality, margin and capital adequacy pressures on the
performance and public market valuation of acquiring banks and the potential market volatility in
reaction to the announcement of a transaction, or even later if integration is not as successful as
planned, will give us a competitive advantage in terms of sourcing transactions on an exclusive
basis and/or in submitting the prevailing bid in a competitive process.
Financial Position and Cash as Acquisition Currency
Upon
the completion of this offering, we will have up to approximately
$90,000,000 in funds
available in the trust for a business combination and will be able to offer a target business a
variety of options, such as creating a liquidity event for its owners, providing capital for the
potential growth and expansion of its operations and strengthening its balance sheet by reducing
its debt ratio. Because we may be able to complete a business combination using our cash, debt or
equity securities, or a combination of the foregoing, we should have the flexibility to use the
most efficient combination that would allow us to tailor the consideration to be paid to the target
business to fit its needs and desires. However, we have not taken any steps to secure third party
financing, and there can be no assurance it will be available to us. In the event our business
combination is with an entity in the financial services industry, the amount of debt we can use to
effect an acquisition will be subject to substantial regulatory restrictions. See “Risk Factors —
Risks Relating to Our Business Combination”.
Effecting a Business Combination
Our business combination must occur with one or more target businesses that together have a
fair market value of at least 200% of our net assets held in trust (net of taxes and up to
$2,400,000 of interest earned on the trust account that is permitted to be disbursed to us for
working capital purposes and excluding the amount of the underwriters’ deferred commission and
discount held in trust) at the time of the execution of the definitive agreement for our initial
business combination. The fair market value of the
target or targets will be determined by our board of directors based upon one or more standards
generally accepted by the financial community, such as price to earnings, price to book and
tangible book value, price to deposits or discounted cash flow valuation. If our board is not able
to independently determine the fair market value of the target business or businesses, we will
obtain an opinion from an unaffiliated, independent investment banking firm that is a member of the
Financial Industry Regulatory Authority, or FINRA, with respect to the satisfaction of such
criteria.
In addition, we will not complete a business combination unless we acquire a controlling
interest in the target company. We will acquire a controlling interest either through the
acquisition of a majority of the voting equity interests in the target or through the acquisition
of a significant voting equity interest that enables us to exercise a greater degree of control
over the target than any other equity holder. In the event we acquire less than a majority of the
voting equity interests in the target, we may seek an even greater degree of control through
contractual arrangements with the target and/or other target equity holders, or through special
rights associated with the target equity security that we hold, which arrangements or rights may
grant us the ability, among other things, to appoint certain members of the board (or equivalent governing body) or management of the
target or the ability to approve certain types of significant transactions that the target may seek
to enter into.
If we acquire less than 100% of the equity interests or assets of a target business or
businesses, the portion of such business or businesses that we acquire will be the basis for a
valuation for purposes of the 200% of net assets test. If we determine to simultaneously acquire
several businesses and such businesses are owned by different sellers, we will need each seller to
agree that our purchase of its business is contingent on the simultaneous closings of sufficient
other acquisitions such that we can satisfy the 200% net assets test.
The target business or businesses that we acquire may have a collective fair market value
substantially in excess of 200% of our net assets held in trust (net
of taxes and up to $2,400,000
of interest earned on the trust account that is permitted to be disbursed to us for working capital
purposes and excluding the amount of the underwriters’ deferred commission and discount held in
trust) at the time of the execution of the definitive agreement for our initial
business combination. In order to complete such a business combination,
we may issue a significant amount of our debt or equity securities to the sellers of such business
or businesses and/or seek to raise additional funds through an offering of debt or equity
securities or borrowings under a credit facility. If we issue equity securities in order to
complete a business combination, our
stockholders prior to the business combination could end up owning a minority of the voting and/or equity interests of the surviving company after giving
effect to the business combination. If we acquire an entity in the financial services industry,
the amount of debt we can use to effect an acquisition will be subject to substantial regulatory
restrictions.
In connection with closing a business combination, additional requirements may include
potential regulatory filings and approvals and stockholder approval of the business combination by
the target.
Conflicts of Interest and Contractual Restrictions
Our officers and directors are not required to commit their full time to our affairs and,
accordingly, they may have conflicts of interest in allocating their time among various business
activities. In the course of their other business activities, including serving as directors of
other companies, our officers and directors may become aware of investment and business
opportunities that may be appropriate for presentation to our company as well as the other entities
with which they are affiliated. See “Management — Directors and Executive Officers” for a
list of entities to which our directors may owe a fiduciary duty.
In order to minimize potential conflicts of interest that may arise from multiple
affiliations, our sponsor, members and officers of our sponsor and
each of our officers and directors (except for our independent
directors, Griffin Financial, Stevens & Lee, and Joseph M.
Harenza, except where opportunities are presented to him in his
capacity as a member of our board of directors) has agreed,
until the earliest of (a) the completion of a business
combination, (b) 24 months (or up to 30
months if our stockholders approve an extension) after the date of this prospectus and (c) such
time as he ceases to be one of our officers or directors, to present to our company for our
consideration, prior to presentation to any other entity, any business combination opportunity
involving the potential acquisition of a controlling interest (whether through the acquisition of a
majority of the voting equity interests of the target or through other means as described above) in
a company (i) in the financial services industry and
(ii) with assets of less than $3 billion, subject to any other pre-existing fiduciary duties or contractual obligations they may
have. We expect primarily to target businesses within this range of assets, although we have the
flexibility to acquire a business outside of this range.
The
$25,000 purchase price paid by our sponsor for the initial shares and
the $4,252,000
purchase price paid by our sponsor for the sponsor units will not be repaid to it if we do not
complete a business combination. The purchase price for the sponsor
units will be placed in the
trust account and will be available for distribution to our public stockholders under the
circumstances described, at “— Private Placement of Sponsor
Units.” Our sponsor will not be
entitled to receive liquidating distributions with respect to the
sponsor units or the initial
shares. The purchase price paid for the initial shares forms part of our working capital.
Our existing stockholders will forfeit on the one-year anniversary of the date of this prospectus such number of initial shares so that, following such forfeiture, the number of initial shares issued and outstanding shall equal 17.5% of the
aggregate number of initial shares and shares of common stock issued
in this offering (but excluding the sponsor shares) unless we
announce that we have entered into a letter of intent or definitive agreement with an acquisition candidate, which, by itself, does not have to satisfy our
200% of net assets test. We will continue to have up to 24 months
(or up to 30 months if our stockholders approve an extension) after the date of this prospectus to complete a business
combination with one or more target businesses that together have a fair market value of at
least 200% of our net assets held in trust (net of taxes and up to $2,400,000 of interest
earned on the trust account that is permitted to be disbursed to us for working capital
purposes and excluding the amount of the underwriters’ deferred commission and discount
held in trust) at the time of the execution of the definitive agreement for our initial business combination.
We have engaged and intend to continue to engage Stevens & Lee, a law firm at which Mr.
Harenza, a member of our board of directors, is the Non-Executive Chairman and with whom he is
deemed to be an affiliate, and its affiliates at customary rates and
charges to perform professional services for us, including
professional services in connection with this offering, our operations
and in connection with an acquisition,
such as, among other things, planning associated with the acquisition process, identifying and evaluating potential
candidates and performing due diligence. There are no limitations that restrict us from engaging Stevens & Lee or its affiliates to perform
such services and other customary legal and consulting services for us for customary fees and on
customary terms and conditions and any such engagement will be approved by a majority of our
independent and disinterested directors.
We intend to comply with Mr. Sidhu’s non-solicitation covenant, as well as his covenant not to
compete with Sovereign. The covenant not to compete provides, among other things, that Mr. Sidhu
may not, directly or indirectly, (a) own more than 4.9% of a publicly traded banking institution or
(b) be an agent, consultant, employee, partner, officer, director, proprietor or otherwise of any
firm, corporation or enterprise, or provide financial or other assistance to such firm, corporation
or enterprise, engaged in the banking or financial services industry, in each case in any county
which is contiguous to a branch, office or other facility of Sovereign as of October 2006, the time
he ceased to be employed by Sovereign. This covenant specifically permits Mr. Sidhu to engage,
directly or indirectly, for his own account or as an officer, director or investor with respect to
any investment company or private equity, hedge, or similar fund which makes portfolio investments
in entities in the financial services industry, if (x) the ownership interest of such investment
company or fund in such financial services entity represents less than 5% of the
outstanding voting power of the financial services entity, or (y) such financial services entity does not have a
substantial percentage of its loans or deposits in, and/or does not have a substantial physical or
economic presence in, any county which is contiguous to a branch, office or other facility of
Sovereign at the time he ceased to be employed by Sovereign. The covenant not to compete expires
upon the earlier of (i) October 11, 2011 or (ii) a change in control of Sovereign. As a result, we
are largely prohibited from acquiring depository institutions located in certain portions of Massachusetts,
Connecticut, Rhode Island, Maryland, New York, Pennsylvania and New Jersey. Accordingly, we are
somewhat limited in the degree to which we can select potential
candidates which operate in the depository institutions sector and are located in any of these
areas.
The
non-solicitation covenant, which expires at the same time as the
covenant not to compete, provides, among other things, that Mr. Sidhu will not solicit,
recruit or encourage any employee of Sovereign or any of its subsidiaries to leave their
employment. Accordingly, we may not be able to hire certain individuals who may possess the
requisite abilities to assist us in meeting our investment goals.
Griffin Financial undertakes engagements relating to financial advisory, investment banking,
and other activities for a wide variety of clients, including institutions, companies and
individuals, primarily in the Mid-Atlantic region of the United States. Mr. Harenza, a member of
our board of directors, serves as manager, president and chief executive officer of Griffin
Financial and may be deemed to be its affiliate. There may be situations in which Griffin
Financial has an obligation or an interest that actually or potentially conflicts with our
interests. These conflicts may not be resolved in our favor and, as a result, we may be denied
certain investment opportunities or may be otherwise disadvantaged in some situations by our
relationship to Griffin Financial.
Despite Griffin Financial’s focus on the Mid-Atlantic region of the United States, other
clients of its advisory business may also compete with us for investment opportunities meeting our
investment objectives. If Griffin Financial is engaged to act for any such clients, we may be
precluded from pursuing such opportunities. In addition, investment ideas generated within Griffin
Financial, including by Mr. Harenza and other persons who may make decisions for the company, may
be suitable for both us and for an investment banking client or a current or future Griffin
Financial internal investment vehicle, including other blank check companies in which Griffin
Financial may participate, and may be directed to such client or investment vehicle rather than to
us. Griffin Financial’s advisory business may also be engaged to advise the seller of a company,
business or assets that would qualify as an investment opportunity for us. In such cases, we may
be precluded from participating in the sale process or from purchasing the company, business or
assets. If we are permitted to pursue the opportunity, Griffin Financial’s interests or its
obligations to the seller will diverge from our interests. Griffin Financial and/or Mr. Harenza,
in his capacity as an officer or managing director of Griffin Financial or in his other endeavors,
may choose to present potential business combinations to current or future Griffin Financial
internal investment vehicles, including other blank check companies in which Griffin Financial may
participate, or third parties, including clients of Griffin Financial, before they present such
opportunities to us.
Commencing on the closing of this offering, we have agreed to pay Griffin Holdings Group, LLC
a total of $7,500 per month for office space, administrative and technological services and
secretarial support. Mr. Harenza, a member of our board of directors, serves as manager, president
and chief executive officer of Griffin Holdings Group, LLC and may be deemed to be its affiliate.
This arrangement is being agreed to by Griffin Holdings Group, LLC for our benefit and is not
intended to provide Mr. Harenza with compensation in lieu of salary or other remuneration. We
believe that such fees are at least as favorable as we could have obtained from an unaffiliated
person. This arrangement will terminate upon completion of a business combination or the
distribution of the trust account to our public stockholders on a pro rata basis.
Griffin Financial Group, LLC, an entity affiliated with Mr. Harenza,
is a co-manager for this
offering and will be entitled to receive a portion of the underwriters' commission and discount. Griffin Financial will receive such payment only upon completion of our initial business combination, and such payment will be made solely out of the underwriters' deferred commission and discount that will be deposited in the trust account upon completion of the offering. For a complete description of the terms of its
compensation, see “Underwriting.”
Our
sponsor has agreed to loan us up to $200,000 under a line of credit, which we will use to cover organizational and offering expenses and
other start-up costs. The line of credit note will be repaid with a portion of the proceeds from this offering.
Any advances are interest-free with the principal balance repayable on the earlier of (i) 60 days following
the date of the completion of this offering and (ii) March 2, 2009. The principal balance is
prepayable without penalty at any time in whole or in part.
We do not believe that any of the foregoing fiduciary duties or contractual obligations will
materially undermine our ability to complete a business combination.
In
October 2007, our sponsor purchased an aggregate of 2,587,500 initial shares of our common
stock (giving effect to our stock splits) for an aggregate purchase price of $25,000, or
approximately $0.010 per initial share. This includes an aggregate of up to 337,500 initial shares
that are subject to forfeiture if and to the extent the underwriters’ over-allotment option is not
exercised, so that the remaining initial shares owned by our sponsor and its permitted transferees will
represent a 20% ownership interest in our issued and outstanding
shares of common stock (but excluding the sponsor shares) after this
offering (assuming they do not purchase units in this offering). The initial shares were purchased
separately and not in combination with any warrants or units. The initial shares are identical to
the shares of common stock included in the units being sold in this offering except that:
•
our sponsor and its permitted transferees will not be able to exercise conversion
rights, as described below, with respect to the initial shares;
•
our sponsor has agreed, and its permitted transferees will be required to agree, to
vote the initial shares in majority of the shares of our common
stock are voted by the public stockholders with respect to
approving a proposed business combination;
•
our sponsor has agreed, and its permitted transferees will
be required to agree, to vote the initial shares in favor of any proposal (i) approving the
amendment to our amended and restated certificate of incorporation providing for our
perpetual existence or (ii) extending our corporate existence
to up to 30 months, from
the date of the consummation of this offering in the event we have
entered into a letter of intent or a
definitive agreement for, but have not yet completed, a business combination;
•
our sponsor and its permitted transferees will have no right to participate in any
liquidation distribution with respect to the initial shares if we fail to complete a
business combination; and
•
the initial shares will be placed in escrow and subject to certain transfer
restrictions until 12 months after the completion of a business combination.
Our existing stockholders will forfeit on the one-year anniversary of
the date of this prospectus such number of initial shares so that,
following such forfeiture, the number of initial shares issued and outstanding shall equal 17.5% of the aggregate number of initial shares and shares of common stock issued in this offering (but excluding the sponsor shares) unless we announce that we have
entered into a letter of intent or
definitive agreement with an acquisition candidate, which, by itself, does not have to
satisfy our 200% of net assets test.
We will continue to have up to 24 months (or up to 30 months
if our stockholders approve an extension)
after the date of this prospectus to complete a business combination with one or more target businesses that
together have a fair market value of at least 200% of our net assets held in trust (net of taxes and up to
$2,400,000 of interest earned on the trust account that is permitted to be disbursed to us for working capital
purposes and excluding the amount of the underwriters’ deferred commission and discount held in trust) at the
time of the execution of the definitive agreement for our initial business combination. Additionally, in the event that in connection with a
stockholder vote to approve either a proposed business combination or
an extension of
the time period within which a business combination must be completed, any public stockholder
elects to convert any of such stockholder’s shares into a pro
rata share of the amount then held in the trust account, then the existing
stockholders will forfeit such number of the initial shares so that they will represent no more than 20% of the aggregate number of initial shares and shares
of common stock issued to the public in this offering and remaining outstanding following any such
conversion. However, if any initial shares were previously forfeited on the one-year anniversary
of the date of this prospectus, our existing stockholders will forfeit only such additional number
of initial shares so that the initial shares represent no more than 20% of the aggregate number of
initial shares and shares of common stock issued to the public in this offering and remaining
outstanding following any such conversion.
Private
Placement of Sponsor Units
Our
sponsor has agreed to purchase 425,200 sponsor units from us at a price of $10.00 per
sponsor unit ($4,252,000 in the aggregate) in a private placement
that will occur immediately
prior to the closing of this offering. Each unit so purchased by our
sponsor will consist of one share of common
stock, or sponsor share, and one warrant to purchase one share of common stock, or sponsor warrant.
The sponsor units will be purchased separately and not
in combination with any other units. The proceeds from the sale of
the sponsor units will be added to the
proceeds of this offering and placed in a trust account maintained by
Mellon Bank, N.A., as
account agent, pending our completion of a business combination. If we do not complete a business
combination within 24 months (or up to 30 months if our
stockholders approve an extension) after
the date of this prospectus, the proceeds from the sale of the
sponsor units will be part of the
liquidating distribution to our public stockholders and the sponsor warrants will expire worthless.
The sponsor units are identical to the units, and the component shares of common stock and warrants, sold in this offering,
except that:
•
the sponsor units are immediately separable into sponsor shares and sponsor warrants;
•
our sponsor and its permitted transferees will not be able to exercise conversion rights, as
described below, with respect to the sponsor shares because they will
vote in favor of approving a business combination or any extension;
•
our sponsor and its permitted transferees will have no right to participate in any liquidation
distribution with respect to the sponsor shares if we fail to complete a business combination;
•
the sponsor warrants will not be redeemable by us as long as they are held by our sponsor or any of its
permitted transferees; and
•
the sponsor units will be placed in escrow and subject to certain transfer restrictions until the completion of a business combination.
Our executive offices are located at 485 Madison Avenue, 20th Floor, New York, New York10022
and at Center City Executive Centre, 607 Washington Street, Reading, Pennsylvania19601 and our
telephone number is (610) 478-2300.
In making your decision on whether to invest in our securities, you should carefully consider
the risks set forth in the section entitled “Risk Factors” of this prospectus, as well as the
backgrounds of our officers and directors, the special risks we face as a development stage company
and the fact that you will not be entitled to protections normally afforded to investors in blank
check offerings conducted in compliance with Rule 419 (“Rule 419”) under the Securities Act of
1933, as amended.
Securities offered
9,000,000 units, at $10.00 per unit, each unit consisting of:
• one share of common stock; and
• one warrant.
Trading commencement and separation of common stock and warrants
The units will begin trading on or promptly after the date of
this prospectus. The common stock and warrants comprising
the units will begin separate trading ten business days (or
as soon as practicable thereafter) following the earlier to
occur of (1) the expiration or termination of the
underwriters’ over-allotment option and (2) its exercise, subject in either case to our having filed a Current
Report on Form 8-K with the SEC containing an audited balance
sheet reflecting our receipt of the gross proceeds of this
offering and having issued a press release announcing when
such separate trading will begin.
We will file the Form 8-K promptly upon the completion of
this offering, which is anticipated to take place three
business days from the date of this prospectus. If the
over-allotment option is exercised following the initial
filing of such Form 8-K, we will file a second Form 8-K or an
amended Form 8-K to provide updated financial information to
reflect the exercise and closing of the over-allotment
option. Although we will not distribute copies of any Form
8-K to individual unit holders, it will be available on the
SEC’s website (www.sec.gov) after it is filed.
Following the date the common stock and warrants are eligible
to trade separately, the units will continue to be listed for
trading, and any security holder may elect to break apart a
unit and trade the common stock or warrants separately or as
a unit. Even if the component parts of the units are broken
apart and traded separately, the units will continue to be
listed as a separate security, and consequently, any
subsequent security holder owning common stock and warrants
may elect to combine them together and trade them as a unit.
Security holders will have the ability to trade our
securities as units until such time as the warrants expire or
are redeemed.
Common stock:
Number outstanding before this
offering and the sale of the sponsor units
2,250,000 shares.(1)
Number outstanding after this
offering and the sale of the sponsor units
11,675,200
shares.(1)(2)
(1)
Does not include 337,500 initial shares that are
subject to forfeiture to the extent the underwriters’ over-allotment option is
not exercised in full. If the underwriters’ over-allotment
option is not exercised in full, our existing stockholders will only
forfeit such number of initial shares as is necessary for the initial
shares to represent 20% of the sum of the initial shares plus the
number of shares of common stock issued to the public
(excluding the sponsor shares) in connection with this public offering.
Each warrant is exercisable for one share of common stock.
Exercise price
$6.50 per share, subject to adjustment.
Exercise period
The warrants (except the sponsor warrants) will become exercisable on the later of:
• the completion of a business combination, and
• , 2009;
provided in each case that we have an effective registration
statement under the Securities Act and a current prospectus
covering the shares of common stock issuable upon exercise of
the warrants.
We are not registering the shares of common stock issuable
upon exercise of the warrants at this time. However, we have
agreed to use commercially reasonable efforts to file and have an effective
registration statement covering the shares of common stock
issuable upon exercise of the warrants as of the date the
warrants become exercisable and to maintain a current
prospectus relating to those shares of common stock until the
warrants expire or are redeemed. The warrants will not be settled for cash or other forms of consideration and therefore could
expire worthless if an effective registration statement is not in place prior to the expiration
date of the warrants.
The warrants will expire at 5:00 p.m., New York time, on
,
2012, or earlier upon redemption.
Redemption
We may redeem the outstanding warrants (except as described
below with respect to the sponsor warrants) at any time after
the warrants become exercisable:
• upon a minimum of 30 days’ prior written notice of
redemption, and
• if, and only if, the last sale price of our common
stock equals or exceeds $14.25 per share for any 20 trading
days within a 30-trading day period ending three business
days before we send the notice of redemption.
In addition, we may not redeem the warrants unless the shares
of common stock issuable upon exercise of those warrants are
covered by an effective registration statement from the date
of notice of redemption through the date fixed for the
redemption.
If the foregoing conditions are satisfied and we call the
warrants for redemption, each warrant holder will then be
entitled to exercise their warrants prior to the date
scheduled for redemption.
The redemption provisions for our warrants have been
established at a price that is intended to provide warrant
holders with the ability to exercise their warrants prior to
redemption at a premium to the initial exercise price. There
can be no assurance, however, that the price of the common
stock will exceed either the redemption trigger price of
$14.25 per share or the warrant exercise price of $6.50 per
share after we call the warrants for redemption and the price of our
common stock may, in fact, decline as a result of the limited liquidity following any such call for redemption.
Cashless
Exercise
If we call the warrants for redemption as described below, we
will have the option to require all holders that wish to
exercise warrants to do so on a cashless basis. In such
event, each holder would pay the exercise price by
surrendering the warrants for that number of shares of common
stock equal to the quotient obtained by dividing (x) the
product of the number of shares of common stock issuable upon
exercise of the warrants, multiplied by the difference
between the “market value” (as defined below) and the
exercise price by (y) the “market value.” For this purpose,
the “market value” means the average reported last sale price
of the common stock on the American Stock Exchange, or other
national securities exchange on which our common stock may be
traded, for the 10 consecutive trading days ending on the third trading
day prior to the date on which the notice of redemption is
sent to the holders of warrants. For example, if the market
value of the common stock were $14.50 per share, a holder of
100 warrants would pay the exercise price by surrendering the
100 warrants in exchange for a number of shares calculated as
follows: (100 shares x ($14.50 — $6.50)) ÷ $14.50 = 55
shares. We will not issue fractional shares upon exercise of
warrants. If a warrant holder would be entitled to receive a
fractional interest in a share, we will round up to the
nearest whole number of shares.
If our management chooses to require holders to exercise
their warrants on a cashless basis, the number of shares of
common stock received by a holder upon exercise will be fewer
than it would have been had such holder exercised his warrant
for cash.
The foregoing redemption provisions do not apply to the
sponsor
warrants, for as long as such warrants are held by
our sponsor or its permitted transferees.
Initial shares
In October 2007, our sponsor purchased an aggregate of
2,587,500 initial shares of our common stock (giving effect
to our stock splits) for an aggregate purchase price of
$25,000, or approximately $0.010 per initial share. This
includes an aggregate of up to 337,500 initial shares that
are subject to forfeiture if and to the extent the
underwriters’ over-allotment option is not exercised in full, so that
our sponsor and its permitted
transferees will maintain 20% ownership interest in our
issued and outstanding shares (excluding the sponsor shares) after this public offering (assuming
they do not purchase units in this offering). The initial
shares were purchased separately and not in combination with
any warrants or units. The initial shares are identical to
the shares comprising the units being sold in this offering,
except that:
• our sponsor and its permitted transferees will not be
able to exercise conversion rights (as described below) with
respect to the initial shares;
• our sponsor has agreed, and its permitted transferees
will agree, to vote the initial shares in the same manner as
a majority of the shares of our common stock are voted by the
public stockholders with respect to approving a proposed business combination;
•
our sponsor has agreed, and its permitted transferees will be
required to agree, to vote the initial shares in favor
of any proposal (i) approving the amendment to our amended and
restated certificate of incorporation providing for our
perpetual existence or (ii) extending our corporate
existence to up to 30 months from the date of the
consummation of this offering in the event we have entered
into a definitive agreement for, but have not yet completed,
a business combination;
• our sponsor and its permitted transferees will have
no right to participate in any liquidation distribution with
respect to the initial shares if we fail to complete a
business combination; and
• the initial shares will be placed in escrow and
subject to certain transfer restrictions described below
until 12 months after the completion of a business
combination.
See “– Conversion rights for stockholders voting to reject a
business combination or an extension of the time period within which
we must complete our business combination” and “– Escrow of initial shares and sponsor units”
below for additional restrictions.
Private
placement of sponsor units
Our sponsor has agreed to
purchase 425,200 sponsor units
from us at a price of $10.00 per sponsor unit, for a total
of $4,252,000, in a private placement that will occur immediately
prior to the closing of this offering. Each unit so
purchased by our sponsor will consist of one sponsor share and one sponsor
warrant. The
sponsor units will be purchased separately and not in
combination with any other units.
The proceeds from the sale of the sponsor units will be added to the proceeds from this offering to
be held in the trust account pending the completion of a
business combination. If (i) we do not enter into a letter of intent
or a definitive agreement within 18 months after the date of
this prospectus or (ii) we do not complete a business
combination within 24 months (or up to 30 months if our
stockholders approve an extension) after the
date of this
prospectus, then the proceeds from the sale of the sponsor
units will become part of the amount payable to our public
stockholders upon the liquidation of our trust account and
the sponsor shares and the sponsor units will be worthless.
The sponsor units are identical
to the units, and the component shares of common stock and warrants,
being sold in this offering, except that:
•
the sponsor units are immediately separable into sponsor shares and sponsor warrants;
•
our sponsor and its permitted transferees will not be able to exercise conversion rights, as
described below, with respect to the sponsor shares;
•
our sponsor and its permitted transferees will have no right to participate in any liquidation
distribution with respect to the sponsor shares if we fail to complete a business combination;
•
the sponsor warrants will not be redeemable by us as long as they are held by our sponsor or any of its
permitted transferees; and
•
the sponsor units will be placed in escrow and subject to certain
transfer restrictions until the completion of a
business combination.
Transfer restrictions on securities
Our sponsor has agreed, and its
permitted transferees will agree,
subject to certain exceptions described below, not to
transfer, assign or sell, directly or indirectly any of the
initial shares until 12 months after
the completion of a business combination
and not to transfer any sponsor units, including the component
sponsor shares and sponsor warrants (including shares of common stock
underlying such warrants) until the completion of a business
combination.
Notwithstanding the foregoing,
our sponsor and its permitted transferees will be permitted to transfer all or any portion of
such securities to certain permitted transferees described
under “Principal Stockholders—Transfers of Common Stock and
Warrants by our Existing Stockholders.” These permitted
transferees include our officers, directors and
employees, any affiliates or family members of such
individuals, any affiliates of us, our sponsor and any
officers, directors, members and employees of our sponsor or
such affiliates, and our sponsor to the extent of any securities
previously transferred to a permitted transferee, provided that any
transfers of or agreements to transfer securities to Griffin
Financial or its affiliates shall not be made within 90 days
after the closing of this offering. All permitted transferees receiving such
securities will be subject to the same transfer restrictions
as our sponsor and its permitted transferees and any such
transfers will be made in accordance with applicable
securities laws.
Registration rights
Pursuant to a registration rights agreement that will be entered into between us, our
sponsor, and any of its permitted transferees, the holders of the
initial shares and the sponsor units, including the component sponsor
shares and sponsor warrants (and the common stock
issuable upon exercise of such warrants) will be entitled to
demand registration rights, “piggy-back”
registration rights and short-form resale registration
rights, commencing (i) 12 months after the completion
of a business combination as it relates to the initial shares and (ii) upon the completion of a business combination as it relates to the sponsor units, including the component sponsor shares and sponsor warrants
(and the common stock issuable upon exercise of such warrants).
American Stock Exchange listing
We have applied to list our securities on the American
Stock Exchange upon completion of this offering. Although
after giving effect to this offering we expect to meet on a
pro forma basis the minimum initial listing standards of the
American Stock Exchange, we cannot assure you that our
securities will be or will continue to be listed on the
American Stock Exchange as we might not meet certain
continuing listing standards.
Offering proceeds and proceeds from sale
of sponsor units to be held in trust
Approximately $85,748,000 of the net proceeds of this offering plus the
$4,252,000 we will receive from the sale of the sponsor
units (for an aggregate of approximately $90,000,000 or approximately
$10.00 per unit sold to the public in this offering) will be
placed in a trust account maintained by Mellon Bank, N.A., acting as
account agent pursuant to an agreement to be
signed on the effective date of the registration statement.
This amount includes $2,925,000 of the underwriting
commission and discount that is being deferred until we
complete a business combination. We believe that the
placement of the underwriters’ deferred commission and
discount and the purchase price of the sponsor units in
the trust account is a benefit to our public stockholders
because additional proceeds will be available for
distributions to investors if we liquidate our trust account
prior to our completion of a business combination.
The proceeds held in the trust account will not be released
until the earlier of the completion of a business combination
or our liquidation. Notwithstanding the foregoing, there can
be released to us from the trust account interest earned on
the trust account (i) up to an aggregate of $2,400,000 to
fund expenses related to investigating and selecting a target
business and our other working capital requirements and (ii)
in any amounts we need to pay any federal, state and local
tax obligations, including income taxes imposed at the
applicable rates on income from investments held through the
trust account, applicable franchise taxes and any other tax
obligations imposed in respect of the trust account. In
addition, amounts in the trust account may be used to satisfy
the exercise of stockholder conversion rights in connection
with an extension of our corporate existence to up to 30
months as described below. With these exceptions, expenses
incurred by us while seeking a business combination may be
paid prior to a business combination only from the net
proceeds of this offering not held in the trust account
(initially approximately $169,220 after the payment of the
expenses relating to this offering). In the event we were
ultimately required to forfeit such funds (whether as a
result of our breach of the agreement relating to such
payment or otherwise), we may not have a sufficient amount of
working capital available outside of the trust account to pay
expenses related to finding a suitable business combination
without securing additional financing. If we are unable to
secure additional financing, we would most likely fail to
complete a business combination in the allotted time and
would liquidate our trust account.
Underwriter’s deferred commission and
discount
The underwriters have agreed to
defer $2,925,000 of their
underwriting discount, equal to 3.25% of the gross proceeds
of the public offering, until the completion of a business
combination. Upon the completion of a business combination,
such amount, reduced pro-ratably by the exercise of
stockholder conversion rights described below, will be
released to the underwriters out of the trust account.
Additionally, if we are unable to enter into a letter of intent or a
definitive agreement regarding a prospective acquisition candidate,
which, by itself, does not have to satisfy our 200% of net assets
test within 12 months after the completion of this offering but are
successful in completing a business combination within the time
periods described in this prospectus, $443,182
(or $509,659 if the underwriters exercise their overallotment option
in full) of the underwriters’ deferred
underwriting commission and discount will be paid to the
underwriters upon consummation of a business combination in 44,318 shares (or 50,966 shares if the underwriters
exercise their overallotment option in full) of our common stock in lieu of cash.
The underwriters will not be entitled to any interest earned
on the deferred discount. If we liquidate the trust account,
the underwriters have agreed to waive any right they may have to
the $2,925,000 of the deferred discount held in the trust
account, all of which will be distributed to our public
stockholders on a pro rata basis.
Griffin Financial Group, LLC, an entity affiliated with Mr. Harenza, is a
co-manager for this offering and will be entitled to receive a portion of the underwriters’ commission and discount. Griffin Financial will receive such payment only upon completion of our initial business combination, and such payment will be made solely out of the underwriters’ deferred commission and discount that will be deposited in the trust account upon
completion of the offering. For a complete description of the terms of its compensation, see “Underwriting.”
None of the warrants may be exercised until after the
completion of a business combination and, thus, after the
funds in the trust account have been disbursed. Accordingly,
the warrant exercise price will be paid directly to us and
not placed in the trust account.
Limited payments to insiders
There will be no fees, reimbursements or other cash payments
paid by us to our sponsor or our officers or directors or
their affiliates prior to, or for any services they render in
order to effectuate, the completion of a business
combination, other than the following:
•
repayment of advances on an interest-free line of credit note of
up to $200,000, made by our sponsor to cover offering expenses and
other start-up costs, on the earlier of (i) 60 days following
the date of the completion of this offering and (ii) March 2, 2009;
• Stevens & Lee, an affiliate of Mr. Harenza, one of
our directors, and its affiliates whom we have engaged and intend to continue to
engage at customary rates and charges to perform professional
services for us, including professional services
in connection with this offering, our operations, and in connection with an acquisition,
such as, among other things, planning associated with the acquisition process,
identifying and evaluating potential candidates and
performing due diligence;
•
payment of $7,500 per month for up to 24 months (or
up to 30 months in the event our stockholders approve an
extension) to Griffin Holdings Group, LLC, an affiliate of
Mr. Harenza, for office space and secretarial, technological
and administrative services; and
• reimbursement of out-of-pocket expenses incurred by
our officers and directors in connection with certain
activities on our behalf, such as identifying and
investigating possible business targets and business
combinations.
Conditions to completing our business
combination
Our business combination must occur with one or more target
businesses that together have a fair market value of at least
200% of our net assets held in trust (net of taxes and up to
$2,400,000 of interest earned on the trust account that is
permitted to be disbursed to us for working capital purposes
and excluding the amount of the underwriters’ deferred
commission and discount held in trust) at the time of the execution of the definitive agreement for our initial
business combination, although this may entail simultaneous
acquisitions of several operating companies. Our board of directors will determine
the fair market value based on standards generally accepted
by the financial community, such as price to earnings, price
to book and tangible book value, price to deposits or
discounted cash flow valuation.
In connection with closing a business combination, additional
requirements may include potential regulatory filings and
approvals and stockholder approval of the business
combination by the target.
In addition, we must acquire a controlling interest in the
target company. Key factors in determining whether we have a
controlling interest include whether we own a majority of the
voting equity interests of the target, the extent to which we
have
the ability to appoint members of the board of directors
or management of the target and the extent to which we
otherwise have effective control over the target (whether
pursuant to the securities we acquire, by contract or
otherwise).
Depending on the percentage of our public stockholders
exercising conversion rights and the fair market value of a
business combination, we may need to raise additional capital
through either equity or debt issuances to fund the full
acquisition price of a business combination.
In the event our business combination is with an entity in
the financial services industry, the amount of debt we can
use to effect an acquisition will be subject to substantial
regulatory restrictions. See “Risk Factors — Risks Relating
to the Financial Services Industry.”
We do not have any specific business combination under
consideration, and we have not (nor has anyone on our behalf)
contacted any prospective acquisition candidate or had any
discussions, formal or otherwise, with respect to such a
transaction.
Stockholders must approve business
combination
We will seek stockholder approval before we effect a business
combination, even if the nature of the acquisition would not
ordinarily require stockholder approval under applicable
state law. In connection with a business combination, we
will also seek stockholder approval for a proposal to further
amend our amended and restated certificate of incorporation
to provide for our corporate life to continue perpetually
following the completion of such business combination.
We will only proceed with a business combination if:
• the business combination is approved by a majority of
the aggregate votes cast by our public stockholders and holders of the sponsor shares at a duly held
stockholders meeting,
• the amendment to our amended and restated certificate
of incorporation to provide for our perpetual existence is
approved by holders of a majority of our outstanding shares
of common stock, and
• conversion rights have been exercised with respect to
less than 35% of the shares of common stock issued in this
offering, on a cumulative basis (including the shares as to
which conversion rights were exercised in connection with (i)
a stockholder vote, if any, to approve an extension of the
time period within which we must complete a business
combination and (ii) the stockholder vote to approve a
business combination).
It is our intention in every case to structure and complete a
business combination in which approximately 35% of the public
stockholders on a cumulative basis may exercise their conversion rights and the
business combination will still go forward.
For purposes of seeking approval
of a business combination, non-votes will have
no effect on the approval of a business combination once a
quorum is
obtained (although non-votes will have an effect on
the approval of the amendment to our amended and restated
certificate of incorporation to provide for our perpetual
existence). We intend to give approximately 30 (but not less
than 10 nor more than 60) days prior written notice of any
meeting at which a vote will be taken to approve a business
combination. In addition, we will publicly announce the record date for determining the shareholders entitled to
vote at the meeting to approve our business combination at least three business days prior to such
record date.
In connection with the vote required for approving a business
combination, our existing stockholders have agreed, and their permitted
transferees will agree, to vote the initial shares in
accordance with the majority of the shares of common stock
voted by the public stockholders. Our existing stockholders have also agreed, and their permitted
transferees will agree, that they will vote the
initial shares, the sponsor shares and any shares of common stock
acquired in this offering or in the aftermarket in favor of the amendment to our amended and restated
certificate of incorporation to provide for our perpetual
existence in connection with a vote to approve a business
combination and in favor of any extension of our corporate existence to up
to 30 months from the date of this prospectus in the event we
have entered into a definitive agreement for, but have not
yet completed, a business combination.
In addition, our existing stockholders will vote the sponsor shares and any shares of common stock acquired in this
offering or in the aftermarket in favor of an initial business combination submitted to our
stockholders for approval. Accordingly, our existing stockholders will not be able to exercise
conversion rights with respect to any potential initial business combination.
We are not aware of any present intention on the part of our sponsor, officers or directors to make
any purchases in this offering or in the aftermarket. Although we do not know for certain the
factors that would cause our sponsor, officers or directors to purchase our securities, we believe
that some of the factors they would consider are: (i) the trading price of our securities, (ii)
their aggregate investment in our securities, (iii) whether it appears that a substantial number of
public stockholders are voting against a proposed initial business combination, and (iv) their
interest in the target business once the target business has been identified.
Although we and our sponsor, officers and directors have no current intention to make such
purchases, we and our sponsor and directors and officers and their respective affiliates are not
prohibited from purchasing shares of our common stock in the open market and/or in privately
negotiated transactions. Any such privately negotiated transaction with a public stockholder would
include a contractual acknowledgement that such stockholder, although still a holder of record of
our common stock, is no longer the beneficial owner thereof and therefore agrees to vote such
shares of common stock as directed by the purchasers of such shares. In the event we or our sponsor, directors or officers or their respective
affiliates purchase shares in privately negotiated transactions from public stockholders who have
already cast votes against the proposed business combination or
extension and exercise conversion rights with
respect to their shares, such selling stockholders would be required to revoke their prior votes
against the proposed business combination or
extension and to revoke their prior conversion elections and to
cast new votes in favor of the proposed business combination or
extension. The revocation of prior negative
votes and substitution therefor of votes in favor of the proposed
business combination or
extension would have
the effect of reducing conversions and increasing votes in favor of the proposed business
combination or
extension, thereby making it more likely that a proposed business
combination or
extension would be approved.
Although we and our sponsor, officers, directors and their respective affiliates currently have no
intention of entering into private stock purchase arrangements with our public stockholders
subsequent to this offering, they may do so in the future both as an expression of confidence in
the value of our common stock following the initial business
combination or extension and as a means of
increasing the likelihood that the initial business combination or
extension will be approved.
We, our sponsor, officers, directors and/or their respective affiliates anticipate that they will
identify the public stockholders with whom we, our sponsor, officers, directors or their respective
affiliates may pursue privately negotiated purchases by either the public stockholders contacting
us directly or by our receipt of proxy cards submitted by public stockholders at the time of the
initial business combination or extension. To the extent that we, our sponsor, officers, directors or their
respective affiliates enter into a private purchase, we would identify and contact only potential
selling stockholders who have expressed their intention to vote, or who have already voted, against
the initial business combination or extension. Pursuant to the terms of such arrangements, any shares so
purchased by us, our sponsor, officers, directors or their respective affiliates would then be
voted, or prior votes against would then be changed to votes, in favor of the initial business
combination or extension. The terms of such purchases would operate to facilitate the consummation of the
proposed business combination or the approval of the extension by potentially reducing the number of shares voted against the
business combination or extension to less than 35% of the shares sold in this
offering, on a cumulative basis.
Any shares purchased from public stockholders by us, our sponsor, officers, directors or their
respective affiliates would be purchased at a price to be negotiated between such stockholders on
the one hand and us, our sponsor, officers, directors or their respective affiliates on the other
hand. Such price would depend on a variety of factors including, but not limited to, the size of
the stockholders’ position in our stock and the method and timing of payment from us or from our
sponsor, officers, directors or affiliates for such shares.
Should such purchases be negotiated, it is possible that the value of the purchase price thereof
would exceed the per share amount to be distributed from trust upon liquidation. We have agreed
with the underwriters, however, that if we enter into any such privately negotiated transactions,
we may only pay to applicable public stockholders funds up to the amount per share that would be
received upon the exercise of conversion rights; negotiated premiums, if any, to such per share
conversion price would thus need to be paid by someone other than us, which would most likely be
our existing stockholders, officers, directors, their respective affiliates or third parties and
would not be paid by us.
Any stock purchases by us, our sponsor, officers, directors or affiliates, as described above, will
be consummated pursuant to privately negotiated arrangements rather than through open market
purchases in order to avoid disruption in the marketplace due to the possible relative illiquidity
of our stock and in order to avoid the potential characterization of such open market purchases as
a tender offer by us, our officers, directors or affiliates. Any such purchases would be conducted
in conformance with applicable securities laws and regulations,
including Regulation M. The inability of such persons or entities to
effect such purchases could impair our ability to obtain approval of
a business combination or to extend the period to effect a business
combination.
If a vote on a business combination is held and the
conditions to proceeding with a business combination are not
satisfied, we may continue to try to complete a business
combination until 24 months (or up to 30 months if our
stockholders approve an extension) after the date of this
prospectus.
After the completion of our business combination, unless
required by Delaware law, the federal securities laws and the
rules and regulations promulgated thereunder, or the rules
and regulations of an exchange upon which our securities are
listed, we do not presently intend to seek stockholder
approval for any subsequent mergers, acquisitions or similar
transactions.
Possible extension of time to complete
a business combination to up to 30
months
If we have entered into a definitive agreement relating to a business
combination within 18 months following the
completion of this offering and if we anticipate that we may
not be able to complete a business combination within the
24-month period, we may seek up to a six-month extension to
complete a business combination by calling a special (or
annual) meeting of our stockholders for the purpose of
soliciting their approval for such extension. Approval of
any extension will require the affirmative vote of a majority
of the votes cast by our stockholders at the special (or
annual) meeting called for the purpose of approving such
extension.
In connection with the vote required for any such extension,
our existing stockholders have agreed, and
their permitted transferees will agree, to vote the initial shares, the sponsor shares and any shares of
common stock acquired in this offering or in the aftermarket in favor of such extension.
Any public stockholders voting against the proposed extension
will be eligible to convert their shares into a pro rata
share of the amount then held in trust account if we effect the extension,
subject to the limitation described in this prospectus on
conversion rights of stockholders or “groups” holding more
than 10% of the shares of common stock included in the units
being sold in this offering. However, we will
not effect the
extension if 35% or more of the shares sold in this offering
vote against the proposed extension and elect to convert
their shares into their pro rata share of the amount then held in the trust account.
In such event, if we cannot complete a business combination
within the original 24-month period, we will liquidate.
If we receive stockholder approval for the extended period
and conversion rights are not exercised with respect to 35%
or more of the shares sold in this offering in connection
with the vote for the extended period, we will then have an
additional period of up to six months in which to complete
the business combination. We will still be required to seek
stockholder approval before completing a business combination
if it was not obtained earlier, even if the business
combination would not ordinarily require stockholder approval
under applicable law. As a result of an approval of the
extended period, we may be able to hold the funds in the
trust account for up to 30 months.
A stockholder’s election to convert its shares in connection
with the vote on the extended period will only be honored if
the extended period is approved.
Stockholders who vote against the extended period and
exercise their conversion rights may vote on the business
combination if such business combination was not previously
approved by the stockholders and such stockholders continue
to own shares of common stock or acquire new shares through
open market purchases or otherwise.
Public stockholders who cause us to convert their shares into
their pro rata share of the amount then held in the trust account will still have the
right to exercise the warrants that they received as part of
the units that are still owned by them.
If, following approval of the extension, at the end of the
extended period of up to 30 months we have not effected a
business combination, our corporate existence will
automatically cease without the need for a stockholder vote
and we will take all necessary action to liquidate. Upon our
dissolution, the funds held in trust will be distributed to
our public stockholders and we will dissolve and liquidate
our remaining assets as soon as possible in accordance with
Delaware law. Under Delaware law, we are required to pay, or
make provision for the payment of, our creditors out of our
remaining assets and we are required to make liquidation
distributions to our stockholders of any assets remaining
after our creditors have been paid in full or amounts have
been reserved and set aside for that purpose. Our sponsor
and other existing shareholders have agreed, and their
permitted transferees will agree, to waive their right to
participate in any liquidation distribution occurring upon
our failure to consummate a business combination with respect
to the initial shares and the sponsor shares.
Conversion rights for stockholders
voting to reject a business combination
or an extension of the time period
within which we must complete our
business combination
Each public stockholder voting against a business combination
will have the right to convert its shares of common stock
into a pro rata share of the aggregate amount then on deposit
in the trust account, including both interest earned on the
trust account and the deferred
underwriting commission and
discount (net of taxes payable and income of up to $2,400,000
of interest earned on the trust account that is permitted to
be disbursed to us for working capital purposes), provided
that the business combination is approved and completed. In
addition, any stockholders voting against the proposed
extension of the time period within which we must complete a
business combination will be eligible to convert their shares
into a pro rata share of the amount then held in the trust account, including both
interest earned on the trust account and the deferred
underwriting commission and discount (net of taxes payable
and income of up $2,400,000 of interest earned on the trust
account that is permitted to be disbursed to use for working
capital purposes) if we effect the extension. Our sponsor
and its permitted transferees will not have such conversion
rights with respect to the initial shares and the sponsor shares because they will vote in favor of the proposed extension.
Additionally, in the event that in connection with a stockholder vote to approve either a proposed
business combination or an extension of the time period within which a business combination must be
completed, any public stockholder elects to convert any of such stockholder’s shares into a pro rata share of the
amount then held in the trust account, then the existing stockholders will
forfeit such number of the initial
shares so that they will represent no more than 20% of the aggregate number of initial shares and shares
of common stock issued to the public in this offering and remaining outstanding following any such
conversion. However, if any initial shares were previously forfeited on the one-year anniversary
of the date of this prospectus, our existing stockholders will forfeit only such additional number
of initial shares so that the initial shares represent no more than 20% of the aggregate number of
initial shares and shares of common stock issued to the public in this offering and remaining
outstanding following any such conversion.
Notwithstanding the foregoing, pursuant to our amended and
restated certificate of incorporation, a public stockholder,
together with any affiliate of his or any other person with
whom he is acting as a “group” (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), will be
restricted from seeking conversion rights with respect to
more than 10% of the shares of common stock included in the
units being sold in this offering, on a cumulative basis,
which includes any exercise of conversion rights in
connection with either the stockholder vote, if any, required
to approve an extension of the time period within which we
must complete a business combination or the stockholder vote
required to approve a business combination. Shares converted
in connection with the vote on an extension of the time
period within which we must complete a business combination
and in connection with the vote on the business combination
will be aggregated for purposes of this 10% limit. Such a
public stockholder would still be entitled to vote against an
extension or a proposed business combination with respect to
all shares of common stock owned by him or his affiliates.
We believe this restriction will deter stockholders from
accumulating large blocks of stock before the vote held to
approve an extension or a proposed business combination and
prevent an attempt to use the conversion right as a means to
force us or our management to purchase their stock at a
premium to the then current market price. Absent this
provision, for example, a public stockholder who owns 15% of
the shares included in the units being sold in this offering
could threaten to vote against an extension or a proposed
business combination and seek conversion, regardless of the
merits of the transaction, if his shares are not purchased by
us or our management at a premium to the then current market
price (or if our sponsor or management refuses to transfer to
him some of their shares). By limiting a stockholder’s
ability to convert only 10% of the shares of common stock
included in the units being sold in this offering, we believe
we have limited the ability of a small group of stockholders
to unreasonably attempt to block a transaction that is
favored by our other public stockholders. However, we are
not restricting the stockholders’ ability to vote all of
their shares against the transaction or against an extension.
We view the right to seek conversion as an obligation to our
stockholders and will not take any action to amend or waive
this provision in our amended and restated certificate of
incorporation
without the affirmative vote of holders of 95%
of our outstanding shares of common stock.
It is anticipated that the funds to be distributed to public
stockholders who elect conversion will be distributed within
three business days after the completion of a business
combination or the approval of an extension of the time
period within which we must complete a business combination,
as applicable. Public stockholders who convert their stock
into their pro rata share of the amount then held in the trust account will continue
to have the right to exercise any warrants they may hold.
If the underwriters’ over-allotment
option is exercised in full, investors in this offering who do not sell the warrants
included in the units, or who receive less than approximately
$0.05 of net sales proceeds per warrant for such warrants, and persons
who purchase common stock in the aftermarket at a price in
excess of approximately $9.95 per share, may have a
disincentive to exercise their conversion rights because the
amount they would receive upon conversion could be less than
their original or adjusted purchase price.
Procedure for exercising conversion
rights
An eligible stockholder may request conversion at any time after the mailing to our stockholders of the proxy statement
and prior to the vote taken with respect to a proposed
business combination or an extension of the time period
within which we must complete a business combination at a
meeting held for that purpose, but the request will not be
granted unless the stockholder votes against the business
combination or the extension, the business combination is
approved and completed or the extension is approved, the
stockholder holds its shares through the completion of the
business combination or the date of the approval of the
extension and the stockholder follows the specific procedures
for conversion set forth in the proxy statement.
In addition, we may require public stockholders, whether they
are record holders or hold their shares in “street name,”
either to tender their certificates to our transfer agent at
any time through the vote on the business combination or the
extension or to deliver their shares to the transfer agent
electronically using Depository Trust Company’s DWAC
(Deposit/Withdrawal At Custodian) System. There is a nominal cost associated with this
tendering process and the act of certificating the shares or
delivering them through the DWAC system. The transfer agent
will typically charge the tendering broker $35 and it would
be the broker’s decision whether or not to pass this cost on
the converting holder.
The proxy solicitation materials that we will furnish to
stockholders in connection with the vote for any proposed
business combination or extension will indicate whether we
are requiring stockholders to satisfy such a delivery
requirement, in which case a stockholder would have from the
time we send out our proxy statement through the vote on the
business combination or the extension to deliver his shares
if he wishes to exercise his conversion rights. If
applicable, this time period will vary depending on the
specific facts of each transaction. However, as the delivery
process can be accomplished by the stockholder, whether or
not he is a record holder or his shares are held in “street
name,” in a matter of hours by simply contacting the transfer
agent
or his broker and requesting delivery of his shares
through the DWAC System, we believe this time period is
sufficient for an average investor.
Any request for conversion, once made, may be withdrawn at
any time up to the date of the meeting. Furthermore, if a
stockholder delivered his certificate for conversion and
subsequently decided prior to the meeting not to elect
conversion, he may simply request that the transfer agent
return the certificate (physically or electronically).
If the business combination is not approved or completed for
any reason or the extension is not approved, then public
stockholders voting against a business combination or the
extension who exercised their conversion rights would not be
entitled to convert their shares of common stock into a pro
rata share of the aggregate amount then on deposit in the
trust account. In such case, if we have required public
stockholders to deliver their certificates prior to the
meeting, we will promptly return such certificates to the
public stockholders.
The foregoing is different from the procedures used by many
blank check companies. Traditionally, in order to perfect
conversion rights in connection with a blank check company’s
business combination, a holder could simply vote against a
proposed business combination and check a box on the proxy
card indicating such holder was seeking to exercise its
conversion rights. After the business combination was
approved, the company would contact such stockholder to
arrange for him to deliver his certificate to verify
ownership. As a result, the stockholder then had an “option
window” after the completion of the business combination
during which he could monitor the price of the stock in the
market. If the price rose above the conversion price, he
could sell his shares in the open market before actually
delivering his shares to the company for cancellation in
consideration for the conversion price.
Thus, the conversion right, to which stockholders were aware
they needed to commit to before the stockholder meeting,
would become a “put” right surviving past the completion of
the business combination until the converting holder
delivered his certificate. The requirement for physical or
electronic delivery prior to the meeting ensures that a
converting holder’s election to convert is irrevocable once
the extension or business combination is approved.
Liquidation if no business combination
If we have not completed a
business combination within 24
months (or up to 30 months if our stockholders approve an extension) from the date of this prospectus, our corporate
existence will cease except for the purposes of winding up
our affairs and liquidating pursuant to Section 278 of the
Delaware General Corporation Law (“DGCL”), in which case we will as
promptly as practicable thereafter adopt a plan of
distribution in accordance with Section 281(b) of the DGCL.
Section 278 of the DGCL provides that our existence will continue for at
least three years after its expiration for the purpose of
prosecuting and defending suits, whether civil, criminal or
administrative, by or against us, and of enabling us
gradually to settle and close our business, to dispose of and
convey our property, to discharge our liabilities and to
distribute to our stockholders on a pro rata basis any
remaining assets, but not for
the purpose of continuing the
business for which we were organized. Our existence will
continue automatically even beyond the three-year period for
the purpose of completing the prosecution or defense of suits
begun prior to the expiration of the three-year period, until
such time as any judgments, orders or decrees resulting from
such suits are fully executed.
Section 281 of the DGCL will require us to adopt a plan that
will provide for our payment, based on facts known to us at
such time, of (i) all existing claims, (ii) all pending
claims and (iii) all claims that may be potentially brought
against us within the subsequent 10 years. Accordingly, we
would be required to provide for any claims of creditors
known to us at that time or those we believe could be
potentially brought against us within the subsequent 10 years
prior to distributing the funds held in the trust to our
public stockholders. We have not assumed that we will have
to provide for payment on any claims that may potentially be
brought against us within the subsequent 10 years due to the
speculative nature of such an assumption.
We cannot assure you that we will properly assess all claims
that may be potentially brought against us. As such, our
stockholders could potentially be liable for any claims of
creditors to the extent of distributions received by them
(but no more). However, because we are a development stage
company, rather than an operating company, and our operations
will be limited to searching for prospective target
businesses to acquire, the only likely claims to arise would
be from our vendors, service providers (such as accountants,
lawyers, investment bankers, etc.) and prospective target
businesses. While we will seek to have all vendors, service
providers (which would include any third parties we engaged
to assist us in any way in connection with our search for a
target business), prospective target businesses or other
entities that are owed money by us for services rendered or
contracted for or products sold to us execute agreements with
us waiving any right, title, interest or claim of any kind
they may have in or to any monies held in the trust account
for the benefit of our public stockholders, there is no
guarantee that they will execute such agreements. Nor is
there any guarantee that, even if such entities execute such
agreements with us, they will not seek recourse against the
trust account or that a court would not conclude that such
agreements are not legally enforceable.
Escrow
of initial shares and sponsor units
On the effective date of the registration statement, our
existing stockholders will place their initial shares into an
escrow account maintained by Mellon Investor Services LLC, acting
as escrow agent, and on the date of the completion of this
offering, our sponsor will place its sponsor units in such
escrow account. Subject to certain limited exceptions (such
as transfers to relatives and trusts for estate planning
purposes, while remaining in escrow) and except for up to
337,500 initial shares that may be forfeited by us at cost if
the underwriters do not exercise their over-allotment option in full,
the initial shares will not be
transferable until 12 months after the completion of a
business combination,
and the sponsor units, including the sponsor warrants, sponsor shares
and shares of common stock underlying the sponsor warrants, will not
be transferable until completion of a business combination, at which time such securities will be
released from escrow.
Our existing stockholders will forfeit on the one-year anniversary of the date of this prospectus such number of initial shares so that, following such forfeiture, the number of initial shares issued and outstanding shall equal 17.5% of the aggregate number of initial shares and shares of common stock issued in
this offering (but excluding the sponsor shares) unless we
announce that we have entered into a letter of intent or definitive
agreement with an acquisition candidate, which, by itself, does not have to
satisfy our 200% of net assets test. We will continue to have up
to 24 months (or
up to 30 months if our stockholders approve an extension) after the date of this
prospectus to complete a business combination with one or more target businesses that
together have a fair market value of at least 200% of our net assets held in trust
(net of taxes and up to $2,400,000 of interest earned on the trust account that is
permitted to be disbursed to us for working capital purposes and excluding the amount
of the underwriters’ deferred commission and discount held in trust) at the time of the execution of the definitive agreement for our initial business combination. Our sponsor may not transfer interests
in itself or securities held by it prior to the
expiration of the escrow period, with
certain limited exceptions (such as transfers to immediate
family of the controlling persons of our sponsors and trusts
for estate planning purposes). If we engage in a transaction
after the completion of a business combination that results
in all of the stockholders of the combined entity having the
right to exchange their shares of common stock for cash,
securities or other property, then any transfer restrictions
on the initial shares and the sponsor units will no longer apply.
Liability for certain claims
Mr. Sidhu, our chairman,
president and chief executive officer, has agreed that he will be liable to ensure that
the proceeds in the trust account are not reduced by the
claims of vendors, service providers or other entities that
are owed money by us for services rendered or contracted for
or products sold to us, or by claims of prospective target
businesses for fees and expenses of third parties that we
agree in writing to pay in the event we do not complete a
business combination with such target business. However, Mr. Sidhu
will not be liable for any claimed amounts owed to a
third party who executed a waiver (even if such waiver is
subsequently found to be invalid and unenforceable) or in
respect of any claims under our indemnity of the underwriters
of this offering against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
We will not reimburse Mr. Sidhu
for payments made by him to
ensure that the proceeds in the trust account are not
reduced. We believe that the board of directors would be
obligated to pursue a potential claim for reimbursement from
Mr. Sidhu pursuant to the terms of his agreements with us
if it would be in the best interest of our stockholders to
pursue such a claim. Such a decision would be made by a
majority of our disinterested directors based on the facts
and circumstances at the time. However, we will have no
recourse against Mr. Sidhu if any liability occurs with
respect to a claim other than a claim by a vendor, service
provider, prospective target business or other entity that is
owed money by us for services rendered or contracted for or
products sold to us, as well as claims of prospective target
businesses for fees and expenses of third parties that we
agree in writing to pay in the event we do not complete a
business combination with such target business.
We cannot assure you that Mr.
Sidhu will be able to satisfy
his obligations if he is required to do so. Further, Mr. Sidhu is liable only to the extent necessary to ensure that
the amounts in the trust fund are not reduced. As a result,
we cannot assure you that the per-share distribution from the
trust fund, if we liquidate, will not be less than $10.00,
plus interest earned, then held in the trust account.
Waiver by our existing stockholders and
the underwriters of participation in
liquidation distribution
Our existing stockholders and their permitted
transferees will waive their right to participate in any
liquidation distribution occurring upon our failure to
complete a business combination and subsequent liquidation,
with respect to the initial shares and the sponsor shares. In addition, the
underwriters have agreed to waive their rights to the $2,925,000
of the underwriters’ deferred commission and discount
deposited in the trust account in the event we liquidate
prior to the completion of a business combination.
We will pay the costs of liquidation from our remaining
assets outside of the trust account. If such funds are
insufficient, we may request from the account agent up to $15,000
of interest earned on the trust account to pay for
liquidation costs and expenses.
Amended and restated certificate of
incorporation; obligations to our
stockholders
Our amended and restated certificate of incorporation will
contain several provisions relating to this offering that
will apply to us until the completion of a business
combination, including those providing for (i) stockholder
approval of a business combination or any extension of the
time period within which we must complete a business
combination, (ii) conversion rights for stockholders who vote
against a business combination or any such extension, and
(iii) the termination of our existence after 24 months (or up
to 30 months if our stockholders approve an extension) from
the date of this prospectus if we have not completed a
business combination. These provisions may only be amended
with the affirmative vote of 95% of our outstanding shares of
common stock. However, approval of an
extension of our existence from 24 months to 30 months only requires
an affirmative vote of a majority of our outstanding shares of common
stock. Although this limitation on our ability to
amend our amended and restated certificate of incorporation
may not be enforceable under Delaware law, we view these
provisions as obligations to our stockholders and we presume
that investors will make an investment decision relying, at
least in part, on these provisions. We will not support,
directly or indirectly, or in any way endorse or recommend,
that stockholders approve an amendment or modification to
these provisions without the affirmative vote of 95% of our
outstanding shares of common stock. We will be contractually
obligated not to take such actions pursuant to the
underwriting agreement that we will enter into with the
underwriters in connection with this offering.
Audit committee to monitor compliance
We will establish and maintain an audit committee to, among
other things, monitor compliance on a quarterly basis with
the terms described above and the other terms relating to
this offering. If any non-compliance is identified, then the
audit committee will be charged with the responsibility to
immediately take all action necessary to rectify such
non-compliance or otherwise cause compliance with the terms
of this offering.
Determination of offering amount
We determined the size of this offering based on our estimate
of the capital required to complete a business combination
with one or more viable target businesses with sufficient
scale to operate as a stand-alone public entity. We believe
that raising the amount described in this offering will offer
us a broad range of potential target businesses, including a company
in the financial services industry with assets of between
$500 million and $3 billion, possessing
some or all of the characteristics we believe are important.
In determining the size of this offering, our officers and
directors concluded, based on their collective experience,
that an offering of this size, together with the proceeds of
the sponsor warrants, would provide us with sufficient equity
capital to execute our business plan.
We believe that the amount of equity capital raised in this
offering, together with our ability to finance an acquisition
using equity or debt in addition to the cash held in the
trust account, will give us substantial flexibility in
pursuing a business combination with one or more target
businesses and structuring a business combination. This
belief is not based on any research, analysis, evaluations,
discussions, or compilations of information with respect to
any particular investment or any such action undertaken in
connection with our organization. We cannot assure you that
our belief is correct, that we will be able to successfully
identify acquisition candidates, that we will be able to
obtain any necessary financing or that we will be able to
complete a transaction with one or more target businesses
that satisfy the requirements of a business combination.
The following table summarizes the relevant financial data for our business and should be read
together with our financial statements and the notes thereto, which are included in this
prospectus. We have not had any significant operations to date, so only balance sheet data are
presented.
Value of common stock that may be converted to cash(2)
$
—
$
31,499,990
Stockholders’ equity
$
20,928
$
56,768,430
(3)
(1)
Gives effect to the sale of the sponsor units and the units in this offering (other than pursuant to the
underwriters’ over-allotment option), including the application of the related gross proceeds
and the payment of the estimated remaining costs from such sale and the repayment of the
accrued and other liabilities to be made. These amounts do not
include up to $2,925,000 of the underwriters’ deferred discount held in trust.
(2)
If we complete a business combination, the conversion rights afforded to our public
stockholders may result in the conversion into cash of up to 35% of the aggregate number of
shares included in the units being sold in this offering at a per share conversion price equal
to the aggregate amount then on deposit in the trust account (net of taxes payable and
interest earned of up to $2,400,000 permitted to be disbursed to us for working capital
purposes) divided by the number of shares of common stock issued in this offering.
(3)
Includes $1,023,750 (or $0.325 per share) which represents the portion of the underwriters’
deferred discounts and commissions which is subject to reduction in the event stockholders
exercise conversion rights with respect to 3,149,999 shares.
The
as adjusted working capital and total assets amounts include the
approximately $82,967,670 from the
proceeds of this offering, the $25,000 purchase price of the initial
shares and the $4,252,000
purchase price of the sponsor units, of which
approximately $87,244,670 will be available to us only upon the
completion of a business combination. The adjusted working capital amount does not include the
$2,925,000 to be held in the trust account ($3,363,750 if the
underwriters’ over-allotment option
is exercised in full) representing the underwriters’ deferred commission and discount. If we have not
completed a business combination within 24 months from the date
of this prospectus (or up to 30
months if our stockholders approve an extension), our corporate existence will cease and we will
promptly distribute only to our public stockholders on a pro rata basis the amount in our trust
account, including the amount of the underwriters’ deferred commission and discount held in trust
(net of taxes payable and up to $2,400,000 of interest earned on the trust account that is
permitted to be disbursed to us for working capital purposes), plus any remaining net assets,
subject to our obligations under Delaware law to provide for claims
of creditors. Our existing stockholders and their permitted transferees will have no right to participate in any
liquidation distribution occurring upon our failure to complete a business combination and
subsequent liquidation with respect to the initial shares and the sponsor shares.
We will not proceed with a business combination if public stockholders owning 35% or more of
the shares of common stock issued in this offering exercise their conversion rights, with such 35%
determined on a cumulative basis (including the shares as to which conversion rights were exercised
in connection with (i) a stockholder vote, if any, to approve an extension of the time period
within which we must complete a business combination and (ii) the stockholder vote to approve a
business combination). Accordingly, we may effect a business combination if public stockholders
owning up to approximately 35% of the shares of common stock issued in this offering exercise their
conversion rights. If this occurred and a business combination is completed, we could be required
to convert to cash from the trust account up to approximately 35% of
the 9,000,000 shares of
common stock issued in this offering, or 3,149,999 shares of common
stock (or 3,622,499 shares of
common stock if the underwriters’ over-allotment option is exercised in full), at an initial
per-share conversion price of approximately $10.00, without taking into account interest earned on
the trust account or rights of creditors to funds held in the trust account, if any.
The actual per-share conversion price will be equal to:
the amount in the trust account, inclusive of any interest earned thereon (net of
taxes payable and up to $2,400,000 of interest earned on the trust account that is
permitted to be disbursed to us for working capital purposes and calculated as of two
business days prior to the completion of the proposed business combination), divided by
•
the number of shares of common stock issued to the public in this offering.
Investing in our securities involves a high degree of risk. You should carefully consider the
following risk factors and all other information contained in this prospectus before making a
decision to invest in our units. If any of the following risks occur, our business, financial
condition or results of operations may be materially and adversely affected. In that event, the
trading price of our securities could decline, and you could lose all or part of your investment.
Risks Related to Our Structure as a Development Stage Company
We are a development stage company with no operating history and, accordingly, you will not have
any basis on which to evaluate our ability to achieve our business objective.
We are a recently incorporated development stage company with no operating results to date.
Our ability to begin operations is dependent upon obtaining financing through the public offering
of our securities. Since we do not have any operations or an operating history, you will have no
basis upon which to evaluate our ability to achieve our business objective, which is to complete a
business combination with one or more domestic or international operating businesses. We will
focus our efforts principally on identifying, performing due diligence on, and effecting a business
combination with one or more businesses which operate in the depository institutions sector,
primarily in the United States, and other businesses which operate in the broader financial
services industry. We have not conducted any discussions and we have no plans, arrangements or
understandings with any prospective target business with respect to a business combination. We
will not generate any revenues or income (other than income on the trust account) until, at the
earliest, after the completion of a business combination.
We will liquidate if we do not complete a business combination.
Pursuant to our amended and restated certificate of
incorporation, we have 18 months from the
date of this prospectus within which to sign a letter of intent or
definitive agreement for a business combination. If we have entered into a
letter of intent or a definitive agreement with respect to a business
combination within 18 months of the date of this
prospectus and we anticipate that we may not be able to complete the
business combination within 24
months, we may seek stockholder approval to extend the period of time to complete a business
combination by up to six months. In such case, we will present such proposal to our stockholders.
The time period in which we must complete a business combination will not be extended unless (i)
holders of a majority of our common stock approve the extension and (ii)
conversion rights are exercised with respect to less than 35% of the
shares of common stock sold in this offering.
If we fail to complete a business combination within this time frame, our corporate existence will
cease except for the purposes of winding up our affairs and liquidating. We may not be able to
find suitable target businesses within the required time frame. In addition, our negotiating
position and our ability to conduct adequate due diligence on any potential target may be reduced
as we approach the deadline for the completion of a business combination. We do not have any
specific business combination under consideration, and neither we, nor any representative acting on
our behalf, has had any contacts with any target businesses regarding a business combination, nor
taken any direct or indirect actions to locate or search for a target business. We view this
obligation to liquidate as an obligation to our stockholders and we presume that investors will
make an investment decision relying, at least in part, on this provision. Neither we nor our board
of directors will take any action to amend or waive any provision of our amended and restated
certificate of incorporation to allow us to survive for a longer period of time, except in
connection with the completion of a business combination or upon the affirmative vote of holders of
95% of our outstanding capital stock. If we are forced to liquidate, you may not receive the full
amount of your original investment.
Although we will focus on the depository institutions sector, primarily in the United States, and
other businesses which operate in the financial services industry with which to complete our
initial business combination, we will be able to complete our initial business combination with a
company in any industry and are not limited by geography, except as
otherwise described in this prospectus, or to any type of business.
Although we intend to focus on identifying acquisition candidates in the depository
institutions sector, primarily in the United States, and other businesses which operate in the
financial services industry and we will not initially actively seek to identify acquisition
candidates in other industries (which industries may be outside of our management’s area of
expertise), we will consider an acquisition outside of our target
industry and geography if (i) an acquisition
candidate is presented to us and we determine that such candidate offers an attractive investment
opportunity for our company or (ii) we are unable to identify a suitable candidate in our target
industry and geography after having expended a reasonable amount of time and effort in an attempt to do so.
Accordingly, there is no current basis for you to
evaluate
possible merits or risks of the particular industry or geography in which we may
ultimately operate or the target business which we may ultimately
acquire. We anticipate that we may actively expand our focus to candidates outside of the depository
institutions sector and the financial services industry during the latter half of the initial
18-month period that we have to sign a letter of intent or definitive
agreement for a business combination. To the extent we
complete our initial business combination with a financially unstable company or an entity in its
development stage, we may be affected by numerous risks inherent in the business operations of
those entities. If we complete our initial business combination with an entity in an industry
characterized by a high level of risk, we may be affected by the currently unascertainable risks of
that industry. Although our management will endeavor to evaluate the risks inherent in a
particular industry, geography or target business, we cannot assure you that we will properly ascertain or
assess all of the significant risk factors, in particular if the
target is in an industry or geography outside
our management’s area of experience. Even if we properly assess those risks, some of them may be
outside of our control or ability to affect. We also cannot assure you that our management’s prior
experience in the financial services industry will be relevant to the extent we complete a business
combination outside of that industry. For a description of Mr. Sidhu’s geographic non-competition restriction, see “Management-Conflicts
of Interest and Contractual Restrictions.”
Additionally, an investment in our units may ultimately prove to be less favorable to
investors in this offering than a direct investment, if an opportunity were available, in a target
business. Except for the limitation that our initial business combination must be with one or more
target businesses having an aggregate fair market value of at least 200% of our net assets held in
trust (net of taxes and up to $2,400,000 of interest earned on the trust account that is permitted
to be disbursed for working capital purposes and excluding the amount held in the trust account
representing deferred underwriting commissions and discounts and commissions) at the time of the execution of the definitive agreement for our initial acquisition, our management will have flexibility in identifying and selecting prospective target
businesses.
We will be permitted, pursuant to our amended and restated certificate of incorporation, to seek to
extend the date before which we must complete a business combination to up to 30 months. As a
result, your funds may be held in the trust account for up to two and a half years.
If
we have entered into a letter of intent or a definitive agreement
within 18 months following the completion of
this offering, we may seek to extend the date before which we must complete a business combination,
to avoid being required to liquidate, beyond the 24 months to up
to 30 months by calling a special
(or annual) meeting of our stockholders for the purpose of soliciting their approval for such
extension. Without the option of extending to up to 30 months,
if we enter into such letter of intent or agreement
near the end of the 18-month period following the completion of this offering, we may not have
sufficient time to secure the approval of our stockholders and satisfy customary closing
conditions, including obtaining any necessary regulatory approvals. If the proposal for the
extension to up to 30 months is approved by our stockholders as described in this prospectus, we
will have up to an additional six months beyond the 24-month period with which to complete a
business combination. As a result we may be able to hold your funds in the trust account for 30
months and thus delay the receipt by you of your funds from the trust account on liquidation.
The period of time we have to complete an initial business combination is longer than blank
check companies subject to Rule 419, which have 18 months to complete an initial business
combination, or other special purpose acquisition companies, which typically have 24 months to
complete a business combination. As a result, if we do complete a business combination, the
proceeds of this offering will remain in trust for a longer period of time before they are released
to public stockholders seeking to convert their shares.
Although historically blank check companies have used a 20% threshold for conversion rights, we
have used a 35% threshold. This higher threshold will make it easier for us to complete a business
combination, or extend the time period within which we must complete a business combination, with
which you may not agree, and you may not receive the full amount of your original investment upon
exercise of your conversion rights.
We will proceed with a business combination only if a majority of the shares of common stock
voted by the public stockholders are voted in favor of the business combination even if public
stockholders owning up to 35% of the shares included in the units being sold in this offering
cumulatively vote against the business combination or an extension of the time period within which
we must complete a business combination and exercise their conversion rights. Accordingly, public
stockholders holding approximately 35% of the shares included in the units being sold in this
offering may vote against the business combination, or the extension of time, and exercise their
conversion rights and we could still complete a proposed business combination. Historically, blank
check companies have had a conversion threshold of 20%, which makes it more difficult for such
companies to complete their business combination. Thus, because we permit a larger number of
stockholders to vote against the business combination and exercise their conversion rights, it may be easier for us to complete a business combination
with a target business that you may believe is not suitable for us, and you may not receive the
full amount of your original investment upon exercise of your conversion rights.
The ability of a large number of our stockholders to exercise their conversion rights may not allow
us to complete the most desirable business combination or optimize our capital structure.
When we seek stockholder approval of a business combination or an extension of the time period
within which we must complete a business combination, we will offer each public stockholder (but
not our sponsor or its permitted transferees with respect to the
initial shares and the sponsor shares) the right to have
its shares of common stock converted to cash if the stockholder votes against the business
combination or extension and the business combination is approved and completed or the extension is
approved. Such holder must both vote against such business combination or extension and then
exercise its conversion rights to receive a pro rata share of the amount then held in the trust account. Accordingly, if a
business combination requires us to use substantially all of our cash to pay the purchase price,
because we will not know how many stockholders may exercise such conversion rights, we may either
need to reserve part of the trust account for possible payment upon such conversion, or we may need
to arrange third party financing to help fund a business combination in case a larger percentage of
stockholders exercise their conversion rights than we expect. In the event that the business
combination involves the issuance of our stock as consideration, we may be required to issue a
higher percentage of our stock to make up for a shortfall in funds. Raising additional funds to
cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than
desirable levels. This may limit our ability to effectuate the most attractive business
combination available to us. Since we have no specific business combination under consideration,
we have not taken any steps to secure third party financing. We may not be able to obtain such
financing at attractive rates, or at all. Therefore, we may not be able to complete a business
combination that requires us to use all of the funds held in the trust account as part of the
purchase price, or we may end up having a leverage ratio that is not optimal for a business
combination or permitted by regulators.
Public stockholders, together with any affiliates of theirs or any other person with whom they are
acting as a “group,” will be restricted from seeking conversion rights with respect to more than
10% of the shares of common stock included in the units being sold in this offering.
When we seek stockholder approval of a proposed business combination or extension of the time
period within which we must complete a business combination, we will offer each public stockholder
(but not our sponsor or its permitted transferees with respect to the
initial shares and the sponsor shares) the right to
have its shares of common stock converted to cash if the stockholder votes against a business
combination or the extension and the business combination is approved and completed or the
extension is approved. Notwithstanding the foregoing, a public stockholder, together with any
affiliate or any other person with whom it is acting as a “group” (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), will be restricted from seeking conversion rights with
respect to more than 10% of the shares of common stock included in the units being sold in this
offering, on a cumulative basis, which includes any exercise of conversion rights in connection
with either the stockholder vote, if any, required to approve an extension of the time period
within which we must complete a business combination or the stockholder vote required to approve a
business combination. Shares of common stock converted in connection with the vote on the
extension and in connection with the vote on a business combination will be aggregated for purposes
of this 10% limit. Accordingly, if you purchase more than 10% of the shares of common stock
included in the units being sold in this offering and a proposed business combination or an
extension of the time period within which we must complete a business combination is approved, you
will not be able to seek conversion rights with respect to the full amount of your shares and may
be forced to hold such additional shares or sell them in the open market. We cannot assure you
that the value of such additional shares will appreciate over time following a business combination
or that the market price of the common stock will exceed the per-share conversion price.
In addition, if we complete our initial business combination in the financial services
industry, any person or group acquiring 10% or more of any class of our voting stock may be
required to obtain approval from the appropriate bank regulatory authority prior to acquiring more
than 9.9% of any class of our voting stock. See “— Risks Relating to the Financial Services Industry —
Substantial regulatory limitations on investments in banks and thrifts may limit investors’ ability
to purchase our stock.”
We may require stockholders who wish to convert their shares to comply with specific requirements
for conversion that may make it more difficult for them to exercise their conversion rights prior
to the deadline for exercising conversion rights.
We may require public stockholders who wish to convert their shares to physically tender their
stock certificates to our transfer agent prior to the stockholder meeting or to deliver their
shares to the transfer agent electronically using the Depository Trust Company’s DWAC
(Deposit/Withdrawal At Custodian) System. We may
impose such a requirement in order to provide a
clear deadline and greater certainty as to the number of shares that will be subject to conversion
following a business combination, as well as for administrative ease. The proxy solicitation
materials that we will furnish to stockholders in connection with the vote for any proposed
business combination or an extension of the time period within which we must complete a business
combination will indicate whether we are requiring stockholders to satisfy such a delivery
requirement, in which case, a stockholder would have from the time we send out our proxy statement
through the vote on the business combination or extension to deliver his shares if he wishes to
exercise his conversion rights. If applicable, this time period will vary depending on the
specific facts of each transaction. In order to obtain a physical stock certificate, a
stockholder’s broker and/or clearing broker, DTC and our transfer agent will need to act to
facilitate this request. If it takes longer than we anticipate for stockholders to deliver their
shares, stockholders who wish to convert may be unable to meet the deadline for exercising their
conversion rights and thus will be unable to convert their shares.
If we are forced to liquidate before the completion of a business combination and distribute the
amounts in the trust account, our public stockholders may receive significantly less than
approximately $10.00 per share and our warrants will expire and be worthless.
We
have 18 months from the date of this prospectus to sign a letter of
intent or definitive agreement for a business combination and 24 months (or up to 30 months if extended pursuant to a stockholder vote as described
in this prospectus) from the date of this prospectus within which to complete a business
combination. If we are unable to complete a business combination within this time frame and are
forced to liquidate the trust account, the per-share liquidation price received by our public
stockholders from the trust account may be less than $10.00 because of the expenses of this
offering, our general and administrative expenses and the anticipated costs of seeking a business
combination. Upon the liquidation of the trust account, public stockholders will be entitled to
receive (unless there are claims not otherwise satisfied by the amount not held in the trust
account or the indemnification provided by Mr. Sidhu) approximately $10.00 per share plus interest
earned on their pro rata portion of the trust account (net of taxes payable and amounts permitted
to be disbursed for working capital purposes), which includes
$2,925,000 ($0.325 per public stockholder share) of the
underwriters’ deferred commission and discount and the
$4,252,000 (approximately $0.472 per public stockholder share)
purchase price of the sponsor units.
In addition, if we do not have sufficient funds to pay the costs of liquidation from our
remaining assets outside of the trust account, we may request from the account agent up to $15,000 of
interest earned on the trust account to pay for liquidation costs and expenses. In the event that
we liquidate and it is subsequently determined that the reserve for claims and liabilities is
insufficient, stockholders who received a return of funds from the liquidation of our trust account
could be liable for claims made by our creditors. Furthermore, there will be no distribution with
respect to our outstanding warrants, which will expire and be worthless if we liquidate the trust
account in the event we do not complete a business combination within the prescribed time frame.
For a more complete discussion of the effects on our stockholders if we are unable to complete a
business combination, see “Proposed Business—Effecting our Business Combination—Dissolution and
liquidation if no business combination is completed.”
If third parties bring claims against us, the proceeds held in the trust account could be reduced
and the per share liquidation price received by stockholders from the trust account as part of our
plan of distribution will be less than approximately $10.00 per share.
Our placing of funds in trust may not protect those funds from third-party claims against us.
Third-party claims may include contingent or conditional claims and claims of directors and
officers entitled to indemnification under our amended and restated certificate of incorporation or
under indemnity agreements. We intend to pay any claims from our funds not held in trust to the
extent sufficient to do so. Although we will seek to have all vendors, service providers and
prospective target businesses or other entities that are owed money by us for services rendered or
contracted for or products sold to us waive any right, title, interest or claim of any kind in or
to any monies held in the trust account for the benefit of our public stockholders, there is no
guarantee that they will execute such agreements. Even if they execute such agreements, they could
bring claims against the trust account including but not limited to fraudulent inducement, breach of
fiduciary responsibility or other similar
claims, as well as claims challenging the enforceability of the waiver, in each case in order to
gain an advantage with a claim against our assets, including the funds held in the trust account.
If any third party refused to execute an agreement waiving such claims to the monies held in the
trust account, we would perform an analysis of the alternatives available to us if we chose not to
engage such third party and evaluate if such engagement would be in the best interest of our
stockholders. Examples of possible instances where we may engage a third party that refused to
execute a waiver include the engagement of a third party consultant whose particular expertise or
skills are believed by management
to be significantly superior to those of other consultants that
would agree to execute a waiver or in cases where management is unable to find a provider of
required services willing to provide the waiver.
Accordingly, the proceeds held in trust could be subject to claims that could take priority
over the claims of our public stockholders and the per-share liquidation price could be less than
the approximately $10.00 per share held in the trust account, plus interest earned (net of taxes and
up to $2,400,000 of interest earned on the trust account that is permitted to be disbursed to us
for working capital purposes), due to claims of such creditors. If we are unable to complete a
business combination and we liquidate, Mr. Sidhu will be liable to ensure that the proceeds in
the trust account are not reduced if we did not obtain a valid and enforceable waiver from vendors,
service providers, or other entities that are owed money by us for services rendered or contracted
for or products sold to us, as well as from any prospective target businesses for fees and expenses
of third parties that we agree in writing to pay in the event we do not complete a combination with
such target business. Further, while Mr. Sidhu’s obligation to indemnify is not limited to any maximum dollar amount,
Mr. Sidhu is liable only to the extent necessary to ensure that the amounts in the trust account
are not reduced. Although our audit committee will not perform ongoing or periodic reviews of
Mr. Sidhu’s financial condition, in the event that this indemnity obligation arose and Mr. Sidhu
did not comply with such obligation, we believe that we would have an obligation to seek
enforcement of the obligation and that our board of directors would have a fiduciary duty to seek
enforcement of such obligation on our behalf, subject to the circumstances at that time. Based on
representations made to us by Mr. Sidhu, we currently believe Mr. Sidhu
is capable of funding his indemnity obligations, even though he has
not reserved funds
for such an eventuality. We cannot assure you that Mr. Sidhu will be able to satisfy those
obligations. These indemnification provisions will be set forth in a letter agreement executed by
Mr. Sidhu. Mr. Sidhu has agreed in writing that in the event we obtain a waiver of any right,
title, interest or claim of any kind in or to any monies held in the trust account for the benefit
of our stockholders from a vendor, service provider, prospective target business or other entity
that is owed money by us for services rendered or contracted for or products sold to us, the
indemnification from Mr. Sidhu will not be available, even if such waiver is subsequently found
to be invalid and unenforceable. The indemnification from Mr. Sidhu
does not extend to any third-party claims that are not for money owed
by us for services rendered or contracted for, such as tort claims or
any claims under our indemnity of the underwriters against certain liabilities related to
this offering, including the Securities Act.
In addition, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is
filed against us that is not dismissed, the funds held in our trust account will be subject to
applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims
of third parties with priority over the claims of our stockholders. To the extent any bankruptcy
claims deplete the trust account we cannot assure you we will be able to return to our public
stockholders the liquidation amounts due them.
If we become a debtor in a bankruptcy case or have other financial difficulty, a court may order
the return of any distributions received by our stockholders.
Promptly after our liquidation in the event a business combination has not been completed
within 24 months (or up to 30 months if extended pursuant to a stockholder vote as described in
this prospectus), we intend to distribute the then-remaining proceeds held in the trust account to
our public stockholders. If we become a debtor in a bankruptcy case or encounter other
financial difficulty and have unpaid creditors, an unpaid creditor or bankruptcy trustee (or the
company as a chapter 11 debtor in possession) could file a lawsuit under the fraudulent transfer
provisions of federal bankruptcy law or corresponding state laws to recover distributions received
by our stockholders. If these lawsuits were successful, stockholders would likely have to repay
any distributions previously received from us.
Our stockholders may be held liable for claims by third parties against us to the extent of
distributions received by them.
Our amended and restated certificate of incorporation provides that we will continue in
existence only 24 months (or up to 30 months if our
stockholders approve an extension) from the
date of this prospectus. If we have not completed a business combination within such time frame
and amended this provision in connection therewith, pursuant to the Delaware General Corporation
Law, or DGCL, our corporate existence will cease except for the purposes of winding up our affairs
and liquidating. Under Section 282 of 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. If the corporation complies with certain procedures set forth in Section 280 of the DGCL
intended to ensure that it makes reasonable provision for all claims against it, including a 60-day
notice period during which any third-party claims can be brought against the corporation, a 90-day
period during which the corporation may reject any claims brought, and an additional 150-day
waiting period before any liquidating distributions are made to stockholders, any liability of
stockholders with respect to a liquidating distribution is limited to the lesser of such
stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any
liability of the stockholder would be barred after the third anniversary of the dissolution.
However, it is our intention to make liquidating distributions to our stockholders as soon as
reasonably possible after our corporate existence terminates
and, therefore, we do not intend to comply with those procedures. Because we will not be complying with those procedures, we are
required, pursuant to Section 281 of the DGCL, to adopt a plan that will provide for our payment,
based on facts known to us at such time, of (i) all existing claims, (ii) all pending claims and
(iii) all claims that may be potentially brought against us within the subsequent 10 years.
Accordingly, we would be required to provide for any claims of creditors known to us at that time
or those that we believe could be potentially brought against us within the subsequent 10 years
prior to distributing the funds held in the trust to stockholders. We cannot assure you that we
will properly assess all claims that may be potentially brought against us. As such, our
stockholders could potentially be liable for any claims to the extent of distributions received by
them and any liability of our stockholders may extend well beyond the third anniversary of such
date. Accordingly, we cannot assure you that third parties will not seek to recover from our
stockholders amounts owed to them by us. In the event of our liquidation, we may have to adopt a
plan to provide for the payment of claims that may potentially be brought against us, which could
result in the per-share liquidation amount to our stockholders being significantly less than
approximately $10.00.
You will not have any rights or interest in funds from the trust account, except under certain
limited circumstances.
Our public stockholders will be entitled to receive funds from the trust account only in the
event of our liquidation or if they seek to convert their respective shares of common stock into
cash (i) in connection with a business combination that the stockholder voted against and that is
completed by us, or (ii) in connection with an extension of the time period within which we must
complete our business transaction that the stockholder voted against and that is approved. In no
other circumstances will a stockholder have any right or interest of any kind in the trust account.
If we are deemed to be an investment company, we may be required to institute burdensome compliance
requirements and our activities may be restricted, which may make it difficult for us to complete a
business combination.
If we are deemed to be an investment company under the Investment Company Act of 1940, we may
be subject to certain restrictions that may make it more difficult for us to complete a business
combination, including:
•
restrictions on the nature of our investments;
•
restrictions on borrowing; and
•
restrictions on the issuance of securities, including warrants.
In addition, we may have imposed upon us certain burdensome requirements, including:
•
registration as an investment company;
•
adoption of a specific form of corporate structure; and
•
reporting, record keeping, voting, proxy, compliance policies and procedures and
disclosure requirements and other rules and regulations.
We do not believe that our anticipated principal activities will subject us to the Investment
Company Act. To this end, the proceeds held in trust may be invested
by the account agent only in
United States “government securities” within the meaning of Section 2(a)(16) of the Investment
Company Act with a maturity of 180 days or less, or in money market funds meeting certain
conditions under Rule 2a-7 promulgated under the Investment Company Act. By restricting the
holdings of the trust account to these instruments, we believe that we will not be deemed an
investment company within the meaning of the Investment Company Act. This offering is not intended
for persons who are seeking a return on investments in government securities or money market funds.
The trust account and the purchase of government securities and money market funds for the trust account
is intended as a holding place for funds pending the earlier to occur of either: (i) the
completion of our primary business objective, which is a business combination, or (ii) absent a
business combination, liquidation and return of the funds held in this trust account to our public
stockholders.
If we are deemed to be an investment company at any time, we will be required to comply with
additional regulatory requirements under the Investment Company Act that would require additional
expenses for which we have not budgeted. Furthermore, if we are deemed to be an investment
company, our contracts may be voided and we may be unable to complete a business combination.
If we are unable to complete a business combination, our public
stockholders may be forced to wait
the full 24 months (or up to 30 months if our
stockholders approve an extension) from
the date of this prospectus before receiving
liquidation distributions.
We
have 18 months from the date of this prospectus to sign a letter of
intent or definitive agreement for a business combination and 24 months (or up to 30 months if our stockholders
approve an extension) from the date
of this prospectus within which to complete a business combination. We have no obligation to
return funds to investors prior to such date (other than pursuant to conversion rights in
connection with an extension) unless we complete a business combination prior thereto and only then
in cases where investors have properly sought conversion of their shares. Only after the
expiration of this 24-month period (or up to 30-month period if
our stockholders approve an extension) will public stockholders be entitled to liquidation distributions if we are unable to
complete a business combination.
You will not be entitled to protections normally afforded to investors of blank check companies.
Since the net proceeds of this offering are intended to be used to complete a business
combination with an unidentified target business, we may be deemed to be a blank check company
under the United States securities laws. However, since we will have net tangible assets in excess
of $5 million upon the successful completion of this offering and will file a Current Report on
Form 8-K with the SEC upon completion of this offering including an audited balance sheet
demonstrating this fact, we are exempt from certain rules promulgated by the SEC to protect
investors of blank check companies, such as Rule 419 under the Securities Act of 1933, as amended,
or the Securities Act. Accordingly, investors will not be afforded the benefits or protections of
those rules, such as entitlement to all the interest earned on the funds deposited in the trust
account. Because we are not subject to these rules, including Rule 419, our units will be
immediately tradable and we have a longer period of time to complete a business combination in
certain circumstances than we would if we were subject to such rule. For a more complete
comparison of the terms of this offering to the terms of an offering by a blank check company
subject to the provisions of Rule 419, see the section below entitled “Proposed
Business—Comparison of This Offering to Those of Blank Check Companies Subject to Rule 419.”
The report of Beard Miller Company LLP, our independent registered public accounting firm, says
that we may be unable to continue as a going concern.
We have had no revenues to date and our viability as a going concern depends on our
ability to complete this offering successfully. The report of Beard Miller Company LLP, our
independent registered public accounting firm, on our financial statements includes an explanatory
paragraph stating that our business plan is dependent upon our obtaining adequate financing, which
raises substantial doubt about our ability to continue as a going concern. The financial
statements do not include any adjustments that might result from our inability to complete this
offering or our ability to continue as a going concern.
Subsequent to our completion of our initial business combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that
could have a significant negative effect on our financial condition, results of operations and our
stock price, which could cause you to lose some or all of your investment.
Even if we conduct extensive due diligence on a target business with which we combine, we
cannot assure you that this diligence will uncover all material issues that may be present inside a
particular target business, that it would be possible to uncover all material issues through a
customary amount of due diligence, or that factors outside of the target business and outside of
our control will not later arise. As a result of these factors, we may be forced to later
write-down or write-off assets, restructure our operations, or incur impairment or other charges
that could result in our reporting losses. Even if our due diligence successfully identifies
certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary
risk analysis. Even though these charges may be non-cash items and not have an immediate impact on
our liquidity, the fact that we report charges of this nature could contribute to negative market
perceptions about us or our securities. In addition, charges of this nature may cause us to
violate net worth or other covenants to which we may be subject as a result of assuming
pre-existing debt held by a target business or by virtue of our obtaining post-combination debt
financing.
A decline in interest rates could limit the amount available to fund our search for a target
business or businesses and complete our initial business combination because we will depend on
interest earned on the trust account to fund our search, to pay our taxes and to complete our
initial business combination.
Of
the net proceeds of this offering, initially we expect only
approximately $169,220 will be available to us outside
the trust account to fund our working capital requirements. We will depend on sufficient interest
being earned on the proceeds held in the trust account to provide us
with up to $2,400,000, subject
to adjustment, of additional working capital we may need to identify one or more target businesses
and to complete our initial business combination, as well as to pay any taxes that we may owe. A decline in interest rates may result in our having insufficient funds available with
which to structure, negotiate or close our initial business combination. In such event, we would
need to borrow funds from our sponsor or management to operate or may be forced to liquidate.
Neither our sponsor nor our management is under any obligation to advance funds in such
circumstances.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely
affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, state and local governments. In
particular, upon completion of this offering, we will be required to comply with certain SEC and
other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may
be difficult, time consuming and costly. Those laws and regulations and their interpretation and
application may also change from time to time, and those changes could have a material adverse
effect on our business, investments and results of operations. In addition, a failure to comply
with applicable laws or regulations, as interpreted and applied, by any of the persons referred to
above could have a material adverse effect on our business and results of operations.
Because of our structure, we may not be able to complete an attractive initial business
combination.
Notwithstanding the reasons set forth under “Proposed Business — Business Strategy” and
“Proposed Business — Competitive Strengths” in this prospectus, (i) the impact of the decline in
price to earnings ratios on the ability of competing public company competitors to pay for a
target, (ii) the need for capital in light of asset quality issues of such competing acquirors,
(iii) the present high cost and availability of replacement equity, generally in the form of trust
preferred capital, and (iv) general uncertainty relating to the economy, we expect competition from
other depository institutions which may be located in the same geographic markets as a potential
target or in markets contiguous thereto. Because these institutions may have the ability to effect
cost savings and revenue enhancements, they may have a competitive advantage over us.
Furthermore, the obligation we have to seek stockholder approval of our initial business
combination may delay the completion of a transaction. Additionally, our outstanding warrants, and
the future dilution they potentially represent, may not be viewed favorably by certain target
businesses. Any of these obligations may place us at a competitive disadvantage in successfully
negotiating a business combination. Because, based on publicly available information, as of
August 4, 2008, only 81 of the 159 blank check companies that have gone public in the United
States since August 1, 2003, have either completed a business combination or entered into a
definitive agreement for a business combination and 20 companies have failed to complete business
combinations and have either dissolved or announced their intention to dissolve and return trust
proceeds to their stockholders, it may indicate that there are fewer attractive target businesses
available to such entities like our company or that many privately held target businesses are not
inclined to enter into these types of transactions with publicly held blank check companies like
ours. If we are unable to complete our initial business combination with a target business within
a 24-month period (or up to 30-month period if our stockholders approve an extension), we will be
forced to liquidate.
Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management
resources and may increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our
system of internal control over financial accounting and requires that we have such system of internal controls audited
by our independent registered public accounting firm beginning with our Annual Report on Form 10-K for the year ending December 31, 2009. If we fail to
maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil
or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial
reports could harm our business.
A target company may not be in compliance with the provisions of the
Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal
controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time
and costs necessary to complete any such acquisition. Furthermore, any failure to implement
required new or improved controls, or difficulties encountered in the implementation of adequate
controls over our financial processes and reporting in the future, could harm our operating results
or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause
investors to lose confidence in our reported financial information, which could have a negative
effect on the trading price of our stock. Given that prior to any business combination, we will
not have any operations and will only have a limited amount of working capital available to us from
the trust account, any costs incurred to maintain, improve or rectify our internal controls would
have a disproportionately negative effect on our financial position and results of operations.
Risks Relating to the Financial Services Industry
Business combinations with companies with operations in the financial services industry entail
special considerations and risks. If we are successful in completing a business combination with a
target business with operations in the financial services industry, we will be subject to, and
possibly adversely affected by, the following risks:
The financial services industry faces substantial regulatory and litigation risks and conflicts of
interest, and, if we were to complete a business combination with a company in the financial
services industry, we could face legal liability and reduced revenues and profitability if our
services are not regarded as compliant or for other reasons.
The financial services industry is subject to extensive regulation. Many regulators,
including U.S. and other government agencies and self-regulatory organizations, as well as state
securities commissions, insurance regulators and attorneys general, are empowered to conduct
examinations and commence administrative proceedings and investigations that can result in, among
other things, censure, fine, the issuance of cease-and-desist orders, prohibitions against engaging
in some lines of business, suspension or termination of licenses or the suspension or expulsion of
a broker-dealer, investment adviser or insurance distributor. The requirements imposed by
regulators are designed to ensure the integrity of the financial markets and to protect customers,
policyholders and other third parties who deal with financial services firms and are not designed
to protect our stockholders. Regulations and investigations may result in limitations on our
activities, such as the restrictions imposed on several leading securities firms as part of a
settlement these firms reached with federal and state securities regulators and self-regulatory
organizations in 2003 to resolve investigations into equity research analysts’ alleged conflicts of
interest.
Banks domiciled or operating in the United States and their holding companies are subject to
extensive regulation and supervision by applicable federal and state banking agencies. Many of
these regulations are intended to protect parties other than stockholders, such as depositors. If
we were to acquire a bank, these regulations may limit our operations significantly and control the
methods by which we conduct our business, including our lending practices, capital structure,
investment practices and dividend policy. In addition, banks and their holding companies generally
are subject to rigorous capital requirements and may be examined on a regular basis for their
general safety and soundness and compliance with various federal and state legal regimes,
including, but not limited to, the Community Reinvestment Act, the Truth in Lending Act, the Truth
in Savings Act, the Gramm-Leach-Bliley Act, the Equal Credit Opportunity Act, the Real Estate
Settlement and Procedures Act, the Fair Credit Reporting Act and the Bank Secrecy Act, as amended
by the USA PATRIOT Act. Failure to comply with these requirements or receive a satisfactory
examination may subject a bank to informal or formal agreements, such as a memorandum of
understanding, deferred prosecution agreement or cease-and-desist order, and may also result in the
assessment of civil monetary penalties, criminal prosecution or the limitation of expansionary activities at both the bank and
holding company levels. Outside the United States, banks and their stockholders are subject to
similar extensive regulation and supervision relating to the conduct of business, capital
requirements, safety and soundness and compliance.
Governmental and self-regulatory organizations, the Investment Dealers Association and the
Mutual Fund Dealers Association, the SEC, FINRA and national securities exchanges such as the
American Stock Exchange and the New York Stock Exchange, impose and enforce regulations on
broker-dealers, investment banking firms, investment advisers and similar financial services
companies. Self-regulatory organizations adopt rules, subject to approval by the SEC, that govern
aspects of the financial services industry and conduct periodic examinations of the operations of
registered investment dealers, and broker-dealers. For example, U.S.
broker-dealers are subject to rules and regulations that cover all aspects of the securities
business including: sales methods
and trade practices; use and safekeeping of customer funds and
securities; capital structures; recordkeeping; the preparation of research; the extension of
credit; and the conduct of officers and employees. The types of regulations to which investment
advisers are subject are also extensive and include: minimum capital requirements; recordkeeping;
fee arrangements; client disclosure; custody of customer assets; and the conduct of officers and
employees. Investment advisers and broker-dealers outside the United States are often subject to
similar regulation and supervision.
The SEC, FINRA and various regulatory agencies also have stringent rules with respect to
the maintenance of specific levels of net capital by securities brokerage firms. Failure to
maintain the required net capital may subject a firm to suspension or revocation of registration by
the SEC and suspension or expulsion from the Investment Dealers Association and FINRA and other
self-regulatory bodies, which ultimately could prevent any broker-dealers that we acquire or
acquire control of from performing as a broker-dealer. In addition, a change in the net capital
rules, the imposition of new rules or any unusually large charge against net capital could limit
the operations of broker-dealers, which could harm our business if we were to complete a business
combination with a securities brokerage firm. Similar capital requirements apply to insurance
companies. For example, in the United States, under laws adopted by individual states, insurers
engaged in certain lines of business are subject to risk based capital requirements. Insurers
having less total adjusted capital than that required under the risk-based capital laws are subject
to varying degrees of regulatory action, depending on the level of capital inadequacy. Maintaining
appropriate levels of statutory surplus is also considered important by state insurance regulatory
authorities. Failure by an insurance company to maintain certain levels of statutory surplus could
result in increased regulatory scrutiny and enforcement.
In addition, insurance companies are subject to extensive regulation and supervision in the
jurisdictions in which they do business. For example, in the United States, state insurance
departments have broad powers with respect to such things as: licensing companies to transact
business; authorizing lines of business; imposing dividend limitations; licensing agents and
distributors of insurance products; restricting companies’ ability to enter and exit markets;
mandating certain insurance benefits; restricting companies’ ability to terminate or cancel
coverage; requiring companies to provide certain types of coverage; regulating premium rates,
including the ability to increase premium rates; approving policy forms; regulating trade,
marketing, sales and claims practices; imposing privacy requirements; establishing reserve
requirements and solvency standards; restricting certain transactions between affiliates; and
regulating the type, amounts and valuation of investments.
In recent years, the volume of claims and amount of damages claimed in litigation and
regulatory proceedings against financial services firms has been increasing. After our initial
business combination, our engagement agreements or arrangements may include provisions designed to
limit our exposure to legal claims relating to our services, but these provisions may not protect
us or may not be adhered to in all cases. We may also be subject to claims arising from disputes
with employees for alleged discrimination or harassment, among other things. The risk of
significant legal liability is often difficult to assess or quantify and its existence and
magnitude often remain unknown for substantial periods of time. As a result, we may incur
significant legal expenses in defending against litigation. Substantial legal liability or
significant regulatory action against us could materially adversely affect our business, financial
condition or results of operations or cause significant reputational harm to us, which could
seriously harm our business.
Financial services firms are subject to numerous conflicts of interest or perceived conflicts
of interest. We will need to adopt various policies, controls and procedures to address or limit
actual or perceived conflicts and regularly seek to review and update our policies, controls and
procedures. However, these policies, controls and procedures may result in increased costs, additional operational personnel and increased
regulatory risk. Failure to adhere to these policies and procedures may result in regulatory
sanctions or client litigation. There have been a number of highly publicized cases involving fraud
or other misconduct by employees in the financial services industry in recent years, and we run the
risk that employee misconduct could occur. It is not always possible to deter or prevent employee
misconduct and the precautions we take to prevent and detect this activity may not be effective in
all cases.
If we complete an initial business combination in the financial services industry, we would face
strong competition from financial services firms, many of whom have the ability to offer clients a
wider range of products and services than we may be able to offer, which could lead to pricing
pressures that could materially adversely affect our revenue and profitability.
If we complete an initial business combination in the financial services industry, we will
compete with other firms—both domestic and foreign—on a number of factors, including the quality
of our employees, transaction execution, our products and services, innovation, reputation and
price. We may fail to attract new business and we may lose clients if, among other reasons, we are
not able to compete effectively. We will also face significant competition as result of a recent
trend toward consolidation in this industry. In the past several years, there has been substantial
consolidation and convergence among companies in the financial services industry. In particular,
since the passage of the Gramm-Leach-Bliley Act in 1999, which reduced barriers to banks providing
a wide range of financial services, a number of large commercial banks, insurance companies and
other broad-based financial services firms have established or acquired broker-dealers or have
merged with other financial institutions. Many of these firms have the ability to offer a wide
range of products such as loans, deposit-taking, insurance, brokerage, investment management and
investment banking services, which may enhance their competitive position. They also have the
ability to support investment banking with commercial banking, insurance and other financial
services revenue in an effort to gain market share, which could result in pricing pressure on other
businesses. We believe, in light of increasing industry consolidation and the regulatory overhaul
of the financial services industry, that competition will continue to increase from providers of
financial services products.
The financial services industry has inherent risks, which may affect our net income and revenues.
The financial services business is, by its nature, subject to numerous and substantial risks,
including volatile trading markets and fluctuations in the volume of market activity. Consequently,
our net income and revenues would likely be subject to wide fluctuations, reflecting the effects
of many factors, including:
•
general economic conditions;
•
securities market conditions;
•
the level and volatility of interest rates and equity prices;
These and other factors could affect the stability and liquidity of securities, credit and
futures markets, and the ability of issuers, other securities firms and counterparties to perform
their obligations.
A reduced volume of securities and futures transactions and reduced market liquidity generally
results in lower revenues from principal transactions and commissions. Lower price levels for
securities may result in a reduced volume of transactions and may also result in losses from
declines in the market value of securities held in proprietary trading and underwriting accounts,
particularly in volatile or illiquid markets, or in markets influenced by sustained periods of low
or negative economic growth, including the risk of losses resulting from the ownership of
securities, trading and the failure of counterparties to meet commitments. In particular, if we
complete a business combination with an investment management firm, our business could be expected
to generate lower revenue in a market or general economic downturn. Under a typical arrangement for
an investment management business, the investment advisory fees we could receive would be based on
the market value of the assets under management. Accordingly, a decline in the prices of securities
would be expected to cause our revenue and income to decline by:
•
causing the value of the assets under management to decrease, which would result in
lower investment advisory fees;
•
causing negative absolute performance returns for some accounts which have
performance-based incentive fees, resulting in a reduction of revenue from such fees;
or
•
causing some of our clients to withdraw funds from our investment management
business in favor of investments they perceive as offering greater opportunity and
lower risk, which also would result in lower investment advisory fees.
Operational risks may disrupt our business, result in regulatory action against us or limit our
growth.
Financial services businesses are dependent on communications and information systems,
including those of third-party vendors. Any failure or interruption of these systems, whether
caused by fire, other natural disaster, power or telecommunications failure, act of terrorism or
war or otherwise, could materially adversely affect operating results. If we complete a business
combination, we would need to continue to make investments in new and enhanced information systems
and disaster recovery programs. Interruption or loss of our information processing capabilities or
adverse consequences from implementing new or enhanced systems could have a material adverse effect
on our business and the price of our common stock and warrants. As our information system providers
revise and upgrade their hardware, software and equipment technology, we may encounter difficulties
in integrating these new technologies into our business. Additionally, our systems may be subject
to infiltration by unauthorized persons. If our systems or facilities were infiltrated and damaged
by unauthorized persons, our clients could experience data loss, financial loss and significant
business interruption. In addition, we could suffer significant damage to our reputation and could
face potential litigation and regulatory action. If that were to occur, it could have a material
adverse effect on our business, financial condition and results of operations.
Many financial services firms face credit risks which, if not properly managed, could cause
revenues and net income to decrease.
Many types of financial services firms, including banks and broker-dealers, lend funds to
their customers. Among the risks all lenders face is the risk that some of their borrowers will not
repay their loans. The ability of borrowers to repay their obligations may be adversely affected by
factors beyond our control, including local and general economic and market conditions. A
substantial portion of the loans may be secured by liens on real estate or securities. These same
factors may adversely affect the value of real estate and securities as collateral. If we enter
into a business combination with a firm that makes loans, we would maintain an allowance for loan
losses to reflect the level of losses determined by management to be inherent in the loan
portfolio. However, the level of the allowance and the amount of the provisions would only be
estimates based on management’s judgment and regulatory guidance, and actual losses incurred could
materially exceed the amount of the allowance or require
substantial additional provisions to the allowance, either of which would likely have a material adverse effect on our revenues and net
income.
The mortgage origination business of many financial services firms is subject to special litigation
and regulatory risks.
The laws and regulations of the various jurisdictions in which companies in the financial
services industry conduct their mortgage lending business are complex, frequently changing and, in
some cases, in direct conflict with each other. In particular, this business is subject to various
laws, regulations and guidance that restrict non-prime loan origination or purchase activities.
Some of these laws and regulations provide for assignee liability for warehouse lenders, whole loan
buyers and securitization trusts. In addition, the downturn in the U.S. residential real estate
market has resulted in increased regulatory scrutiny, and may result in increased complaints and
claims, relating to non-prime mortgage origination practices, and further difficulties in the
mortgage markets could result in increased exposure to liability, including possible civil and
criminal liability, demands for indemnification or loan repurchases from purchasers of such loans
(including securitization trusts), class action lawsuits or
administrative enforcement actions. Furthermore, loans originated by a
broker or other residential mortgage loan originator that is not
properly licensed may be void or voidable.
We may be subject to significant regulatory requirements in connection with our efforts to acquire
a financial services organization.
Acquisitions of financial services organizations are often subject to significant regulatory
requirements and consents, and we will not be able to complete a business combination with certain
types of financial services organizations without complying with applicable laws and regulations
and obtaining required governmental or client consents. For example, if we were to attempt to
acquire or acquire control of an investment management firm, we would have to obtain consents of
the firm’s investment management clients or enter into new contracts with them, and there is no
assurance that we would be able to obtain such consents or enter into new contracts. If our
acquisition target were an insurance company, state insurance commissioners in the states where the
insurance company does business would review an acquisition transaction and could prevent it by
withholding their consent. The acquisition of a business in other sectors of the financial services
industry may require similar approvals or consents. We may not receive any such required approvals
or we may not receive them in a timely manner, including as a result of factors or matters beyond
our control.
Many financial services firms and substantially all depository institutions are subject to interest
rate risk and variations in interest rates may negatively affect our financial performance.
Changes in the interest rate environment may reduce our profits. Banks and other financial
services firms realize income from the differential, or “spread,” between the interest earned on
loans, securities and other interest earning assets, and interest paid on deposits, borrowings and
other interest bearing liabilities. Net interest spreads are affected by the difference between the
maturities and repricing characteristics of interest earning assets and interest bearing
liabilities. In addition, loan volume and yields are affected by market interest rates on loans,
and rising interest rates generally are associated with a lower volume of loan originations. At
times during the last four years, the federal funds rate and other short-term market interest
rates, which are used to guide deposit pricing in most banking organizations, have increased, while
intermediate- and long-term market interest rates, which are used by many banking organizations to
guide loan pricing, have not increased proportionately. This has led to a “flattening”
of the market yield curve during such periods. The yield curve even “inverted” during 2005 as
short-term rates exceeded long-term rates over an intermediate maturity horizon. A flat yield curve
may hurt interest rate spread and net interest margin because the interest rates paid on deposits
are likely to reprice upwards faster than the interest rates earned on loans and investments. If
the yield curve remains relatively flat or inverts, we would expect that net interest spread and
net interest margin would continue to compress, which would hurt net interest income. We cannot
assure you that we can minimize our interest rate risk. In addition, while an increase in the
general level of interest rates may increase our net interest margins and loan yield, it may
adversely affect the ability of certain borrowers with variable rate loans to pay the interest on
and principal of their obligations and reduce the value of fixed rate investment securities that we
may own. Accordingly, changes in levels of market interest rates could materially and adversely
affect our net interest spread, asset quality, loan origination volume and overall profitability.
The asset quality of many financial services firms may deteriorate in adverse market conditions.
During 2007, the significant downturn in the residential real estate market due to declining
real estate values has resulted in a serious deterioration in the asset quality of many companies
in the financial services industry, especially in the depository institutions sector, and therefore
its capital, earnings and market valuation. This is particularly true in connection with
mortgage-related products, such as non-prime, ALT-A, Option ARM and other loans, and, in certain
geographic markets, loans to construction companies and homebuilders. These conditions have
continued into 2008 and, combined with rising oil prices, declining business and consumer
confidence and increased unemployment, have precipitated an economic slowdown and fears of a
possible recession. It is difficult to predict how long these conditions will continue, whether
they will continue to deteriorate and which markets, products and businesses will continue to be
adversely affected. This deterioration makes it more difficult to determine the adequacy of
reserves and to predict growth in assets and asset yields, and therefore future growth and
profitability, as compared to a more favorable and stable business environment.
Risks Associated with Banking Regulation
Below are some of the specific risks that we may face if we complete a business combination
with a financial services organization that is a bank.
We may be subject to significant regulatory requirements in connection with our efforts to acquire
a banking organization, which may result in our failure to complete our initial acquisition within
the required time frame and may force us to liquidate.
To acquire a banking organization we would be required to obtain approvals from one or more of
the Board of Governors of the Federal Reserve System, or Federal Reserve, the FDIC, the Office of
the Comptroller of the Currency, or the OCC, the Director of the Office of Thrift Supervision, or
the OTS, and/or state banking supervisors. Such approvals are time-consuming to obtain, require the
submission of extensive information regarding investors, and are subject to considerations of
safety and soundness and public convenience and needs, among others. We may not receive any such
required approvals or we may not receive them in a timely manner, including as a result of factors
or matters beyond our control. Satisfying any requirements of banking supervisors may delay the
date of our completion of our initial business combination beyond the
required time frame (24 months after the completion of this offering
or up to 30 months if extended with approval from our
stockholders). If we fail to complete our initial business combination within the required time
frame we will be forced to liquidate.
In
addition, if any person or group of persons deemed to be “acting
in concert” directly or indirectly acquires more
than 10% (5% if such person is a bank or thrift holding company) of any class of our voting stock and such person is
not approved by the appropriate federal bank regulatory authority, we may be prohibited from acquiring a bank or thrift or,
prior to acquiring such a bank or thrift, we may be required to repurchase any shares of our stock held by such person that
are in excess of such limitation.
We will be subject to significant government regulation if we acquire a banking organization.
Following the acquisition of a banking organization, we will operate in a highly regulated
environment and will be subject to supervision and regulation by a number of governmental agencies,
including one or more of the Federal Reserve, the OCC, and the FDIC, the OTS and/or state banking
supervisors. Regulations adopted by these agencies, which are generally intended to provide
protection for depositors and customers rather than for the benefit of stockholders, govern a
comprehensive range of matters relating to the ownership and control of stockholders, acquisition
of other companies and businesses, permissible activities we may engage in, maintenance of adequate
capital levels, sales practices, anti-money-laundering requirements, and other aspects of our
operations. The appropriate banking supervisors will perform detailed examinations of us and our
subsidiaries on a regular basis. Banking supervisors possess broad authority to prevent or remedy unsafe or unsound practices
or violations of law and to require robust and detailed policies, procedures, and systems of risk
management and legal compliance. Any failure of such policies, procedures, and systems (including
actions by a banking organization prior to our acquisition of it), or any failure by us or our
subsidiaries to maintain satisfactory examination ratings for any reason, could result in
substantial penalties, requirements, and/or restrictions on our ability to conduct business. In
addition, future legislation and government policy could adversely affect our results of
operations.
If we were to acquire businesses in segments of the financial services industry which are subject
to maintaining capitalization requirements and capital ratios and subject to regulatory approvals
and consents, the structure of the potential business combination, including our use of debt, and
the size of the potential business combination may be impacted, the pool of potential target
businesses may be limited and our ability to complete a business combination within the requisite
time period may be adversely affected.
Banks and insurance companies generally are subject to rigorous capital requirements. Any
debt used in the completion of the business combination may adversely affect the potential target
businesses’ ability to maintain capitalization requirements in certain regulated segments of the
financial services industry. If we were to acquire businesses in segments of the financial
services industry which are subject to maintaining capitalization requirements and capital ratios
and subject to regulatory approvals and consent, the structure of the potential business
combination, including our use of debt, and the size of the potential business combination may be
impacted, the potential pool of target businesses may limited and our ability to complete a
business combination within the requisite time period may be adversely affected. Therefore, our
ability to incur debt in connection with a business combination in the depository institutions
sector will be more limited than in connection with a business combination in an unregulated
business.
Our ability to pay dividends or repurchase shares of our common stock will be subject to
restrictions under applicable banking laws and regulations.
Our ability to pay dividends or repurchase shares of our common stock will depend on the
ability of any subsidiary banks or thrifts that we acquire to pay dividends to us. Banks and
thrifts are subject to certain regulatory restrictions on the payment of dividends or repurchase of
stock. A national bank or a thrift generally may pay dividends without regulatory approval in any
calendar year to the extent of the total of its net profits for such year combined with its
retained net profits for the preceding two years, less any required transfers to surplus. State
banks or thrifts may be subject to similar limitations. The ability of a bank or thrift to pay
dividends is also restricted by the requirement that it maintain adequate levels of regulatory
capital. Federal bank regulatory agencies also have the authority to prohibit a bank or thrift
from engaging in unsafe or unsound practices, and the payment of dividends or the repurchase of
stock could be deemed an unsafe or unsound practice depending on the financial condition or
supervisory status of the institution. State banking regulators often have similar powers.
Substantial regulatory limitations on investments in banks and thrifts may limit investors’ ability
to purchase our stock.
With limited exceptions, federal regulations require the approval of the appropriate federal
banking supervisor before a person or company or a group of persons or companies deemed to be
“acting in concert” may directly or indirectly acquire more than 10% (5% if the acquirer is a bank
or thrift holding company) of any class of a banking organization’s voting stock, or direct or
indirectly obtain the ability to control in any manner the election of a majority of directors or
otherwise direct the management or policies of a banking organization. Prospective investors must
comply with these requirements, if applicable, in connection with any purchase of our units in this
offering, any subsequent exercise of warrants, or any subsequent trading of units. These
requirements may limit potential purchasers, and therefore the value, of our stock.
Risks
Associated with the Money Remittance Business
The
money remittance business is subject to a wide range of laws and regulations,
especially laws designed to prevent money laundering and terrorist financing.
Failure by us, or our third-party agents or subagents to comply with those
laws and regulations could have an adverse effect on our business,
financial position and results of operations.
If we
acquire a money remittance business, we would be subject to a
wide range of laws and regulations. These include financial
services regulations, consumer disclosure and consumer protection
laws, currency control regulations, money transfer and payment
instrument licensing regulations, escheat laws and laws covering
consumer privacy, data protection and information security. Our
services will also be subject to an increasingly strict set of
legal and regulatory requirements intended to help detect and
prevent money laundering, terrorist financing and other illicit
activity. For example, certain economic and trade sanctions programs
that are administered by the Treasury Department’s Office of Foreign
Assets Control prohibit or restrict transactions to or from or dealings
with specified countries, their governments, and in certain circumstances,
their nationals, and with individuals and entities that are specially-designated
nationals of those countries, narcotics traffickers, and terrorists or terrorist
organizations. As federal and state legislative and regulatory scrutiny
and action in these areas increase, we expect that costs of complying
with these requirements will increase, perhaps substantially. Failure
to comply with any of these requirements-by either us, or our third-party
agents or subagents (over which we would have limited legal and practical
control) could result in the suspension or revocation of a license or
registration required to provide money transfer services, the limitation,
suspension or termination of services and/or the imposition of civil and
criminal penalties, including fines. In addition to those direct
costs, a failure by us, or any third-party agents or subagents of the
business we acquire to
comply with applicable laws and regulations also could seriously
damage our reputation, and result in diminished revenue and profit
and increased operating costs.
In
connection with regulatory requirements to assist in the prevention
of money laundering and terrorist financing and pursuant to legal
obligations and authorizations, we would be required to make information
available to United States federal and state, as well as certain foreign,
government agencies, when required by law. In recent years, these agencies
have increased their
requests for such information from companies
(both financial service providers and others), particularly
in connection with efforts to prevent terrorist financing.
During the same period, there has also been increased public
attention regarding the corporate use of personal information,
accompanied by legislation and regulations intended to strengthen data
protection, information security and consumer privacy. These regulatory
goals, the prevention of money laundering and terrorist financing and the
protection of consumer privacy, may conflict, and the law in these areas
is not consistent or settled. The legal, political and business
environments in these areas are rapidly changing, and subsequent
legislation, regulation, litigation, court rulings or other events
could expose the business we acquire to increased program costs, liability and
reputational damage.
Changes in the
regulatory environment may also impact the manner in which we may operate
any such business or may change the competitive landscape. Such changes could
result in increased costs to comply with these new rules, or in the event
we are unable to comply, could have an adverse impact on the business
we acquire and its financial position and results of operations.
In
addition, fees that can be charged may be reduced because of regulatory
initiatives or proceedings that are either industry wide or specifically
targeted at such company. For example, initiatives both in the United States
and at G-8 summit meetings have focused on lowering international remittance
costs. These initiatives may have an adverse impact on the business
we acquire and its
financial position and results of operations.
Interruptions in
international migration patterns could adversely affect our business,
financial position and results of operations.
The
money transfer business relies in part on migration patterns,
which bring workers into countries with greater economic opportunities
than their native countries. A significant portion of money transfers is
initiated by immigrants. Changes in immigration laws, such as those
currently being considered in the United States, economic development
patterns that discourage international
migration and political or other events (such as war, terrorism or
health emergencies) that would make it more difficult for workers to
migrate or work abroad could adversely affect such remittance volume or
growth rate and could each have an adverse effect on the business we
acquire and its financial
position and results of operations.
Money
remittance businesses face competition from global and niche or
corridor money transfer providers, United States and international
banks, card associations, card-based payments providers and a
number of other types of service providers. Our ability to grow any
such business we acquire will
depend on our ability to compete effectively in this sector.
The
money remittance business is a highly competitive sector comprised
of players from a variety of financial and non-financial business groups.
Competitors include banks, thrifts,credit unions, ATM providers and operators, card
associations, card-based payments providers such as issuers of e-money,
travel cards or stored-value cards, informal remittance systems, web-based
services, telephone payment
systems (including mobile phone networks), postal organizations, retailers,
check cashers, mail and courier services, currency exchanges and traditional money
transfer companies. These services are differentiated by features and functionalities
such as speed, convenience, network size, hours of operations, loyalty programs,
reliability and price. Our ability to grow any
such business we acquire will depend on our ability to compete
effectively with these participants. In addition, failure to compete
on service differentiation could significantly affect the growth potential
and related profitability of any
such business we acquire.
Interruptions
in our systems may have a
significant effect on any
such business we acquire.
The ability to provide reliable service will largely
depend on the efficient and uninterrupted operation of the
computer information systems of any
such business acquire. Any significant interruptions
could harm such business and reputation and result in a loss of
customers. Such systems and operations could be exposed to damage or
interruption from fire, natural disaster, power loss, telecommunications
failure, terrorism, vendor failure, unauthorized entry and
computer viruses or other causes, many of which may be beyond our control.
Any measures taken by such business
may not be successful and such business may experience problems other than system failures.
Any
such business we acquire also may experience software defects, development delays, installation
difficulties and other systems problems, which would harm such business
and reputation and expose the business to potential liability that may not
be fully covered by any business interruption insurance obtained.
Data applications may not be sufficient to address technological
advances, changing market conditions or other developments.
Risks Relating to Our Business Combination
The
requirement that we complete a business combination within
24 months (or up to 30 months if our
stockholders approve an extension) may give potential target businesses leverage over us in
negotiating a business combination.
We will liquidate and promptly distribute only to our public stockholders on a pro rata basis
the net amount in our trust account (subject to our obligations under Delaware law for claims of
creditors) plus any remaining net assets if we do not effect a
business combination within 24
months (or up to 30 months if our stockholders approve an extension) from the date of this
prospectus. Any potential target business with which we enter into negotiations concerning a
business combination will be aware of this requirement. Consequently,
as we approach the initial 24-month deadline to consummate a business combination, our negotiating
position with respect to any target business will be weakened. Any target business may be able to
leverage our dissolution requirement to extract concessions that an operating company or private
equity investor would be unwilling to make, or that we would have been unwilling to make during
similar negotiations within the first few months following consummation of this offering.
We may issue shares of our capital stock to complete a business combination, which would reduce the
equity interest of our stockholders and may cause a change in control of our ownership.
Our amended and restated certificate of incorporation authorizes the issuance of up to
24,199,500 shares of common stock, par value $0.0001 per share, and 500 shares of preferred
stock, par value $0.0001 per share. Immediately after this offering (assuming no exercise of the
underwriters’ over-allotment option and after giving effect to
the forfeiture of 337,500 initial shares by our existing stockholders as described elsewhere in this prospectus), there will be
3,095,100 authorized but unissued shares of our common stock available for issuance (after
appropriate reservation for the issuance of shares of common stock upon full exercise of our
outstanding warrants and assuming we announce a business combination
prior to the one year anniversary of the date of this prospectus) and
all of the 500 shares of preferred stock available for issuance.
Although we have no commitment as of the effective date of the registration statement, we may issue
a substantial number of additional shares of our common or preferred stock, or a combination of
common and preferred stock, to complete a business combination. The issuance of additional shares
of our common stock or any number of shares of our preferred stock:
•
may significantly reduce the equity interest of our stockholders;
•
may subordinate the rights of holders of common stock if preferred stock is issued
with rights senior to those afforded to the holders of our common stock;
•
may cause a change in control if a substantial number of our shares of common stock
are issued, which may affect, among other things, our ability to use our net operating
loss carry forwards, if any, and could result in the resignation or removal of our
present officers and directors and cause our public stockholders to become minority
stockholders in the combined entity; and
•
may adversely affect prevailing market prices for our common stock.
For a more complete discussion of the possible structure of a business combination, see “Proposed Business—Effecting our Business Combination—General.”
Our
future joint investments, if any, could be adversely affected by our lack of sole
decision-making authority, our reliance on a partner’s financial condition and disputes between us
and our partners.
While we will not structure a business combination in such a way that we will not acquire a
controlling interest in a target company, we may in the future co-invest with third parties through
partnerships or joint investment in an acquisition target or other entities. In such
circumstances, we may not be in a position to exercise sole decision-making authority regarding a
target business, partnership or other entity. Investments in partnerships or other entities may,
under certain circumstances, involve risks not present were a third party not involved, including
the possibility that partners might become insolvent or fail to fund their share of required
capital contributions. Partners may have economic or other business interests or goals that are
inconsistent with our business interests or goals, and may be in a position to take actions
contrary to our policies or objectives. Such partners may also seek similar acquisition targets as
us and we may be in competition with them for such business combination targets. Disputes between
us and partners may result in litigation or arbitration that would increase our expenses and
distract our officers and/or directors from focusing their time and effort on our business.
Consequently, actions by, or disputes with, partners might result in subjecting assets owned
by the partnership to additional risk. We may also, in certain circumstances, be liable for the
actions of our third-party partners. For example, in the future we may agree to guarantee
indebtedness incurred by a partnership or other entity. Such a guarantee may be on a joint and
several basis with our partner in which case we may be liable in the event such party defaults on
its guaranty obligation.
If the net proceeds of this offering not being placed in trust together with interest earned on the
trust account available to us are insufficient to allow us to operate
for at least the next 24
months (or up to 30 months if our stockholders approve an extension), we may not be able to
complete a business combination.
We
currently believe that, upon completion of this offering, the
approximately $169,220 in funds available
to us outside of the trust account and proceeds from the sale of our
initial shares together with
up to $2,400,000 of interest earned on the trust account that is permitted to be disbursed to us
will be sufficient to allow us to operate for at least the next
24 months (or up to 30 months if
our stockholders approve an extension), assuming that a business combination is not completed
during that time. However, we cannot assure you that our estimates will be accurate. We will
depend on sufficient income being earned on the proceeds held in the trust account to provide us
with up to
$2,400,000 of additional working capital we may need to identify one or more target
businesses and to complete a business combination, as well as to pay any taxes that we may owe. A decline in interest rates may result in our having insufficient funds available with
which to structure, negotiate or close a business combination. In such event, we would need to
raise additional funds to operate or may be forced to liquidate. Neither our sponsor nor any
member of our management team is under any obligation to loan us money under such circumstances or
any other circumstances.
We may use all or a portion of the funds not being placed in trust or that may be released to
us from the trust to pay due diligence costs in connection with a potential business combination or
to pay fees to consultants to assist us with our search for a target business. We could also use a
portion of these funds as a down payment, “reverse break-up fee” (a payment to the target company
under a merger agreement if the financing for an acquisition is not obtained), or to fund a
“no-shop” provision (a provision in letters of intent designed to keep target businesses from
“shopping” around for transactions with others on terms more favorable to such target businesses)
with respect to a particular proposed business combination, although we do not have any current
intention to do so. If we entered into such a letter of intent where we paid for the right to
receive exclusivity from an acquisition target and were subsequently required to forfeit such funds
(whether as a result of our breach or for other reasons) or if we agree to a reverse break-up fee
and subsequently were required to pay such fee (whether as a result of failure to obtain the
necessary financing or for other reasons), we might not have sufficient funds to continue searching
for, or conduct due diligence with respect to any other potential acquisition targets. In such
event, we would need to obtain additional funds to continue operations. Neither our sponsor nor
our management team is under any obligation to advance funds in such circumstances.
Because of our limited resources and the significant competition for business combination
opportunities, including numerous companies with a business plan similar to ours, it may be more
difficult for us to complete a business combination.
Based
on publicly available information, as of August 4, 2008, 159 similarly structured
blank check companies have completed initial public offerings since August 2003 and numerous others
have filed registration statements. Of these companies, only 54 companies have completed a
business combination, while 27 other companies have announced that they have entered into
definitive agreements or letters of intent with respect to potential business combinations, but
have not yet completed such business combinations and another 20 will be or have been
liquidated. The remaining 58 blank check companies have approximately
$11.7 billion in trust and
are seeking to complete business combinations. There are approximately 68 blank check companies that have filed
registration statements and are seeking to complete initial public
offerings with potentially $13.9
billion in trust. While some of these companies have specific industries in which they must
identify a potential target business, a number of these companies may complete a business
combination in any industry and/or geographic location they choose. As a result, we may be subject
to competition from these and other companies seeking to complete a business combination, which, in
turn, will result in an increased demand for privately-held companies that may be potential
acquisition targets for us in these industries. Because of this competition, we cannot assure you
that we will be able to effectuate a business combination within the required time period.
Further, the fact that only 81 of such companies have either completed a business combination or
entered into a definitive agreement or letter of intent for a business combination may indicate that there are fewer attractive target businesses
available to such entities or that many privately-held target businesses are not inclined to enter
into a business combination with publicly-held blank check companies like ours.
Although only a few of these blank check companies have publicly stated a focus on the
financial services industry and fewer yet have publicly stated a focus on the depository
institutions sector, and because we are not precluded from completing a business combination in any
industry, we could encounter intense competition from other entities having a business objective
similar to ours, including private investors (which may be individuals or investment partnerships),
other blank check companies, and other entities, domestic and international, competing for the type
of businesses that we may intend to acquire. Many of these competitors possess greater technical,
human and other resources, or more local industry knowledge, or greater access to capital, than we
do and our financial resources will be relatively limited when contrasted with those of many of
these competitors. While we believe that there are numerous target
businesses that we could potentially acquire with the net proceeds of this offering, our ability to compete with respect to
the acquisition of certain target businesses that are sizable will be limited by our available
financial resources. This inherent competitive limitation gives others an advantage in pursuing
the acquisition of certain target businesses. Furthermore, the obligation that we have to seek
stockholder approval of a business combination may delay the completion of a transaction and make
us less attractive to a potential target
business. In addition, our outstanding warrants, and the
future dilution they potentially represent, may not be viewed favorably by certain target
businesses. Also, our obligation in certain instances to convert into cash shares of our common
stock may reduce the resources available to us for a business combination. Any of these factors
may place us at a competitive disadvantage in successfully negotiating a business combination.
Since we have not yet selected any target business with which to complete a business combination,
we are unable to currently ascertain the merits or risks of the business’s operations and investors
will be relying on management’s ability to source and evaluate potential business combinations.
Because we have not yet identified a prospective target business, investors in this offering
currently have no basis to evaluate the possible merits or risks of a business combination.
Although our management and board of directors will evaluate the risks inherent in a particular
target business, we cannot assure you that they will properly ascertain or assess all of the
significant risk factors, in particular if the target business is in an industry outside their area
of experience. We also cannot assure you that an investment in our
units will ultimately prove to
be more favorable to investors than a direct investment, if such opportunity were available, in a
target business. Except for the limitation that a target business have a fair market value of at
least 200% of our net assets held in trust (net of taxes and up to
$2,400,000 of interest earned on
the trust account that is permitted to be disbursed to us for working capital purposes and
excluding the amount of the underwriters’ deferred commission and discount held in trust)
at the
time of the execution of the definitive agreement for our intial business combination, we will have virtually unrestricted flexibility in identifying
and selecting a prospective acquisition candidate. Investors will be relying on the ability of our
officers and directors to source business combinations, evaluate their merits, conduct or monitor
diligence and conduct negotiations. For a more complete discussion of our selection of a target
business, see the section below entitled “Proposed Business—Effecting our Business
Combination—General.”
We may have only limited ability to evaluate the management of the target business.
While we intend to closely scrutinize any individuals we engage after a business combination,
we cannot assure you that our assessment of these individuals will prove to be correct. These
individuals may be unfamiliar with the requirements of operating a public company, which could
cause us to have to expend time and resources helping them become familiar with such requirements.
This could be expensive and time-consuming and could lead to various operational issues that may
adversely affect our operations.
Since we may acquire a business that has operations outside the United States, we may encounter
risks specific to one or more countries in which we ultimately operate.
If we acquire a business that has operations outside the United States, we will be exposed to
risks that could negatively impact our future results of operations following a business
combination. The additional risks to which we may be exposed in any such case include but are not
limited to:
•
tariffs and trade barriers;
•
regulations related to customs and import/export matters;
•
tax issues, such as tax law changes and variations in tax laws as compared to the
United States;
•
cultural and language differences;
•
an inadequate banking system;
•
foreign exchange controls;
•
privacy and data protection laws;
•
labor relations laws;
•
restrictions on the repatriation of profits or payment of dividends;
•
crime, strikes, riots, civil disturbances, terrorist attacks and wars;
•
nationalization or expropriation of property;
•
law enforcement authorities and courts that are inexperienced in commercial matters;
and
•
deterioration of political relations with the United States.
In addition, if we acquire a business that conducts a substantial portion of its business in
emerging economies, we could face additional risks, including the following:
•
the challenge of navigating a complex set of licensing requirements and restrictions
affecting the conduct of business in such countries by foreign companies;
•
difficulties and limitations on the repatriation of cash;
•
currency fluctuation and exchange rate risks;
•
protection of intellectual property, both for us and our customers; and
•
difficulty retaining management personnel and skilled employees.
If we are unable to manage these risks following a business combination, we may face
significant liability, our international sales could decline and our financial results could be
adversely affected.
Foreign currency fluctuations could adversely affect our business and financial results.
A target business with which we combine may do business and generate sales within other
countries. Foreign currency fluctuations may affect the costs that we incur in such international
operations. It is also possible that some or all of our operation expenses may be incurred in
non-U.S. dollar currencies. The appreciation of non-U.S. dollar currencies in those countries
where we have operations against the U.S. dollar would increase our costs and could harm our
results of operations and financial condition.
Because any target business with which we attempt to complete a business combination will be
required to provide our stockholders with financial statements prepared in accordance with and
reconciled to United States generally accepted accounting principles, the pool of prospective
target businesses may be limited.
In accordance with the requirements of U.S. federal securities laws, in order to seek
stockholder approval of a business combination, a proposed target business will be required to have
certain financial statements that are prepared in accordance with, or that can be reconciled to,
U.S. generally accepted accounting principles, or U.S. GAAP, and audited in accordance with the
standards of the Public Company Accounting Oversight Board (United States). To the extent that a
proposed target business does not have financial statements that have been prepared with, or that
can be reconciled to, U.S. GAAP, and audited in accordance with the standards of the PCAOB, we will
not be able to acquire that proposed target business. These financial statement requirements may
limit the pool of potential target businesses.
Resources could be wasted in researching acquisitions that are not completed, which could
materially adversely affect subsequent attempts to locate and acquire or merge with another
business.
It is anticipated that the investigation of each specific target business and the negotiation,
drafting, and execution of relevant agreements, disclosure documents, and other instruments will
require substantial management time and attention and substantial costs for accountants, attorneys
and other advisers. If a decision is made not to complete a specific business combination,
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 target business, we may fail to
complete the business combination for any number of reasons, including those beyond our control,
such as public stockholders who own 35% or more of the shares of common stock issued in this
offering voting against the proposed business combination or an extension of the time period within
which we must complete a business combination and opting to have us redeem their stock for a pro
rata share of the amount then held in the trust account, even if a majority of the shares of common stock voted by the
public stockholders are voted in favor of the business combination. Any such event will result in
a loss to us of the related costs incurred, which could materially adversely affect subsequent
attempts to locate another target and effect a business combination.
Initially, we may only be able to complete one business combination, which will cause us to be
solely dependent on a single asset or business.
The
net proceeds from this offering and sale of sponsor
units (excluding
the underwriters’ deferred commission and discount of $2,925,000 held in trust) will provide us
with net proceeds of approximately $90,000,000, which will be held in trust and may be used by us to complete a
business combination. We currently have no restrictions on our ability to seek additional funds
through the sale of securities or through loans. As a consequence, we could seek to acquire a
target business that has a fair market value significantly in excess
of 200%
of our net assets held
in trust (net of taxes and amounts permitted to be disbursed for working capital purposes and
excluding the amount of the underwriters’ deferred commission and discount held in trust)
at the
time of the execution of the definitive agreement for our initial business combination. Although as of the date of this prospectus we have not engaged
or retained, had any discussions with, or entered into any agreements with, any third party
regarding any such potential financing transactions, we could seek to fund such a business
combination by raising additional funds through the sale of our securities or through loan
arrangements. However, if we were to seek such additional funds, any such arrangement would only
be completed in connection with our completion of a business combination. Consequently, it is
probable that we will have the ability to complete only a single business combination, although
this may entail the simultaneous acquisitions of several assets or closely related operating
businesses at the same time. However, should our management elect to pursue more than one
acquisition simultaneously, our management could encounter difficulties in completing all or a
portion of such acquisitions due to a lack of adequate resources, including the inability of
management to devote sufficient time to the due diligence, negotiation and documentation of each
acquisition. Furthermore, even if we complete the acquisition of more than one target business at
substantially the same time, there can be no assurance that we will be able to integrate the
operations of such target businesses. Accordingly, the prospects for our ability to effect our
business strategy may be:
•
solely dependent upon the performance of a single business; or
•
dependent upon the development or market acceptance of a single or limited number of
products, processes or services.
In this case, we will not be able to diversify our operations or benefit from the possible
spreading of risks or offsetting of losses, unlike other entities that may have the resources to
complete several business combinations in different industries or different areas of a single
industry. Furthermore, since a business combination may entail the simultaneous acquisitions of
several assets or operating businesses at the same time and may be with different sellers, we will
need to convince such sellers to agree that the purchase of their assets or businesses is
contingent upon the simultaneous closings of the other acquisitions.
If we determine to acquire multiple businesses or assets, we may have difficulty closing all
transactions simultaneously or integrating all acquired businesses and assets after closing.
If we determine to simultaneously acquire several businesses or assets that are owned by
different sellers, we will need for each of such sellers to agree that our purchase of its business
is contingent on the simultaneous closings of the other business combinations, which may make it
more difficult for us, and delay our ability, to complete the initial business combination. With
multiple business combinations, we could also face additional risks, including additional burdens
and costs with respect to possible multiple negotiations and due diligence investigations (if there
are multiple sellers) and the additional risks associated with the subsequent assimilation of the
operations and services or products of the acquired companies in a single operating business. If
we are unable to adequately address these risks, it could negatively impact our profitability and
results of operations. We may seek to effect our initial business combination with one or more
privately held companies, which may present certain challenges to us, including the lack of
available information about these companies.
We may not obtain an opinion from an unaffiliated third party as to the fair market value of the
target business or businesses or that the price we are paying for such business or businesses is
fair to our stockholders.
We are not
required to obtain an opinion from an unaffiliated third party that the target
business or businesses we select have a fair market value of at least
200% of our net assets held in
trust (net of taxes and up to $2,400,000 of interest earned on the trust account that is permitted
to be disbursed to us for working capital purposes and excluding the amount of the underwriters’ deferred commission and discount held in trust)
at the time of the execution of the definitive agreement for our initial business combination, unless our board is not able to independently determine that
the target business or businesses have a sufficient fair market value. We are also not required to
obtain an opinion from an unaffiliated third party that the price we are paying for the target
business or businesses we select is fair to our stockholders.
Firms providing fairness opinions typically place limitations on the purposes for which the
opinion may be used, and there can be no assurances that, as a result of such limitations or
applicable law, our stockholders, in addition to our board of directors, will be entitled to rely
on any opinion that may be obtained. We expect to require that any firm selected by us to provide
a fairness opinion will adhere to general industry practice in stating the purposes for which its
opinion may be used. If no opinion is obtained, our stockholders will be relying on the judgment
of our board of directors.
There may be tax consequences to our business combinations that may adversely affect us.
While we expect to undertake any merger or acquisition so as to minimize taxes both to the
acquired business and us, such business combination might not meet the statutory requirements of a
tax-free reorganization, or the parties might not obtain the intended tax-free treatment upon a
transfer of shares or assets. A non-qualifying reorganization could result in the imposition of
substantial taxes.
The potential loss of key customers, management and employees of a target business could cause us
not to realize the benefits anticipated to result from an acquisition.
It is possible that, following a business combination, the potential loss of key customers,
management and employees of an acquired business could cause us not to realize the benefits
anticipated to result from an acquisition.
Certain regulatory requirements may increase the time and costs of completing an acquisition.
If we were to acquire a previously privately owned company, it most likely will incur
additional costs in order to comply with the requirements of the Sarbanes-Oxley Act of 2002 and
other public company requirements, which in turn would reduce our earnings. Section 404 of the
Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls
and requires that we have such system of internal controls audited beginning with our Annual Report
on Form 10-K for the year ending December 31, 2009. If we fail to maintain the adequacy of our
internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or
stockholder litigation. Any inability to provide reliable financial reports could harm our
business. Section 404 of the Sarbanes-Oxley Act also requires that our independent registered
public accounting firm report on management’s evaluation of our system of internal controls. A
target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding
adequacy of their internal controls. The development of the internal controls of any such entity
to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to
complete any business combination. Furthermore, any failure to implement required new or improved
controls, or difficulties encountered in the implementation of adequate controls over our financial
processes and reporting in the future, could harm our operating results or cause us to fail to meet
our reporting obligations. Inferior internal controls could also cause investors to lose
confidence in our reported financial information, which could have a negative effect on the trading
price of our stock.
We may be unable to obtain additional financing, if required, to complete a business combination or
to fund the operations and growth of the target business, which could compel us to restructure the
transaction or abandon a particular business combination.
Although
we believe that the net proceeds of this offering and the
sale of the sponsor units will be sufficient to allow us to complete a business combination, because we have
not yet identified any prospective target business, we cannot ascertain the capital requirements
for any particular transaction. If the net proceeds of this offering
and the sale of the sponsor units prove to be insufficient, either because of the size of the business combination, the depletion of
the available net proceeds in the course of searching for suitable target businesses, or the
obligation to convert into cash a significant number of shares of our common stock from dissenting
stockholders, we will be required to seek additional financing such as debt, equity or
co-investment with other investors. We cannot assure you that any additional financing will be
available to us on acceptable terms, if at all. To the extent that additional financing proves to
be unavailable when needed to complete a particular business combination, we would be compelled to
either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. If we are unable to secure additional financing, and,
as a result, we fail to complete a business combination in the allotted time, we would liquidate
the trust account, resulting in a loss of a portion of your investment. In addition, if we
complete a business combination, we may require additional financing to fund continuing operations
and/or growth. The failure to secure additional financing if required could have a material
adverse effect on our ability to continue to develop and grow, even if we complete a business
combination. None of our officers or directors or our sponsor is required to provide any financing
to us in connection with or after the completion of a business combination.
We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a
business combination, which may adversely affect our financial condition.
Although we have no commitments as of the date of this prospectus to issue any notes or other
debt securities, or to otherwise incur debt, subject to regulatory approvals, we may choose to
incur substantial debt to complete a business combination. The incurrence of debt could result in:
•
default and foreclosure on our assets if our operating cash flow after a business
combination were insufficient to pay our debt obligations;
•
acceleration of our obligations to repay the indebtedness even if we have made all
principal and interest payments when due, if the debt contained covenants that required
the maintenance of certain financial ratios or reserves and any such covenant were
breached without a waiver or renegotiation of that covenant;
•
our immediate payment of all principal and accrued interest, if any, if the debt was
payable on demand;
covenants that limit our ability to pay dividends on our common stock, acquire
capital assets or make additional acquisitions; and
•
our inability to obtain additional financing, if necessary, if the debt contained
covenants restricting our ability to obtain additional financing while such debt was
outstanding.
Risks Relating to Our Securities
The determination of the offering price of our units is more arbitrary than the pricing of
securities for an operating company in a particular industry.
Prior to this offering, there has been no public market for any of our securities. The public
offering price of the units and the terms of the warrants were negotiated between us and the
underwriters. Factors considered in determining the prices and terms of the units, including the
common stock and warrants included in the units, include:
•
the history and prospects of companies whose principal business is the acquisition
of other companies;
•
prior offerings of those companies;
•
our prospects for acquiring an operating business at attractive values;
•
our capital structure;
•
an assessment of our management and their experience in identifying operating
companies;
•
general conditions of the securities markets at the time of this offering; and
•
other factors as were deemed relevant.
However, although these factors were considered, the determination of our offering price is
more arbitrary than the pricing of securities for an operating company in a particular industry
since we have no historical operations or financial results to compare them to.
You will experience immediate and substantial dilution from the purchase of our common stock.
Our
existing stockholders paid an aggregate of $25,000, or approximately
$0.010 per share, for
the 2,587,500 initial shares (including the 337,500 shares subject to forfeiture if and to the
extent the underwriters’ over-allotment option is not exercised) issued and outstanding prior to
this offering. The difference between the public offering price per share of common stock
(assuming no value is attributed to the warrants) and the pro forma net tangible book value per
share of our common stock after this offering constitutes the dilution to the investors in this
offering. Our sponsor acquired the initial shares at a nominal price, significantly contributing
to this dilution. Assuming this offering is completed, you and the other new investors will incur
an immediate and substantial dilution of approximately 26.60% or
approximately $2.66 per share (the
difference between the pro forma net tangible book value per share of
approximately $7.34, and the
initial offering price of $10.00 per unit), not including the effect of certain offering costs for
which payment is deferred until completion of a business combination.
Our outstanding warrants may have an adverse effect on the market price of our common stock and
make it more difficult to effect a business combination.
In
connection with this offering, we will be issuing warrants to purchase up to 9,000,000
shares of common stock. In addition, we have also agreed to issue up
to an additional 1,350,000
warrants to purchase additional shares of our common stock if the over-allotment option that we
granted to our underwriters is exercised in full. Immediately prior to the closing of this offering
we will issue and sell 425,200 sponsor units to our sponsor in
exchange for $4,252,000 to be
deposited in our trust account.
To the extent we issue shares of common stock to effect a business combination, the potential
for the issuance of a substantial number of additional shares of common stock upon exercise of
the warrants, including those that are part of the sponsor units, could make us a less attractive acquisition
vehicle in the eyes of a target
business. Such securities, when exercised, will increase the number of issued and outstanding
shares of our common stock and reduce the value of the shares of common stock issued to complete
the business combination. Therefore, our warrants may make it more difficult to effectuate a
business combination or increase the cost of acquiring the target business. In addition, the sale,
or even the
possibility of sale, of the shares of common stock issuable upon exercise of the
warrants could have an adverse effect on the market price for our securities or on our ability to
obtain future financing. If and to the extent these warrants are exercised, you may experience
dilution to your holdings.
If
we redeem the warrants included in the units offered to the public,
the warrants that are part of the sponsor units, which
are non-redeemable so long as they are held by the sponsor or its permitted transferees, could
provide the sponsor and its permitted transferees with the ability to realize a larger gain than
the public warrant holders.
The warrants held by our public warrant holders may be called for redemption at any time after
the warrants become exercisable:
•
in whole and not in part;
•
at a price of $0.01 per warrant;
•
upon a minimum of 30 days prior written notice of redemption to each warrant holder;
and
•
if, and only if, the last sale price of our common stock on the American Stock
Exchange or other national securities exchange on which our common stock may be traded
equals or exceeds $14.25 per share for any 20 trading days within a 30-trading day
period ending on the third business day prior to the notice of redemption to warrant
holders.
In addition, we may not redeem such warrants unless the shares of common stock issuable upon
exercise of those warrants are covered by an effective registration statement from the beginning of
the measurement period through the date fixed for the redemption.
Redemption of the warrants could force the warrant holders to (i) exercise the warrants and
pay the exercise price at a time when it may be disadvantageous for the holders to do so, (ii) sell
the warrants at the then current market price when they might otherwise wish to hold the warrants
or (iii) accept the nominal redemption price, which, at the time the warrants are called for
redemption, is likely to be substantially less than the market value of the warrants.
As
a result of the warrants that are part of the sponsor units not being subject to redemption so long as they are held
by the sponsor or its permitted transferees, holders of such warrants could realize a larger gain
than our public warrant holders in the event we redeem our public warrants.
Our management’s ability to require holders of our warrants to exercise such warrants on a cashless
basis will cause holders to receive fewer shares of common stock upon their exercise of the
warrants than they would have received had they been able to exercise their warrants for cash.
If we call our warrants for redemption after the redemption criteria, described at
“Description of Securities — Warrants — Public Stockholders’ Warrants,” have been satisfied, our
management will have the option to require any holder that wishes to exercise his warrant to do so
on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the
warrants for that number of shares of common stock equal to the quotient obtained by dividing (x)
the product of the number of shares of common stock issuable upon the
exercise of the warrants, multiplied by the
difference between the exercise price of the warrants and the “market value” and (y) the market
value. The “market value” shall mean the average reported last sale price of our common stock for
the 10 trading days ending on the third trading day prior to the date on which notice of redemption
is sent to the holders of the warrants. If our management chooses to require holders to exercise
their warrants on a cashless basis, the number of shares of common stock received by a holder upon
exercise will be fewer than it would have been had such holder exercised his warrant for cash. This
will have the effect of reducing the potential “upside” of the holder’s investment in our company.
A market for our securities may not develop, which would adversely affect the liquidity and price
of our securities.
Although
we have applied to have our securities listed on the American Stock Exchange, as
of the date of this prospectus, there is currently no market for our securities. Prospective
stockholders therefore have no access to information about prior trading history on which to base
their investment decision. Once listed on the American Stock Exchange, an active trading market
for our securities may never develop or, if developed, it may not be sustained. You may be unable
to sell your securities unless a market can be established or sustained.
If our existing stockholders exercise their registration rights, it may have an adverse effect on
the market price of our common stock and the existence of the registration rights may make it more
difficult to complete a business combination.
Pursuant to a registration rights agreement that will be entered into between us, our
sponsor, and any of its permitted transferees, the holders of the
initial shares and the sponsor units, including the component sponsor
shares and sponsor warrants (and the common stock
issuable upon exercise of such warrants) will be entitled to
demand registration rights, “piggy-back”
registration rights and short-form resale registration
rights, commencing (i) 12 months after the completion
of a business combination as it relates to the initial shares and (ii) upon the completion of a business combination as it relates to the sponsor units, including the component sponsor shares and sponsor warrants
(and the common stock issuable upon exercise of such warrants). If our existing stockholders exercise their
registration rights with respect to all of the securities beneficially owned by them as of the date
of this prospectus, then there will be an additional 2,675,200 shares of our common stock (after
giving effect to the forfeiture of 337,500 sponsor shares if the underwriters’ over-allotment
option is not exercised) and 425,200 warrants available for sale in the public market. The
presence of these additional numbers of securities eligible for trading in the public market may
have an adverse effect on the market price of our securities. In addition, the existence of these
rights may make it more difficult to effectuate a business combination or increase the cost of the
target business, as the stockholders of the target business may be discouraged from entering into a
business combination with us or will request a higher price for their securities as a result of
these registration rights and the potential future effect their exercise may have on the trading
market for our securities.
If our common stock becomes subject to the SEC’s penny stock rules, broker-dealers may experience
difficulty in completing customer transactions and trading activity in our securities may be
adversely affected.
If at any time we have net tangible assets of $5,000,000 or less and our common stock has a
market price per share of less than $5.00, transactions in our common stock will be subject to the
“penny stock” rules promulgated under the Penny Stock Reform Act of 1990. Under these rules,
broker-dealers who recommend such securities to persons other than institutional accredited
investors must:
•
make a special written suitability determination for the purchaser;
•
receive the purchaser’s written agreement to the transaction prior to sale;
•
provide the purchaser with risk disclosure documents that identify certain risks
associated with investing in “penny stocks” and that describe the market for these
“penny stocks” as well as a purchaser’s legal remedies; and
•
obtain a signed and dated acknowledgment from the purchaser demonstrating that the
purchaser has actually received the required risk disclosure documents before a
transaction in a “penny stock” can be completed.
If our common stock becomes subject to such rules, broker-dealers may find it difficult to
effectuate customer transactions and trading activity in our securities may be adversely affected.
As a result, the market price of our securities may be depressed, and you may find it more
difficult to sell our securities.
In the event that our securities are listed on the American Stock Exchange, the American Stock
Exchange may de-list our securities from quotation on its exchange, which could limit investors’
ability to make transactions in our securities and subject us to additional trading restrictions.
We
have applied to list our securities on the American Stock Exchange, a national
securities exchange, upon completion of this offering. We cannot assure you that our securities,
if listed, will continue to be listed on the American Stock Exchange in the future. In addition,
in connection with a business combination, it is likely that the American Stock Exchange may
require us to file a new listing application and meet its initial listing requirements, as opposed
to its more lenient continued listing requirements. We cannot assure you that we will be able to
meet those initial listing requirements at that time.
If the American Stock Exchange de-lists our securities from trading on its exchange, we could
face significant material adverse consequences, including:
•
a limited availability of market quotations for our securities;
•
a determination that our common stock is a “penny stock,” which would require
brokers trading in our common stock to adhere to more stringent rules and possibly
resulting in a reduced level of trading activity in the secondary trading market for
our common stock;
a more limited amount of news and analyst coverage for our company;
•
a decreased ability to issue additional securities or obtain additional financing in
the future; and
•
a decreased ability of our security holders to sell their securities in certain
states.
An effective registration statement may not be in place when an investor desires to exercise
warrants, thus precluding such investor from being able to exercise its warrants and causing such
warrants to expire worthless.
Holders of our warrants will be able to exercise the warrants only if (i) a current
registration statement under the Securities Act relating to the shares of our common stock issuable
upon exercise of the warrants is then effective and (ii) such shares of common stock are qualified
for sale or exempt from qualification under the applicable securities laws of the states in which
the various holders of warrants reside. Although we have a
contractual obligation to use commercially
reasonable efforts to maintain a current registration statement covering the issuance of the shares
of common stock issuable upon exercise of the warrants following completion of this offering to the
extent required by federal securities laws, we cannot assure that we will be able to do so and
therefore the warrants could expire worthless. Such expiration would result in each holder paying
the full unit purchase price solely for the shares of common stock included in the units. In
addition, we have agreed to use commercially reasonable efforts to register the issuance of the shares of
common stock issuable upon exercise of the warrants under the blue sky laws of the states of
residence of the existing warrant holders, to the extent an exemption is not available. The value
of the warrants may be greatly reduced if a registration statement covering the issuance of the
shares of common stock issuable upon the exercise of the warrants is not kept current or if the
securities are not qualified, or exempt from qualification, in the states in which the holders of
warrants reside. Holders of warrants who reside in jurisdictions in which the issuance of the
shares of common stock issuable upon exercise of the warrants are not qualified and in which there
is no exemption will be unable to exercise their warrants and would either have to sell their
warrants in the open market or allow them to expire unexercised. In no event will the registered
holders of a warrant be entitled to receive a net cash settlement, stock, or other consideration in
lieu of physical settlement in shares of our common stock. If and when the warrants become
redeemable by us, we may exercise our redemption right even if we are unable to qualify the
underlying securities for sale under all applicable state securities laws.
Certain warrant holders are unlikely to receive direct notice of redemption of our warrants.
We expect most purchasers of our warrants will hold their securities through one or more
intermediaries and consequently you are unlikely to receive notice directly from us that the
warrants are being redeemed. If you fail to receive notice of redemption from a third party and
your warrants are redeemed for nominal value, you will not have recourse against us.
We cannot assure you that certain provisions of our amended and restated certificate of
incorporation will not be amended other than in connection with the completion of a business
combination.
We view the provisions of our amended and restated certificate of incorporation to be
obligations to our stockholders, and we presume that investors will make an investment decision
relying, at least in part, on these provisions. Although we are contractually obligated, pursuant
to the underwriting agreement that we will enter into with the
underwriters in connection with this
offering, not to amend or waive these provisions without the affirmative vote of 95% of our
outstanding shares of common stock prior to a business combination, we cannot assure you that this
supermajority requirement will be enforceable under Delaware law and that these provisions will not
be amended or waived by a vote of fewer than 95% of our shares.
Provisions in our amended and restated certificate of incorporation, our amended and restated
bylaws and Delaware law may delay or prevent our acquisition by a third party, which could limit
the price investors might be willing to pay in the future for our common stock and could entrench
management.
Our amended and restated certificate of incorporation and our amended and restated by-laws,
which we intend to adopt prior to the completion of this offering, will contain several provisions
that may make it more difficult or expensive for a third party to acquire control of us without the
approval of our board of directors. These
provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest
or other transaction that might otherwise result in our stockholders receiving a premium over the
market price for their common stock. The provisions include, among others:
•
provisions establishing a board of directors that is divided into three classes with
staggered terms;
provisions relating to the number and election of directors, the appointment of
directors upon an increase in the number of directors or vacancy and provisions
permitting the removal of directors only for cause and with a
662/3
% stockholder vote;
•
provisions requiring a 662/3
% stockholder vote for the amendment of certain provisions
of our certificate of incorporation and for the adoption, amendment and repeal of our
by-laws;
•
provisions barring stockholders from calling a special meeting of stockholders or
requiring one to be called;
•
elimination of the right of our stockholders to act by written consent; and
•
provisions prescribing advance notice procedures for stockholders’ nominations of
directors and proposals for consideration at meetings of stockholders.
Moreover, our board of directors has the ability to designate the terms of and issue new
series of preferred stock. Together, these provisions of our amended and restated certificate of
incorporation, by-laws and Delaware law may make the removal of management more difficult and may
discourage potential takeover attempts that could otherwise involve payment of a premium over
prevailing market prices for our securities and reduce the price that investors might be willing to
pay for shares of our common stock in the future, which could reduce the market price of our common
stock.
Risks Related to Our Officers and Directors and Our Sponsor
Our ability to successfully effect a business combination and to be successful thereafter will be
totally dependent upon the efforts of our officers and directors, some or all of whom may not
continue with us following a business combination.
None of our current key personnel, including our officers, will have entered into employment
or consulting agreements with us prior to a business combination. Further, although we presently
anticipate that our officers will remain associated in senior management, advisory or other
positions with us following a business combination, some or all of the management associated with a
target business may also remain in place.
In making the determination as to whether current management of the target business should
remain with us following the business combination, we will analyze the experience and skill set of
the target business’s management and negotiate as part of the business combination that our initial
officers and directors remain if it is believed that it is in the best interests of the company
after the completion of the business combination. While we intend to closely scrutinize any
individuals we engage after a business combination, we cannot assure you that our assessment of
these individuals will prove to be correct. These individuals may be unfamiliar with the
requirements of operating a public company, which could cause us to have to expend time and
resources helping them become familiar with such requirements. This could be expensive and
time-consuming and could lead to various operational issues that may adversely affect our
operations.
Our key personnel may not continue to provide services to us after the completion of a
business combination if we are unable to negotiate employment or consulting agreements with them in
connection with or subsequent to the business combination, the terms of which would be determined
at such time between the respective parties. Such negotiations would take place simultaneously
with the negotiation of the business combination and could provide for such individuals to receive
compensation in the form of cash payments and/or our securities for services they would render to
us after the completion of the business combination. While the personal and financial interests of
such individuals may influence their motivation in identifying and selecting a target business, the
ability of such individuals to remain with us after the completion of a business combination will
not be the determining factor in our decision as to whether or not we will proceed with any
potential business combination. In addition, it is possible that certain key employees of a target
business may not remain with the
surviving company and may need to be replaced by our officers or other management personnel
recruited by us. We may be unable to successfully fill these positions, which could materially
harm our business and results of operations.
None of our officers or directors has ever been associated with a blank check company, and such
lack of experience could adversely affect our ability to complete a business combination.
None of our officers or directors has ever been associated with a blank check company.
Accordingly, you may not have sufficient information with which to evaluate the ability of our
officers and directors to identify and complete a business combination using the proceeds of this
offering. Our management’s lack of experience in operating a blank check company could adversely
affect our ability to complete a business combination and could result in our having to liquidate
the trust account. If we liquidate, our public stockholders could receive less than the amount
they paid for our securities, causing them to incur significant financial losses.
Our officers and directors are not required to commit their full time to our affairs and,
accordingly, may have conflicts of interest in allocating their time among various business
activities. Such conflicts of interest could have a negative impact on our ability to complete a
business combination.
While we expect that our current officers and directors will devote a portion of their time to
our business, our officers and directors are not required to commit their full time to our affairs,
which could create a conflict of interest when allocating their time between our operations and
their other commitments. We do not intend to have any full time employees prior to the completion
of a business combination. None of our current officers and directors are obligated to devote
any specific number of hours to our affairs. In addition, our officers and directors are not
prohibited from forming another blank check company or a private equity fund or other entity. If
other entities require them to devote more substantial amounts of time to their business and
affairs, it could limit their ability to devote time to our affairs and could have a negative
impact on our ability to complete a business combination. We cannot assure you that these
conflicts will be resolved in our favor.
We may engage in a business combination with one or more target businesses that have relationships
or are affiliated with our officers or directors or our sponsor, which may raise potential
conflicts.
In light of the involvement of our officers, directors and sponsor with other entities and our
intent to effect a business combination in the depository institutions sector, we may decide to
acquire one or more businesses affiliated with our officers, directors or sponsor. As described
herein, our officers and directors serve as officers, board members or advisors for other entities,
including, without limitation, Mr. Champagne serving as a director to the Savings Bank Life
Insurance Company of Massachusetts and Mr. Papadakis serving as
a director to The Philadelphia
Stock Exchange, Inc., and such other entities may compete with us for business combination opportunities.
Our officers, directors and sponsor are not currently aware of any specific opportunities for us
to consummate a business combination with any entities with which they are affiliated, and there
have been no preliminary discussions concerning a business combination with any such entity or
entities. We are unable to predict whether, when or under what circumstances we would pursue or
enter into any such business combination. Although we will not be specifically focusing on, or
targeting, any transaction with any affiliated entities, we would pursue such a transaction if we
determined that such affiliated entity met our criteria for a business combination as set forth in
“Proposed Business — Business Strategy” and such transaction was approved by a majority of our
disinterested directors. Also, the completion of a business
combination between us and an entity owned by a business in which our officers or directors or our
sponsor may have an interest could present a conflict of interest. Even if no conflict of interest actually existed, there may be a dispute
alleging a conflict of interest that could delay the completion of a business combination and/or
result in litigation. Although we may obtain an opinion from an independent investment banking
firm regarding the fairness to our stockholders from a financial point of view of a business
combination with one or more businesses affiliated with our officers, directors or sponsor,
potential conflicts of interest still may exist and, as a result, the terms of the initial business
combination may not be as advantageous to our public stockholders as they would be absent any
conflicts of interest. Moreover, investment banking firms providing fairness opinions typically
place limitations on the purposes for which the opinion may be used or the persons who may rely
upon such opinion and there can be no assurance that, as a result of such limitations or applicable
law, stockholders will be entitled to rely on the opinion. See “Management — Directors and
Executive Officers” for a discussion of the entities with which our officers and directors are
affiliated.
Our
sponsor owns shares of our common stock that will not
participate in the liquidation of the trust account and may be
subject to forfeiture. Accordingly, a conflict of interest may arise in
determining whether a particular target business is appropriate for a business combination.
Our
sponsor owns shares of common stock that were issued prior
to this offering, but will have no right to participate in any liquidation distribution with
respect to those shares of common stock if we are unable to complete a business combination. In
addition, our sponsor has agreed to purchase 425,200 sponsor units
directly from us in a private placement that will occur immediately
prior to the closing of this offering at a
purchase price of $10.00 per
unit for a total purchase price of $4,252,000. The shares of common stock acquired prior to
this offering and any warrants owned by our sponsor will expire worthless if we do not complete a
business combination. Also, our existing stockholders will forfeit on the one-year anniversary of the date of this prospectus such number of initial shares so that, following such forfeiture,
the number of initial shares issued and outstanding shall equal 17.5% of the
aggregate number of initial shares and shares of common stock issued
to the public in this offering
(but excluding the sponsor shares) unless we announce we have entered
into a letter of intent or definitive agreement with an acquisition
candidate, which by itself does not have to satisfy our 200% of net
assets test. Our sponsor may transfer a portion of its
initial or sponsor shares to our officers and directors. In that event, the personal and financial interests of our officers and our directors may
influence their motivation in timely identifying and selecting a target business and completing a
business combination. Consequently, the discretion of our officers and directors in identifying
and selecting a suitable target business may result in a conflict of interest when determining
whether the terms, conditions and timing of a particular business combination are appropriate and
in our stockholders’ best interest and as a result of such conflicts management may choose a target
business that is not in the best interests of our public stockholders.
Our officers, directors, security holders and their respective affiliates may have a pecuniary
interest in certain transactions in which we are involved, and may also compete with us.
We have not adopted a policy that expressly prohibits our directors, officers, security
holders or affiliates from having a direct or indirect pecuniary interest in any investment to be
acquired or disposed of by us or in any transaction to which we are a party or have an interest.
Nor do we have a policy that expressly prohibits any such
persons from engaging for their own
account in business activities of the types conducted by us. Accordingly, such parties may have an
interest in certain transactions such as strategic partnerships or joint ventures in which we are
involved, and may also compete with us. However, we have adopted a policy that, prior to the
completion of a business combination, none of our existing officers or directors or our sponsor, or
any entity with which they are affiliated, will be paid, either by us or a target company, any
finder’s fee, consulting fee or other compensation for any services they render in order to
effectuate the completion of a business combination, other than (i) the reimbursement of
out-of-pocket expenses, (ii) the monthly fee of $7,500 payable to Griffin Holdings Group, LLC, an
affiliate of Mr. Harenza, (iii) customary fees and charges
to Stevens & Lee, an affiliate of Mr. Harenza, and its
affiliates for
performing professional services for us, including, among other
things, in connection with an acquisition, and (iv) by
virtue of their ownership of initial shares, sponsor units or any securities included in or
issuable upon exercise of such securities.
In the course of their other business activities, our sponsor, officers and directors and their
respective affiliates may become aware of investment and business opportunities that may be
appropriate for presentation to our company as well as the other entities with which they are
affiliated. Our officers and directors may have conflicts of interest in determining to which
entity a particular business opportunity should be presented.
None of our sponsor, officers or directors or their respective affiliates have been, currently
are or are expected to be a principal of, or affiliated or associated with, a blank check company.
However, our sponsor, officers and directors and their respective affiliates may in the future
become affiliated with additional entities, including other blank check companies, which may be
engaged in activities similar to those intended to be conducted by us. In addition, our sponsor,
officers and directors and their respective affiliates may become aware of business opportunities
that may be appropriate for presentation to us and the other entities to which they owe fiduciary
duties or other contractual obligations. Accordingly, our sponsor, officers and directors and
their respective affiliates may have conflicts of interest in determining to which entity a
particular business opportunity should be presented. See “Management
— Directors and Executive Officers” for a list of entities
to which our directors may owe a fiduciary duty.
In order to minimize potential conflicts of interest that may arise from multiple
affiliations, our sponsor, members and officers of our sponsor and
each of our officers and directors (other than our independent
directors, Griffin Financial, Stevens & Lee, and Joseph M.
Harenza, except where opportunities are presented to him in his
capacity as a member of our board of directors) has agreed,
until the earliest of (a) the completion of a business
combination, (b) 24 months (or up to 30
months if our stockholders approve an extension) after the date of this prospectus and (c) such
time as he ceases to be an officer or director, to present to our company for our consideration,
prior to presentation to any other entity, any business combination opportunity involving the
potential acquisition of a controlling interest (whether through the acquisition of a majority of
the voting equity interests of the target or through other means) in a company in the financial
services industry with assets of less than $3 billion, subject to any other
pre-existing fiduciary duties or contractual obligations they may have, including the ones
described at “Management — Conflicts of Interest and Contractual Restrictions”. We expect
primarily to target businesses within this range of assets, although we have the flexibility to
acquire a business outside of this range.
The
$25,000 purchase price paid by our existing stockholders for the
initial shares and the
$4,252,000 purchase price paid by our sponsor for the sponsor units will not be repaid to them
if we do not complete a business combination. The purchase price for
the sponsor units will be
placed in the trust account and will be available for distribution to our public stockholders. Our
sponsor will not be entitled to receive liquidating distributions with respect to the sponsor
units. The purchase price paid for the initial shares forms part of our working capital.
We have engaged and intend to continue to engage Stevens & Lee, an affiliate of Mr. Harenza, a
member of our board of directors, and its affiliates at customary
rates and charges to perform professional services for us, including
professional services in connection with this offering, our
operations and in connection with an
acquisition, such as, among other things, planning associated with the acquisition process, identifying and evaluating
potential candidates and performing due diligence. Although fees may be paid to Griffin Financial for financial advice in connection with a business combination,
no finder’s fee will be paid to Stevens & Lee, Griffin
Financial or any other entity or person affiliated with us or any
of our officers or directors.
We will comply with Mr. Sidhu’s non-solicitation covenant, as well as his covenant not to
compete with Sovereign. The covenant not to compete provides, among other things, that Mr. Sidhu
may not, directly or indirectly, (a) own more than 4.9% of a publicly traded banking institution or
(b) be an agent, consultant, employee, partner, officer, director, proprietor or otherwise of any
firm, corporation or enterprise, or provide financial or other assistance to such firm, corporation
or enterprise, engaged in the banking or financial services industry, in each case in any county
which is contiguous to a branch, office or other facility of Sovereign as of October 2006, the time
he ceased to be employed by Sovereign. This covenant specifically permits Mr. Sidhu to engage,
directly or indirectly, for his own account or as an officer, director or investor with respect to
any investment company or private equity,
hedge, or similar fund which makes portfolio investments
in entities in the financial services industry if (x) the ownership interest of such investment
company or fund in such financial services entity represents less than 5% of the outstanding voting
power of the financial services entity, or (y) such financial services entity does not have a
substantial percentage of its loans or deposits in, and/or does not have a substantial physical or
economic presence in any county which is contiguous to a branch, office or other facility of
Sovereign. The covenant not to compete expires upon the earlier of (i) October 11, 2011 or (ii) a
change in control of Sovereign. As a result, we are largely
prohibited from acquiring depository institutions
located in certain portions of Massachusetts, Connecticut, Rhode Island, Maryland, New York,
Pennsylvania and New Jersey. Accordingly, we are somewhat limited in the degree to which we can
select potential candidates which operate in the depository
institutions sector and are located in any of these areas.
The non-solicitation covenant provides, among other things, that Mr. Sidhu will not solicit,
recruit or encourage any employee of Sovereign or any of its subsidiaries to leave their
employment. Accordingly, we may not be able to hire certain individuals who may possess the
requisite abilities to assist us in meeting our investment goals.
Griffin Financial, an affiliate of Mr. Harenza, a member of our board of directors, undertakes
engagements relating to financial advisory, investment banking, and other activities for a wide
variety of clients, including institutions, companies and individuals, primarily in the
Mid-Atlantic region of the United States. Nonetheless, there may be situations in which Griffin
Financial has an obligation or an interest that actually or potentially conflicts with our
interests. These conflicts may not be resolved in our favor and, as a result, we may be denied
certain investment opportunities or may be otherwise disadvantaged in some situations by our
relationship to Griffin Financial.
Despite Griffin Financial’s focus on the Mid-Atlantic region of the United States, other
clients of its advisory business may also compete with us for investment opportunities meeting our
investment objectives. If Griffin Financial is engaged to act for any such clients, we may be
precluded from pursuing such opportunities. In addition, investment ideas generated within Griffin
Financial, including by Mr. Harenza and other persons who may make decisions for the company, may
be suitable for both us and for an investment banking client or a current or future Griffin
Financial internal investment vehicle, including other blank check companies in which Griffin
Financial may participate, and may be directed to such client or investment vehicle rather than to
us. Griffin Financial’s advisory business may also be engaged to advise the seller of a company,
business or assets that would qualify as an investment opportunity for us. In such cases, we may
be precluded from participating in the sale process or from purchasing the company, business or
assets. If we are permitted to pursue the opportunity, Griffin Financial’s interests or its
obligations to the seller will diverge from our interests. Griffin Financial and/or Mr. Harenza,
in his capacity as an officer or managing director of Griffin Financial or in his other endeavors,
may choose to present potential business combinations to current or future Griffin Financial
internal investment vehicles, including other blank check companies in which Griffin Financial may
participate, or third parties, including clients of Griffin Financial, before they present such
opportunities to us.
Commencing on the closing of this offering, we have agreed to pay Griffin Holdings Group, LLC,
an entity affiliated with Mr. Harenza, a member of our board of directors, a total of $7,500 per
month for office space, administrative and technological services and secretarial support. This
arrangement is being agreed to by Griffin Holdings Group, LLC for our benefit and is not intended
to provide Mr. Harenza with compensation in lieu of salary or other remuneration. We believe that
such fees are at least as favorable as we could have obtained from an unaffiliated person. This
arrangement will terminate upon completion of a business combination or the distribution of the
trust account to our public stockholders on a pro rata basis.
For a more detailed discussion of our management’s business affiliations and the potential
conflicts of interest of which you should be aware, see the sections entitled
“Management—Conflicts of Interest” and “Certain Relationships and Related Transactions.”
The
requirement that we complete a business combination within
24 months (or up to 30 months if our
stockholders approve an extension) after the date of this prospectus may motivate our officers and
directors to approve a business combination, regardless of its merits, during that time period so
that they may get their out-of-pocket expenses reimbursed.
Our officers and directors and our sponsor may receive reimbursement for out-of-pocket
expenses incurred by them or their affiliates in connection with activities on our behalf such as
identifying potential target businesses and performing due diligence on suitable business
combinations, including traveling to and from the offices, service centers or similar locations of
prospective target businesses to examine their operations. The funds for such reimbursement will
be provided from the money that is being held outside of the trust or is permitted to be disbursed
to us from the trust. In the event that we do not effect a business
combination within 24 months
(or up to 30 months if our stockholders approve an extension) after the date of this prospectus,
then any expenses incurred by such individuals in excess of the money being held outside of the
trust or permitted to be disbursed to us from the trust will not be repaid as we will liquidate at
such time. On the other hand, if we complete a business combination within such time period, those
expenses will be repaid by the target business. Consequently, our officers and directors may have
an incentive to approve and complete a business combination for reasons other than just what is in
the best interest of our stockholders.
Upon completion of our offering, our sponsor will continue to exercise significant influence over
us and its interests in our business may be different than yours.
Upon completion of our offering, we expect that our sponsor and its permitted transferees
(including our officers and directors) will maintain a 20.0% ownership interest in our issued and
outstanding shares (assuming they do not purchase units in this offering). This ownership
interest, together with any other acquisitions of our shares of common stock (or warrants that are
subsequently exercised), could allow our sponsor to influence the outcome of matters requiring
stockholder approval, including the election of directors and approval of significant corporate
transactions after completion of a business combination. The interests of our sponsor and your
interests may not always align and taking actions that require approval of a majority of our
stockholders, such as selling the company, may be more difficult to accomplish. Although our
sponsor does not currently intend to purchase units in this offering, our sponsor or our officers
or directors or any of their affiliates may decide, for financial or other reasons, to purchase
units in this offering or to purchase our securities in the future in the open market or in private
transactions in compliance with our insider trading policy. Any decision to purchase additional
securities in this offering or in the open market or in private transactions will likely be based
on the offering or trading price of the securities and a determination that the purchase represents
an attractive investment opportunity.
In the event our sponsor or our officers or directors purchase shares in privately negotiated
transactions from stockholders who have already cast votes against a proposed business combination
and requested conversion of their shares, such selling stockholders would be required to revoke
their prior votes against the proposed business combination and to revoke their prior elections to
convert their shares and to cast new votes in favor of the proposed business combination. The
revocation of prior negative votes and substitution therefor of votes in favor of the proposed
business combination would have the effect of reducing conversions and increasing votes in favor of
the proposed business combination, thereby making it more likely that a proposed business
combination would be approved.
Our board of directors is and will be divided into three classes, each of which will generally
serve for a term of three years with only one class of directors being elected in each year. It is
unlikely that there will be an annual meeting of stockholders to elect new directors prior to the
completion of a business combination, in which case all of the current directors will continue in
office until at least the completion of the business combination. If
there is an annual meeting, as a consequence of our “staggered” board of directors, only a
minority of the board of directors will be considered for election and our founders, because of
their ownership position, will have considerable influence regarding the outcome. Accordingly, our
founders will continue to exert control at least until the completion of a business combination.
We have opted out of Section 203 of the DGCL, which, subject to certain exceptions, prohibits
a publicly held Delaware corporation from engaging in a business combination transaction with an
interested stockholder for a period of three years after the interested stockholder became such.
Therefore, subject to certain transfer restrictions described herein, our sponsor may transfer
control of us to a third party by transferring our common stock, which would not require the
approval of our board of directors or our other stockholders. In addition, such a change of
control may not involve a merger or other transaction that would require payment of consideration
to our other
stockholders. The possibility that such a change of control could occur may limit the
price that investors are willing to pay in the future for shares of our common stock.
Because our existing stockholders will lose their entire investment in us if a business combination
is not consummated and our sponsor may be required to pay costs associated with our liquidation, we
and our sponsor and officers and directors and their respective affiliates may purchase shares of
our common stock from public stockholders who would otherwise choose to vote against a proposed
business combination or exercise their conversion rights in connection with such business
combination.
Our
existing stockholders own an aggregate of 2,587,500 shares of our
common stock, 337,500 of
which will be forfeited if the over-allotment option is not exercised, which were purchased for an
aggregate of $25,000 and will be worthless if we do not consummate a business combination. In
addition, our sponsor has agreed to purchase sponsor units in a
private placement that will occur immediately prior to the closing of this offering (for an aggregate of
$4,252,000), which will also be worthless if we do not consummate a business combination. We
believe the current equity value for the initial shares owned by our existing stockholders is significantly
lower than the $22,250,000 total value calculated at the $10.00 per unit offering price, assuming
the over-allotment option is not exercised and an aggregate of 337,500 shares have been forfeited
by our existing stockholders, because (i) the units being sold in this offering include a warrant
which our existing stockholders did not receive, (ii) the offering may not succeed and even if it
does succeed, the holders of these shares will not be able to sell or transfer them while such
shares remain in escrow, except in certain limited circumstances (such as transfers to relatives
and trusts for estate planning purposes) and (iii) these shares are not entitled to any proceeds in
case we liquidate if we do not consummate a business combination. In addition, in the event we are
forced to liquidate, our sponsor has agreed to advance to us the entire amount of the funds
necessary to complete such liquidation (currently anticipated to be no more than approximately
$15,000) and has agreed not to seek repayment for such expenses.
Given the interest that our existing stockholders have in a business combination being
consummated, it is possible that we and our sponsor, officers and directors and their respective
affiliates will acquire shares of our common stock from public stockholders (in privately
negotiated transactions) who would otherwise have elected to exercise their conversion rights with
respect to their shares of our common stock in order to vote their shares in favor of the proposed
business combination and ensure that the business combination will be approved, which could result
in a business combination being approved even if, after the announcement of the business
combination, 35% or more of our public stockholders would have elected to exercise their conversion
rights, or a majority of our public stockholders would have voted against the business combination,
but for the purchases made by us, our sponsor, officers and directors and their respective
affiliates. Any privately negotiated transaction with a public stockholder would include a
contractual acknowledgement that such stockholder, although still the record holder of our common
stock, is no longer the beneficial owner thereof and therefore agrees to vote such shares of common
stock as directed by our existing stockholders, which would be voted in favor of the business
combination. In the event we or our sponsor, directors or officers and their respective affiliates
purchase shares in privately negotiated transactions from public stockholders who have already cast
votes against the proposed business acquisition and exercised conversion rights with respect to
their shares, such selling stockholders would be required to revoke their prior votes against the
proposed acquisition and to revoke their prior conversion elections and to cast new votes in favor
of the proposed acquisition. The revocation of prior negative votes and substitution therefor of
votes in favor of the proposed acquisition would have the effect of reducing conversions and
increasing votes in favor of the proposed acquisition, thereby making it more likely that the
proposed business combination would be approved.
Claims for indemnification by our officers and directors may reduce the funds available to satisfy
successful third-party claims against us and may reduce the amount of money in the trust account.
Under our amended and restated certificate of incorporation and pursuant to certain indemnity
agreements, we have agreed to indemnify our officers and directors against a variety of expenses
(including attorneys’ fees) to the fullest extent permitted under Delaware law. If indemnification
payments are made to our officers and directors pursuant to our amended and restated certificate of
incorporation and indemnity agreements, the amount of money in the trust account may be reduced.
In certain circumstances, our board of directors may be viewed as having breached its fiduciary
duty to our creditors, thereby exposing itself and our company to claims of punitive damages.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against
us that is not dismissed, any distributions received by stockholders could be viewed under
applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a
“fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts
received by our stockholders. Furthermore, because we intend to distribute the proceeds held in
the trust account to our public stockholders on a pro rata basis promptly after the termination of
our existence by operation of law, this may be viewed or interpreted as giving preference to our
public stockholders over any potential creditors with respect to access to or distributions from
our assets. Furthermore, our board of directors may be viewed as having breached its fiduciary
duty to our creditors and/or acted in bad faith, by paying public stockholders from the trust
account prior to addressing the claims of creditors. We cannot assure you that claims will not be
brought against us for these reasons thereby exposing our board of directors and our company to
claims of punitive damages.
The statements contained in this prospectus that are not purely historical are forward-looking
statements. Our forward-looking statements include, but are not limited to, statements regarding
our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the
future. In addition, any statements that refer to projections, forecasts or other
characterizations of future events or circumstances, including any underlying assumptions, are
forward-looking statements. The words “anticipates,”“believe,”“continue,”“could,”“estimate,”“will,”“expect,”“intends,”“may,”“might,”“plan,”“possible,”“potential,”“predicts,”“project,”“should,”“would” and similar expressions may identify forward-looking statements, but
the absence of these words does not mean that a statement is not forward-looking. Forward-looking
statements in this prospectus may include, for example, statements about:
•
our ability to identify one or more target businesses or to complete a business
combination;
•
our success in retaining or recruiting, or changes required in, our officers, key
employees or directors following a business combination;
•
our officers and directors allocating their time to other businesses and potentially
having conflicts of interest with our business or in approving a business combination,
as a result of which they would then receive expense reimbursements;
•
our potential ability to obtain additional financing to complete a business
combination;
•
our pool of prospective target businesses;
•
the ability of our officers and directors to generate a number of potential
investment opportunities;
•
our public securities’ potential liquidity and trading;
•
the listing or delisting of our securities from the American Stock Exchange or the
ability to have our securities listed on the American Stock Exchange or any other
securities exchange following a business combination;
•
the use of proceeds not held in the trust account or available to us from income on
the trust account balance;
•
our financial performance following this offering;
•
the availability of and our ability to retain qualified personnel and the management
teams of any target business;
•
changes and trends in the financial services industry and depository institutions
sector; and
•
general economic and market conditions and expected changes and trends in our target
markets.
The forward-looking statements contained in this prospectus are based on our current
expectations and beliefs concerning future developments and their potential effects on us. There
can be no assurance that future developments affecting us will be those that we have anticipated.
These forward-looking statements involve a number of risks, uncertainties (some of which are beyond
our control) or other assumptions that may cause actual results or performance to be materially
different from those expressed or implied by these forward-looking statements. These risks and
uncertainties include, but are not limited to, those factors described under the heading “Risk
Factors.” Should one or more of these risks or uncertainties materialize, or should any of our
assumptions prove incorrect, actual results may vary in material respects from those projected in
these forward-looking statements. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise,
except as may be required under applicable securities laws.
We
are offering 9,000,000 units at an offering price of $10.00 per unit. We estimate that the
net proceeds of this offering, in addition to the funds we will receive from the sale of the
sponsor units (all but approximately $169,220 of which will be deposited into the trust account), will be as
set forth in the following table:
Without
Over-Allotment
Over-Allotment Option
Option Exercised
Gross proceeds
Proceeds from units offered to public
$
90,000,000
$
103,500,000
Proceeds from sale of sponsor units in the private placement
4,252,000
4,252,000
Total gross proceeds
$
94,252,000
$
107,752,000
Offering expenses(1)(5)
Underwriting commissions (6.5% of gross proceeds from
offering, 3.25% of which is payable at closing and 3.25%
of which is payable upon completion of a business
combination)(2)
$
5,850,000
$
6,727,500
Corporate finance fee (0.50% of gross proceeds)
450,000
517,500
Legal fees and expenses(3)
400,000
400,000
Accounting fees and expenses(3)
42,000
42,000
Printing and engraving expenses(3)
60,000
60,000
Securities and Exchange Commission registration fee
6,780
6,780
FINRA filing fee
17,750
17,750
American Stock Exchange listing fee(3)
75,000
75,000
Miscellaneous expenses(3)
106,250
106,250
Total offering expenses
$
7,007,780
$
7,952,780
Proceeds after offering expenses
$
87,244,220
$
99,799,220
Total held outside the trust account(4)
$
169,220
$
169,220
Net offering proceeds held in trust
$
87,075,000
$
99,630,000
Deferred underwriting discount held in trust
2,925,000
3,363,750
Total held in trust
$
90,000,000
$
102,993,750
Percentage of public offering proceeds held in trust
100.00
%
99.51
%
Use of net proceeds not held in trust and income disbursed from
the trust account(5)
Amount
Working capital to cover miscellaneous expenses (potentially
including deposits or down payments for a proposed initial business combination, legal, accounting and other expenses,
including due diligence expenses and reimbursement of out-of-pocket expenses incurred in connection with the investigation,
structuring and negotiation of our initial business combination, director and officer liability insurance premiums and
reserves, legal and accounting fees relating to SEC reporting obligations, brokers’ retainer fees, consulting fees and
finder’s fees)(6) (7)
$
2,265,000
Payment for office space, administrative and technological
services and secretarial support (8)
135,000
Total
$
2,400,000
(1)
A portion of the offering expenses will be pre-funded with
advances on a $200,000
interest-free line of credit promissory note from our sponsor, as described below. This note will be repaid out of the
net proceeds of this offering upon the earlier of (i) March 2, 2009 and (ii) 60 days of the
closing of this offering.
(2)
These commissions consist of an underwriting discount of 6.5% of the gross proceeds of this
offering, or $5,850,000 (or $6,727,500 if the over-allotment option is exercised in full).
The underwriters have agreed to defer $2,925,000 of its underwriting commissions (or $3,363,750
if the over-allotment option is exercised in full), which equals 3.25% of the gross proceeds
of this offering, until completion of a business combination. Upon completion of a business
combination, the amount of the underwriters’ deferred commissions is reduced pro-ratably by
the exercise of stockholder conversion rights and will be paid to the
underwriters from the
funds held in the trust account, and the remaining funds will be released to us and can be
used to pay all or a portion of the purchase price of the business or businesses with which a
business combination occurs, general
corporate purposes, payment of principal or interest on indebtedness incurred in connection with
a business combination, to fund the purchases of other companies or
for working capital. If we are unable to enter into a letter of intent or a definitive agreement regarding a prospective
business combination within 12 months after the completion of this offering but are successful in
completing a business combination within the time periods described
in this prospectus, $443,182 (or $509,659 if the underwriters
exercise their overallotment option in full) of the underwriters’ deferred underwriting commission and
discount will be paid to the underwriters in 44,318 shares (or 50,966
shares if the underwriters exercise their overallotment option in
full) of our
common stock in lieu of cash.
(3)
These expenses are estimates only. Our actual expenditures for some or all of these items
may differ from the estimates set forth herein.
(4)
To the extent our total offering expenses are less than those
estimated, the difference will be held outside the trust account and used for working capital.
The amount of proceeds not held in trust will remain constant
at approximately $169,220 even if the
over-allotment option is exercised. In addition, up to $2,400,000 of interest earned on the
amounts held in the trust account will be available to us to pay for our working capital
requirements. For purposes of presentation, the full amount available to us is shown as the
total amount of net proceeds available to us immediately following the offering. In addition,
amounts required to pay income and franchise taxes may be drawn from the trust account prior to the business
combination.
(6)
Includes market research and valuation firms, as well as other third-party consultants, that
we may engage. We intend to engage Stevens & Lee, which is affiliated with one of our
directors, Mr. Harenza, and its affiliates to perform
professional services for us, including, among other things, in
connection with our initial business combination. There are no limitations that restrict us
from engaging Stevens & Lee or its affiliates to perform such services and other customary legal services for us
for customary fees and on customary terms and conditions and any such engagement will be
approved by a majority of our independent and disinterested directors. Although fees may be paid to Griffin Financial for financial advice in connection with a business combination,
no finder’s fee will be paid to Stevens & Lee, Griffin Financial or any other entity or person affiliated with us or any
of our officers or directors.
(7)
$2,400,000 of interest income earned on the amounts held in the trust account will be available to us to pay
for our working capital requirements.
(8)
Assumes our stockholders have not approved an extension of the time period in which we may
complete a business combination from 24 to up to 30 months as described in this prospectus.
If our stockholders approve such an extension, we could incur up to $225,000 ($7,500 per month
for up to 30 months) for the administrative fee payable to Griffin Holding Group LLC, an
affiliate of Mr. Harenza.
Of
the net proceeds of this offering, approximately $82,823,000 (or
approximately $95,378,000 if the underwriters’
over-allotment option is exercised in full) plus $4,252,000 from the
purchase of sponsor units,
for an aggregate of approximately $87,075,000 or approximately
$99,630,000 if the underwriters’ over-allotment option is
exercised in full) will be placed in a trust account maintained by Mellon Bank, N.A., as
account agent. In addition, $2,925,000 (or $3,363,750 if the underwriters’ over-allotment option is
exercised in full) of the proceeds attributable to the underwriters’ deferred commission and
discount will be deposited into such trust account for a total
amount in trust of approximately $90,000,000
(or approximately $102,993,750 if the underwriters’
over-allotment option is exercised in full). Subject to the extent
any public stockholder exercises their conversion rights as described
in this prospectus, the
proceeds
will not be released from the trust account until the earlier of the completion of a business
combination or as part of any liquidation of our trust account. To the extent the trust account
earns income or we are deemed to have earned income in connection therewith, we will be permitted
to seek disbursements from the trust account to pay any federal, state or local income taxes,
franchise taxes or other tax obligations in respect of the trust account. The proceeds held in the
trust account may be used as consideration to pay the sellers of a target business with which we
complete a business combination (net of taxes and amounts disbursed to us for working capital
purposes and excluding the amount of the underwriters’ deferred commissions held in trust, less any
amounts payable to stockholders exercising conversion rights). Any amounts not paid as
consideration to the sellers of the target business will be used to finance our operations, which
may include the target business we acquired on the completion of the business combination, for
maintenance or expansion of operations of a target business, the payment of principal or interest
due on indebtedness incurred in completing a business combination, to effect other acquisitions, or
for working capital, as determined by our board of directors at that time. We may use any
remaining proceeds held in the trust account for working capital, including director and officer
compensation, change-in-control payments or payments to affiliates, to pay finder’s fees, finance
the operations of the target business, make other acquisitions and pursue our growth strategy. All
amounts held in the trust account that are not converted to cash or released to us as income, net
of income taxes, will be released on closing of a business combination with a target having a fair
market value of at least 200% of our net assets held in trust (net of taxes and up to $2,400,000 of
interest earned on the trust account that is permitted to be disbursed to us for working capital
purposes and excluding the amount of the underwriters’ deferred commission and discount held in
trust) at the time of the execution of the definitive agreement for our initial business combination. The ability of a larger number of our
stockholders to exercise their conversion rights may not allow us to complete the most desirable
business combination or optimize our capital structure.
We
may also use up to $169,220 of net proceeds from the offering (which amount will initially
be held outside the trust account) and proceeds of the sale of initial shares for due diligence,
legal and accounting fees and expenses of the acquisition including investment banking fees, and
other expenses, including structuring and negotiating a business combination, as well as a possible
down payment, “reverse break-up fee” (a payment to the target business under a merger agreement if
the financing for an acquisition is not obtained), to fund a lock-up or “no-shop” provision (a
provision in letters of intent designed to keep target businesses from “shopping” around for
transactions with other companies on terms more favorable to such target businesses) and, if
necessary, to bear the costs of liquidation in the event we are
unable to complete a business combination within
the required time period. While we do not have any current intention to use these
funds as a down payment or reverse break-up fee or to fund a “no-shop” provision with respect to a
particular proposed business combination, if we were to enter into such a letter of intent where we
paid for the right to receive exclusivity from a target business, the amount that would be used as
a down payment or to fund a “no-shop” provision would be determined based on the
terms of the
specific business combination and the amount of our available funds at the time. Our forfeiture of
such funds (whether as a result of our breach or for other reasons), if the amount were large
enough and we had already used up the other funds available to us, could result in our not having
sufficient funds to continue searching for, or conducting due diligence with respect to, potential
target businesses. In such case, if we were unable to secure additional financing, we would most
likely fail to complete a business combination in the allotted time and be forced to liquidate. In
addition to the use of funds described above, we could also use a portion of these funds to pay
fees to consultants to assist us with our search for a target business.
We believe that the interest earned on the trust account will be sufficient to cover the
foregoing expenses. This belief is based on the fact that in-depth due diligence will most likely
be undertaken only after we have negotiated and signed a letter of intent or other preliminary
agreement that addresses the terms of a business combination. However, if our estimate of the
costs of undertaking in-depth due diligence and negotiating a business combination is less than the
actual amount of such costs, we may be required to raise additional funds, the amount, availability
and cost of which is currently unascertainable. To the extent that such expenses exceed the
amounts not held in the trust account and the income of up to $2,400,000 that may be released to us
from the trust account, such out-of-pocket expenses could not be reimbursed by us unless we
complete a business combination. If we complete a business combination, the out-of-pocket expenses
incurred by members of our management team prior to the business combination’s closing may become
an obligation of the post-combination business, assuming these expenses have not been reimbursed
prior to the closing. These expenses would be a liability of the post-combination business and
would be treated in a manner similar to any other account payable of the combined company.
However, the role of present management after a business combination is uncertain, and we have no
current ability to determine what remuneration, if any, will be paid to present management after a
business combination. Our officers and directors may, as part of any such combination, negotiate
the repayment of some or all of the out-of-pocket expenses incurred by them that have not been
reimbursed prior to the completion of the business combination. If the target business’s owners do
not agree to such repayment, this could cause our officers and directors to view such potential
business combination unfavorably and result in a conflict of interest. We have adopted a policy
that, prior to the completion of a business combination, none of our existing officers, directors
or sponsor, or any entity with which they are affiliated, will be paid, either by us or a target
business, any finder’s fee, consulting fee or other compensation for any services they render in
order to effectuate the completion of a business combination, other than (i) the reimbursement of
out-of-pocket expenses, (ii) the monthly fee of $7,500 payable to Griffin Holdings Group, LLC, an
affiliate of Mr. Harenza, (iii) customary fees and charges
to Stevens & Lee, an affiliate of Mr. Harenza, and its
affiliates for
performing professional services for us, including professional
services in connection with this offering, our operations and in connection with an acquisition, and (iv) by
virtue of their ownership of initial shares, sponsor units or any securities included in or
issuable upon exercise of such securities.
With respect to finder’s fees, we do not currently anticipate that we would enter into any
arrangement that would require us to pay a finder’s fee prior to the completion of a business
combination. If such a business combination is completed, it is possible that a portion of the
funds held in trust, once released, will be utilized to pay such finder’s fees. Even if such a
business combination is not completed, it is possible that we would incur an obligation to an
individual or an entity to pay them either a finder’s fee and/or to reimburse their expenses in
connection with services that they provide to us. We would anticipate such fees or expenses being
paid from the funds held outside of the trust account (including up
to $2,400,000 of interest
earned on the amounts held in trust permitted to be disbursed to us for working capital purposes).
If we are unable to complete a business combination and we liquidate, our sponsor will be liable to
ensure that the proceeds in the trust account are not reduced if we did not obtain a waiver from
vendors, service providers, or other entities that are owed money by us for services rendered or
contracted for or products sold to us, as well as any prospective target businesses for fees and
expenses of third parties that we agree in writing to pay in the event we do not complete a
combination with such target business. Consequently, if we incur an obligation to an individual or
an entity to pay them either a finder’s fee and/or to reimburse their expenses in connection with
services that they provide to us, such an individual or entity has not signed a waiver of their
right to obtain funds from the trust account, we do not ultimately complete a
business combination and we do not have sufficient funds to pay such fees or expenses from the
funds held outside of the trust account or that may be released from the trust account, our sponsor
will be liable for such fees and expenses.
To the extent that our capital stock or debt securities are used in whole or in part as
consideration to effect a business combination, or in the event that indebtedness from third
parties is used, in whole or in part, as consideration to effect a business combination, the
proceeds held in the trust account that are not used to complete a
business combination will be
disbursed to the combined company and will, along with any other net proceeds not expended, be used
as working capital to finance our operations. In the event that third party indebtedness is used
as consideration, none of our officers or directors or our sponsor would be personally liable for
the repayment of such indebtedness.
We may not use all of the proceeds in the trust in connection with a business combination,
either because the consideration for the business combination is less than the proceeds in trust or
because we finance a portion of the consideration with our capital stock or debt. In such event,
the proceeds held in the trust account as well as any other net proceeds not expended will be used
to finance our operations, which may include the target business that we acquire in the business
combination, for maintenance or expansion of operations of a target business, the payment of
principal or interest due on indebtedness incurred in completing a business combination, to effect
other acquisitions, or for working capital, as determined by our management or board of directors
at that time. We may use these funds, among other things, for director and officer compensation,
change-in-control payments or payments to affiliates, to finance the operations of the target
business, to make other acquisitions and to pursue our growth strategy.
Our
sponsor has agreed to loan us up to $200,000, which we will use to us to cover organizational and offering expenses and
other start-up costs. This line of credit promissory note will be
repaid with a portion of the proceeds from this offering. Any
advances are interest-free with the principal balance repayable on the earlier of (i) 60 days following
the date of the completion of this offering and (ii) March 2, 2009. The principal balance is
prepayable without penalty at any time in whole or in part.
The
proceeds held in trust may be invested by the account agent only in United States
“government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of
1940 with a maturity of 180 days or less, or in money market funds meeting certain conditions under
Rule 2a-7 promulgated under the Investment Company Act. Although the rate of interest to be earned
on the trust account will fluctuate through the duration of the trust account, and although we are
unable to state the exact amount of time it will take to complete a business combination, we
anticipate the interest that will accrue on the trust account during the time it will take to
identify a target and complete an acquisition will be sufficient to fund our working capital
requirements. By restricting the holdings in the trust account to these instruments, we believe
that we will not be deemed an investment company within the meaning of the Investment Company Act.
Notwithstanding our belief that we are not required to comply with the requirements of the
Investment Company Act, we will not liquidate and distribute the trust account to holders of our
common stock included in the units being sold in this offering until after our existence terminates
by operation of law on 24 months (or up to 30 months if extended pursuant to a stockholder vote as
described in this prospectus) from the date of this prospectus and, consequently, we may be deemed
to be an investment company and thus required to comply with such act. The income derived from the
holdings in the trust account during this period that is not otherwise returned to public
stockholders who vote against a business combination will be used to defray our general and
administrative expenses, as well as costs relating to compliance with securities laws and
regulations, including associated professional fees, until a business combination is completed. We
do not believe that the fees and expenses for due diligence, legal, accounting, acquisition, down
payment, lock-up, reverse break-up fee or other activities related to this offering or a business
combination will exceed $2,570,000 in the aggregate, comprised of at
least approximately $169,220 of net proceeds not held
in trust plus up to $2,400,000 of interest earned on the amounts held in trust and permitted to be
disbursed to us for working capital purposes. We believe that, upon completion of this offering,
we will have sufficient available funds to operate for at least the next 24 months (or up to 30
months if extended pursuant to a stockholder vote as described in this prospectus), assuming that a
business combination is not completed during that time.
We have engaged and intend to continue to engage Stevens & Lee, a law firm at which Mr.
Harenza, a member of our board of directors, is the Non-Executive Chairman and with whom he is
deemed to be an affiliate, and its affiliates at customary rates and charges to perform
professional services
for us, including professional services in
connection with this offering, our operations and in connection
with an acquisition, such as, among other things, planning associated with the
acquisition process, identifying and evaluating potential candidates and performing due diligence.
Commencing on the closing of this offering, we have agreed to pay Griffin Holdings Group, LLC
a total of $7,500 per month for office space, administrative and technological services and
secretarial support. Mr. Harenza serves as manager, president and chief executive officer of
Griffin Holdings Group, LLC and may be deemed to be its affiliate. This arrangement is being
agreed to by Griffin Holdings Group, LLC for our benefit and is not
intended to provide either Mr. Harenza or Griffin Holdings
Group, LLC
with compensation in lieu of salary or other remuneration. We believe that such fees are at least
as favorable as we could have obtained from an unaffiliated person. This arrangement will
terminate upon
completion of a business combination or the distribution of the trust account to our
public stockholders on a pro rata basis.
A
public stockholder (but not our sponsor or its permitted
transferees with respect to the initial shares and the sponsor shares) will be entitled to receive funds from the trust
account (including interest earned on such stockholder’s portion of the trust account, net of taxes
payable and amounts disbursed to us for working capital purposes) only in the event of our
liquidation of the trust account as part of our liquidation upon our failure to complete a business
combination, or if such public stockholder exercises his conversion rights in connection with
either a business combination that the public stockholder voted against and that we actually
complete or an extension of the time period within which we must complete a business combination
that the public stockholder voted against and that was approved. In no other circumstances will a
public stockholder have any right or interest of any kind to or in
the trust account. Our sponsor and its permitted transferees are not entitled to convert any of
their shares of common stock acquired prior to this offering into a pro rata share of the amount then held in the trust
account.
Upon
the completion of a business combination, the underwriters will be entitled to receive
that portion of the proceeds attributable to the underwriters’ deferred commission and discount
held in trust, excluding any interest earned thereon, net of the pro rata amount of the
underwriters’ deferred commission and discount paid to stockholders who properly exercise their
conversion rights. In the event that we are unable to complete a business combination and the
account agent is forced to liquidate the trust account, the
underwriters have agreed that the proceeds
attributable to the underwriters’ deferred commission and discount will be distributed on a pro
rata basis among the public stockholders along with any interest earned thereon (net of taxes
thereon).
Other
than our stock splits described in this prospectus, we have not paid any dividends on our
common stock to date and will not pay cash dividends prior to the completion of a business
combination. After we complete a business combination, the payment of dividends will depend on our
revenues and earnings, if any, our capital requirements, applicable regulatory restrictions and our general financial condition. The
payment of dividends after a business combination will be within the discretion of our board of
directors at that time. Our board of directors currently intends to retain any earnings for use in
our business operations and, accordingly, we do not anticipate that
our board of directors will declare any
dividends in the foreseeable future. Further, any credit agreements we enter into in connection
with a business combination or otherwise may restrict or prohibit payment of dividends. In the
event that we do declare dividends, our board of directors will determine the dates on which any
entitlements to dividends arise, the methods of calculating such dividends and the cumulative or
non-cumulative nature of dividend payments.
The difference between the public offering price per share of our common stock, assuming no
value is attributed to the warrants included in the units we are
issuing, and the pro forma net tangible book value per share of our
common stock after this offering constitutes the dilution to investors in this offering. Such
calculation does not reflect any dilution associated with the sale and exercise of warrants,
including the sponsor warrants. Net tangible book value per share is determined by dividing our
net tangible book value, which is our total tangible assets less total liabilities, by the number
of outstanding shares of our common stock.
At
June 30, 2008, our net tangible book value was $(245,528) or
approximately $(0.095) per share
of common stock as adjusted to give effect to our stock splits. After giving effect to our stock
splits, the sale of 9,000,000 shares of common stock included in the units we are offering by this
prospectus, the forfeiture of 337,500 initial shares, the sale of the
sponsor units and the
deduction of underwriting commissions and discounts and estimated expenses of this offering, our
pro forma net tangible book value at June 30, 2008 would have
been $56,789,357 or approximately
$7.34 per share, representing an immediate increase in net tangible book value of approximately
$7.44 per share to the sponsor as of the date of this prospectus and an immediate dilution of
approximately $2.66 per share or approximately 26.6% to our public stockholders.
The following table illustrates the dilution to the public stockholders on a per-share basis,
assuming no value is attributed to the warrants included in the units
Public offering price
$
10.00
Net tangible
book value before this offering and sale of sponsor units(1)
$
(0.10
)
Increase attributable to new investors
7.44
Pro forma net tangible book value after this offering
7.34
Dilution to new investors
$
2.66
(1)
Net tangible book at June 30, 2008 was $(0.095) per
share which includes 337,500 initial
shares which are subject to forfeiture in the event the underwriters’ overallotment option is
not exercised.
The following table sets forth information with respect to our sponsor and the new investors:
Shares Purchased
Total Consideration
Average
Price per
Number
Percentage
Amount
Percentage
share
Initial shares(1)
2,250,000
19.27
%
$
25,000.00
0.03
%
$
0.011
Sponsor
shares
425,200
3.64
4,252,000.00
4.51
10.000
New investors
9,000,000
77.09
90,000,000.00
95.46
10.000
Total
11,675,200
100.0
%
$
94,277,000.00
100.00
%
(1)
Does not include 337,500 shares that are subject to forfeiture to the extent the
underwriters’ over-allotment option is not exercised. Our existing stockholders will only
forfeit a number of initial shares necessary to maintain the 20% ownership interest of our
sponsor and its permitted transferees in our issued and
outstanding shares of our common stock, excluding the sponsor shares, after giving effect to this offering and the exercise,
if any, of the underwriters’ over-allotment option.
The pro forma net tangible book value after this offering is calculated as follows:
Net tangible book value before this offering and sale of sponsor units
$
(245,528
)
Offering costs incurred in advance and excluded from net tangible book
241,905
Net proceeds
from this offering, and sale of sponsor units and the
sale of initial shares(1)
87,269,220
Less:
proceeds held in trust subject to conversion to cash ((9,000,000
x 35% — 1 share) x approximately $10.00 per share)
(31,499,990
)
$
56,789,357
(2)
Denominator:
Shares of
common stock outstanding prior to this offering(3)
2,250,000
Shares of
common stock included in the sponsor units
425,200
Shares of common stock included in the units offered(3)
9,000,000
Less: shares
subject to conversion (9,000,000 x 35% less 1 share)
(3,149,999
)
Less:
initial shares subject to forfeiture (2,250,000 x 35% less 1
share)
(787,499
)
7,737,702
(1)
Assumes the payment to our underwriters of the $2,925,000 of deferred underwriting commissions
held in trust.
(2)
Includes $1,023,750 (or $0.325 per share) which represents the portion of the underwriters’
deferred discounts and commissions which is subject to reduction in the event stockholders
exercise conversion rights with respect to 3,149,999 shares.
(3)
Assumes the underwriters’ over-allotment option has not been exercised and our existing
stockholders forfeited an aggregate of 337,500 initial shares.
The following
table sets forth our capitalization at June 30, 2008 (giving effect to our
28,750 for 1 stock split that was declared on February 27, 2008
and our 0.6 for 1 reverse stock split declared on July 11, 2008) and as adjusted to give effect to
the sale of units in this offering and sale of the sponsor units, and the
application of the estimated net proceeds derived from the sale of such securities.
Deferred
underwriting discount upon completion of a business
combination(5)
$
—
$
1,901,250
Common stock subject to possible conversion, 0 and
3,149,999 shares, shares at conversion
value(6)
$
—
$
31,499,990
Stockholders’ equity:
Preferred stock, $0.0001 par value, 500 shares
authorized; 0 issued and outstanding
—
—
Common stock, $0.0001 par value (actual,
authorized 24,199,500 shares, 2,675,200 shares
issued and outstanding; as adjusted:
authorized 24,199,500 shares, 7,737,702 shares
issued and outstanding (excluding 3,149,999
shares subject to possible
conversion and 787,499 initial shares subject to forfeiture))(2)
259
774
Additional paid-in capital
24,741
55,747,979
Deficit accumulated during the development stage
(4,072
)
(4,072
)
Total stockholders’ equity
20,928
56,768,430
(7)
Total capitalization
$
20,928
$
90,169,670
(1)
Includes the $4,252,000 we will receive from the sale of the
sponsor units.
(2)
Assumes the underwriters’ over-allotment option has not been exercised and our existing
stockholders have forfeited an aggregate of 337,500 initial shares as a result thereof.
(3)
Excludes 787,499 initial shares subject to forfeiture in the
event stockholders exercise conversion rights with respect to
3,149,999 shares.
(4)
Note payable to our sponsor is payable on the earlier of March 2, 2009 and 60 days of the
completion of this offering.
(5)
This table assumes
a reduction of the initial shares outstanding by 787,499 shares and
conversion of the maximum of 3,149,999 shares to cash in connection with
the initial business combination or an extension to the time period to complete an initial
business combination, reducing the deferred underwriting discount to
$1,901,250. This amount
($1,901,250) is treated as capital to us at June 30, 2008 on
an as adjusted basis. If no shares are converted in connection with the
initial business combination or an extension to
the time period to complete an initial business combination, the underwriters’ discount would
be $2,925,000.
(6)
The conversion rights afforded to our public stockholders may result in the conversion to
cash of up to 35% of the aggregate number of shares included in the
units being sold to the public in this
offering less one share at a per-share conversion price equal to the aggregate amount then on
deposit in the trust account (initially approximately $10.00 per share), before payment of
deferred underwriting discounts and commissions and including interest earned, net of any
income taxes due on such income, which income taxes, if any, will be paid from the trust
account, and net of income previously released to us for working capital requirements, as of
two business days prior to the proposed completion of a business combination, divided by the
number of shares included in the units being sold in this offering.
(7)
Includes $1,023,750 (or $0.325 per share) which represents the portion of the underwriters’
deferred discounts and commissions which is subject to reduction in the event stockholders
exercise conversion rights with respect to 3,149,999 shares.
The
following tables present selected financial data as of June 30, 2008 and for the
period from October 10, 2007 (date of inception) to June 30, 2008 that has been derived from
our unaudited financial statements. Since
we have not had any significant operations to date, the information below is not indicative of
results to be expected for future periods. You should read our information in conjunction with
“Capitalization,”“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our historical financial statements, including the related notes, included
elsewhere in this prospectus.
Average common shares outstanding,
including common shares subject to
forfeiture (basic and
diluted)(1)
2,587,500
(1)
Gives effect to our stock splits effected on February 27,2008 and on July 11, 2008. Includes 337,500 shares
subject to forfeiture if the underwriters do not exercise their over-allotment option.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a newly organized blank check company formed under the laws of Delaware for the purpose
of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or
similar business combination with one or more currently unidentified domestic or international
operating businesses. Our efforts in identifying prospective target businesses will not be limited by geography or
to a particular industry, but we will focus our efforts principally on identifying, performing due
diligence on, and effecting a business combination with one or more businesses which operate in the
depository institutions sector, primarily in the United States, and other businesses which operate
in the broader financial services industry. We will also seek to acquire financial services businesses
in the emerging markets of Eastern Europe and Asia, including businesses involved in the rapidly growing money remittance business.
Except in certain circumstances described at
“Management — Conflicts of Interest and Contractual Restrictions”, pursuant to an agreement between
Sovereign and Mr. Sidhu, we will not enter into a business combination with any banking institution
located in certain portions of Massachusetts, Connecticut, Rhode Island, Maryland, New York,
Pennsylvania and New Jersey until the earlier of (i) a change in control of Sovereign or (ii)
October 11, 2011. However, we may enter into a business combination with a target business outside
the financial services industry if our board of directors determines that such a transaction is in
our best interests and the best interests of our public stockholders. To date, our efforts have
been limited to organizational activities as well as activities related to this offering. We do
not have any specific business combination under consideration and we have not (nor has anyone on
our behalf) contacted any prospective acquisition candidate or had any discussions, formal or
otherwise, with respect to such a transaction. We have no present
intention to become a FINRA member. If we acquire or merge with a
registered broker/dealer, we will, if required by law, become a
member of FINRA.
We intend to effect a business combination using cash from the proceeds of this offering, our
capital stock, debt or a combination of cash, stock and debt.
The issuance of additional shares of our stock in a business combination:
•
may significantly dilute the equity interest of investors in this offering;
•
may subordinate the rights of holders of common stock if preferred stock is issued
with rights senior to those afforded our common stock;
•
may cause a change in control if a substantial number of our shares of common stock
are issued, which may affect, among other things, our ability to use our net operating
loss carry forwards, if any, and could result in the resignation or removal of our
present officers and directors and cause our public stockholders to become minority
stockholders in the combined entity;
•
may have the effect of delaying or preventing a change of control of us by diluting
the stock ownership or voting rights or a person seeking to obtain control of our
company; and
•
may adversely affect prevailing market prices for our common stock and/or warrants.
Similarly, if we issue debt securities or incur debt under a credit agreement, it could result
in:
•
default and foreclosure on our assets if our operating revenues after a business
combination are insufficient to repay our debt obligations;
•
acceleration of our obligations to repay the indebtedness even if we make all
principal and interest payments when due if we breach certain covenants that require
the maintenance of certain financial ratios or reserves without a waiver or
renegotiation of that covenant;
•
our immediate payment of all principal and accrued interest, if any, if the debt
security is payable on demand; and
•
our inability to obtain necessary additional financing if the debt contains
covenants restricting our ability to obtain such financing while the debt is
outstanding.
As
indicated in the accompanying financial statements, at June 30,2008, we had cash and other current assets of $450 and deferred
offering costs of $266,455. Further, we expect to continue to incur significant costs in the
pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete a business combination will be successful. These
factors, among others, raise substantial doubt about our ability to continue as a going concern.
We have neither engaged in any operations nor generated any revenues to date. Our only
activities since inception have been organizational activities and those necessary to prepare for
this offering. Following this offering, we will not generate any operating revenues until after
completion of a business combination. We will generate non-operating income in the form of income
on cash and cash equivalents after this offering. There has been no significant change in our
financial or trading position and no material adverse change has occurred since the date of our
audited financial statements. After this offering, we expect to incur substantially increased
expenses as a result of being a public company (for legal, financial reporting, accounting and
auditing compliance), as well as for due diligence expenses.
Liquidity and Capital Resources
Our short-term liquidity needs will be satisfied through receipt of $25,000 from the sale of
the initial shares, and a line of credit of up to $200,000 made
available to us by our sponsor that is more fully described below. We estimate that the net proceeds from (i) the sale
of the units in this offering, after deducting offering expenses of
$7,007,780 (or $7,952,780 if
the underwriters’ over-allotment option is exercised in full), and (ii) the sale of the sponsor
units for a purchase price of $4,252,000 in a private placement that will occur immediately
prior to the closing of this offering,
will be approximately $87,075,000 (or
approximately $99,630,000 if the underwriters’ over-allotment option is
exercised in full). Approximately $90,000,000 (or
$102,993,750 if the underwriters’ over-allotment option is exercised in full) will be held in
trust, which includes $2,925,000 (or $3,363,750 if the underwriters’ over-allotment option is
exercised in full) of deferred underwriting commissions. Of the net proceeds from the sale of the
units in the offering and the sale of sponsor units, approximately
$169,220 will not
be held in trust.
We will use a substantial portion of the net proceeds of this offering in connection with
acquiring one or more target businesses, including identifying and evaluating prospective target
businesses, selecting one or more target businesses, and structuring, negotiating and completing
the business combination. To the extent we use our capital stock in whole or in part as
consideration for a business combination, the proceeds held in the trust account (less amounts paid
to any public stockholders who exercise their conversion rights and deferred underwriting
commissions paid to the underwriters) as well as any other net proceeds not expended prior to that
time will be used to finance the operations of the target business or businesses. Such working
capital funds could be used in a variety of ways including continuing or expanding the target
business’ operations and for strategic acquisitions. Such funds could also be used to repay any
operating expenses or finder’s fees which we had incurred prior to the completion of a business
combination if the funds available to us outside of the trust account were insufficient to cover
such expenses. We may also apply the cash released to us from the trust account for general
corporate purposes, including for maintenance, improvement or expansion of operations of acquired businesses,
the payment of principal or interest due on indebtedness incurred in completing a business
combination, to fund the purchase of other companies or for working capital.
As a recently formed blank check company, we currently do not have sufficient working capital
for the next 24 months (or up to 30 months if extended pursuant to a stockholder vote as described
in this prospectus). We intend to obtain such working capital through this offering and income of
up to $2,400,000 on the funds held in the trust account to be released to us for working capital
requirements, which we believe will be sufficient to allow us to
operate for at least the next 24
months (or up to 30 months if extended pursuant to a stockholder vote as described in this
prospectus), assuming a business combination is not completed during
that time. Our operating expenses prior to our initial business combination will include, but not be limited to, deposits or
down payments for a proposed initial business combination, legal, accounting and other expenses, including due diligence
expenses and reimbursement of out-of-pocket expenses incurred in connection with the investigation, structuring and
negotiation of our initial business combination, director and officer liability insurance premiums and reserves, legal and
accounting fees relating to SEC reporting obligations, brokers’ retainer fees, consulting fees and finder’s fees.
We expect that due diligence of prospective target businesses will be performed by some or all of our management and our
sponsor and its affiliates, and also that it may include engaging law firms, accounting firms or other third-party
consultants.
Our
sponsor has made available to us a line of credit up to $200,000 which we will use to cover organizational and offering expenses and
other start-up costs, which will be repaid with a portion of the
proceeds from this offering. Any advances are interest-free with the
principal balance repayable on the earlier of (i) 60 days following
the date of the completion of this offering and (ii) March 2, 2009. The principal balance is
prepayable without penalty at any time in whole or in part.
We do not believe we will need to raise additional funds following this offering in order to
meet the expenditures required for operating our business prior to completing a business
combination. However, we will rely on the funds available to us outside of the trust account and
interest earned of up to $2,400,000 on the trust account permitted to be disbursed to us to fund
such expenditures and if our estimates of the costs of undertaking in-depth due diligence and
negotiating a business combination is less than the actual amount necessary to do so, we may have
insufficient funds available to operate our business prior to a business combination. Moreover, we
may need to obtain additional financing either to complete a business combination or because we
become obligated to convert into cash a significant number of shares of public stockholders voting
against a business combination or an extension of the time period within which we must complete a
business combination, in which case we may issue additional securities or incur debt in connection
with such business combination. Following a business combination, if cash on hand is insufficient,
we may need to obtain additional financing in order to meet our obligations.
Controls and Procedures
We
are not currently required to maintain an effective system of
internal control over financial reporting as defined
by Section 404 of the Sarbanes-Oxley Act of 2002. We will be required to comply with the internal
control requirements of the Sarbanes-Oxley Act for the fiscal year ending December 31, 2009. As of
the date of this prospectus, we have not completed an assessment, nor have our auditors tested our
systems of internal control. We expect to assess the internal controls of our target business or
businesses prior to the completion of a business combination and, if necessary, to implement and
test additional controls as we may determine are necessary in order to state that we maintain an
effective system of internal controls. A target business may not be in compliance with the
provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls. Many target
businesses we may consider for a business combination may have internal controls that need
improvement in areas such as:
•
staffing for financial, accounting and external reporting areas, including
segregation of duties;
•
reconciliation of accounts;
•
proper recording of expenses and liabilities in the period to which they relate;
•
evidence of internal review and approval of accounting transactions;
•
documentation of processes, assumptions and conclusions underlying significant
estimates; and
•
documentation of accounting policies and procedures.
Because it will take time, management involvement and perhaps outside resources to determine
what internal control improvements are necessary for us to meet regulatory requirements and market
expectations for our operation of a target business, we may incur additional expenses in meeting
our public reporting responsibilities, particularly in the areas of designing, enhancing, or
remediating internal and disclosure controls. Doing so effectively may also take longer than we
expect, thus increasing our exposure to financial fraud or erroneous financing reporting.
Once our management’s report on internal controls is complete, we will retain our independent
auditors to audit and render an opinion on internal control over
financial reporting when required by Section 404. The
independent auditors may identify additional issues concerning a target business’s internal
controls while performing their audit of internal control over financial reporting.
Quantitative and Qualitative Disclosures about Market Risk
The net proceeds of this offering, including amounts in the trust account, will be invested in
U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting
certain conditions under Rule 2a-7 under the Investment Company Act. Due to the short-term nature of these
investments, we believe there will be no associated material exposure to interest rate risk.
In
October 2007, our sponsor purchased 150 shares of our common
stock (or 2,587,500 initial shares after giving effect to our stock splits), for an aggregate purchase price of $25,000, or
$0.010 per share (giving effect to our stock splits). Certain initial
shares are subject to forfeiture. For a complete description of these
forfeiture provisions, see “Management—Conflicts of
Interest and Contractual Restrictions.”
Our
sponsor has agreed to purchase an aggregate of 425,200 sponsor
units at $10.00 per
unit for a total of $4,252,000 in a private placement that will occur immediately prior to the closing of this
offering. Each unit consists of one sponsor share and one sponsor
warrant.
We have engaged and intend to continue to engage Stevens & Lee, which is affiliated with one
of our directors, Mr. Harenza, and its affiliates at customary rates and charges to perform
professional services for us, including in
connection with this offering, our operations and in connection with
our initial business combination, such as, among other things, planning associated with the acquisition process, identifying and
evaluating potential target businesses and performing due diligence. Any such
engagement will be approved by a majority of our independent and disinterested directors.
Griffin Financial Group, LLC, an entity affiliated with Mr.
Harenza, is a co-manager for this offering and will be entitled to receive a portion of
the underwriters’ commission and discount. Griffin Financial will receive such payment
only upon completion of our initial business combination, and such payment will be made
solely out of the underwriters’ deferred commission and discount
that will be deposited in the trust account upon completion of the
offering. For a complete description of the terms of its compensation, see “Underwriting.”
We are obligated, commencing on the date of this prospectus, to pay Griffin Holdings Group,
LLC, an entity affiliated with Mr. Harenza, chief executive officer of Griffin Holdings Group, LLC,
a monthly fee of $7,500 for office space and general administrative, technological and secretarial
services.
Our
sponsor has agreed to make available to us a line of credit up to $200,000 which we will use to cover organizational and offering expenses and
other start-up costs, which will be repaid with a portion of the
proceeds from this offering. Any advances are interest-free with the principal balance repayable on the earlier of (i) 60 days following
the date of the completion of this offering and (ii) March 2, 2009. The principal balance is
prepayable without penalty at any time in whole or in part.
We have agreed to indemnify our officers and directors against certain liabilities and
expenses. Prior to a business combination, our sponsor will provide guarantees of certain of our
obligations to our officers and directors under the indemnity agreements. We will not pay a fee
for any such guarantees.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results
As
of June 30, 2008, we did not have any off-balance sheet arrangements as defined in Item
303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. No
unaudited quarterly operating data is included in this prospectus as we were newly organized as of
October 10, 2007 and have conducted no operations to date.
We are a newly organized blank check company formed under the laws of the State of Delaware
for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination with one or more currently unidentified domestic or
international operating businesses, which we refer to as a business combination. To date, our
efforts have been limited to organizational activities, as well as activities related to this
offering.
Our efforts in identifying prospective target businesses will not be
limited by geography or to a particular
industry, but we will focus our efforts principally on identifying, performing due diligence on,
and effecting a business combination with one or more businesses which operate in the depository
institutions sector, primarily in the United States, and other businesses which operate in the
broader financial services industry. We will also seek to acquire financial services businesses in the emerging markets of Eastern Europe and Asia, including businesses involved in the rapidly growing money remittance business. Except in certain circumstances described below, pursuant to
an agreement between Sovereign and Mr. Sidhu, we will not enter into a business combination with
any banking institution located in certain portions of Massachusetts, Connecticut, Rhode Island,
Maryland, New York, Pennsylvania and New Jersey until the earlier of (i) a change in control of
Sovereign or (ii) October 11, 2011. However, we may enter into a business combination with a
target business outside the financial services industry if our board of directors determines that
such a transaction is in our best interests and the best interests of our public stockholders.
We do not have any specific business combination under consideration. Our sponsor, officers
and directors and their respective affiliates have neither individually identified or considered a
target business for us nor have they had any discussions regarding possible target businesses for
us among themselves or with our underwriters or other advisors. We have not (nor has anyone on our
behalf) contacted any prospective acquisition candidate or had any discussions, formal or
otherwise, with respect to such a transaction. We have not (nor have any of our agents or
affiliates) been approached by any candidates (or representatives of any candidates) with respect
to a possible business combination with us.
We
will have 18 months from the date of this prospectus to sign a letter
of intent or definitive agreement for a business combination and until 24 months (or up to 30 months if our
stockholders approve an extension)
from the date of this prospectus to complete a business combination. If we fail to complete a
business combination within the required time frame, our corporate existence will, in accordance
with our amended and restated certificate of incorporation, cease except for the purposes of
winding up our affairs and liquidating.
Financial Services Industry and Depository Institutions Sector
The financial services industry represents the largest segment in the U.S. economy as measured
by market capitalization, with an aggregate market capitalization of
approximately $2.8 trillion as
of August 8, 2008. In 1981, financial services companies
represented approximately 5.80% of the total
market capitalization of the S&P 500 compared to approximately
13.6% as of August 8, 2008. The
financial services industry includes entities of various types which provide a broad array of
financial services to their customers, including among others, commercial banks, savings banks,
specialty finance companies, commercial credit companies, mortgage brokers and mortgage lending
companies, consumer finance companies, non-bank lending companies, insurance companies, reinsurance
companies, private equity firms, hedge funds, investment management firms, money management firms,
funds of funds firms, brokerage firms, investment banks, registered investment adviser firms,
investment management consulting companies, business development companies, venture capital
companies, money remittance companies, small business investment companies and businesses that provide support services for
financial service companies. Such support services include cash management, trade finance,
liquidity management, custody and fund services, clearing services, depository and agency/trust
services, transaction and payment processing, credit, debit and prepaid card processing, ATM and
point-of-sale processing, check verification and guarantee and prepaid card services. In addition
to having unique return, growth and leverage characteristics, the various types of entities in the
financial services industry respond to different economic and competitive forces, and, as a result,
market imbalances and cycle-related investment opportunities may exist in almost any economic
environment.
United
States Depository Institutions
The depository institutions sector of the U.S. financial services industry had an aggregate
market capitalization of approximately $1.0 trillion as of
August 8, 2008. Additionally, the
depository institutions sector represented approximately 6.8% of the total market capitalization of
the S&P 500 as of August 8, 2008. The depository institutions sector has historically traded at, and continues to trade at, a
discount to the S&P 500 as
measured by price to earnings ratios, even though the sector’s earnings
have historically been more stable and have grown faster than corporate earnings of other
industries in the aggregate.
Despite substantial consolidation over recent years, the global depository institutions
landscape remains highly fragmented. For example, in the United States alone, there are over 7,600
independent commercial and savings banks. Additionally, approximately 92% of all banks in the
United States are classified as community banks by the FDIC. We believe that many of these banks
are too small for, or otherwise not relevant to, large publicly traded commercial and savings
banks, or involve niches or strategic situations, driven by non-economic factors, which make a sale
to, or purchase by, these larger publicly-traded institutions not practicable. Although there has
been an increase in investment and interest in the depository institutions sector by financial
sponsors, including private equity and hedge funds and other blank check companies, such investment
continues to comprise a small percentage of overall merger and acquisition activity in the
depository institutions sector.
This sector has recently experienced decreasing valuations due to industry-wide concerns over
asset quality, capital and liquidity and is experiencing intense competition for loans and
deposits, exacerbated by pressures on net interest margin resulting from yield curve, competition
and asset generation issues.
We believe that investments in depository institutions involve less risk than many other
sectors because bank operations and capital levels are subject to stringent federal and/or state
banking laws, are examined on a regular basis and are supervised by regulators who have broad
remedial and enforcement powers. We believe opportunities exist to take advantage of pricing and
market inefficiencies. In addition, we believe the large number of publicly traded institutions
within this sector creates opportunities to take advantage of missed and improper pricing
scenarios.
The banking industry has experienced tremendous consolidation over the last 10 years as many
banks endeavored to seek size and scale. Consolidation is relatively new to the depository
institutions sector, and only a portion of the expected consolidation process has occurred,
providing future opportunities for exit events for bank investments. In addition, federal and
state governments imposed geographic restrictions on consolidation in the banking sector until the
1980s (intrastate) and 1990s (interstate). In contrast to the over 7,600 independent commercial
and savings banks remaining in the U.S., the banking sector has experienced substantial
consolidation in other countries. For example, as of August 8, 2008, we believe, due primarily to consolidation,
Canada had only 93 banks remaining, all of Europe had only 1,821 banks remaining and all of Asia
had only 863 banks remaining. Because there are significantly more depository institutions
located in the U.S. compared to markets in other parts of the world, including Canada, Europe and
Asia, we believe that the pool of suitable targets for our initial business combination is greater
in the U.S. than in other countries.
Consolidation has resulted in dozens of large banks and thrifts and thousands of community
banks and thrifts in the geographic markets in which we will focus our search. As the difference
in size between large banks and thrifts and community banks and thrifts continues to increase, the
“scarcity” value of regional banks and thrifts with size and scale increases as well. We believe
that substantial opportunities exist to grow these small banking institutions into “scarce”
regional banks and thrifts which will command value maximizing acquisition premiums from larger
banks and thrifts, especially in favorable geographic markets.
Financial
Services Industry in the Emerging Economies of Eastern Europe and
Asia
With the emerging market economies of Eastern Europe and Asia continuing to experience robust growth, capital inflows to these regions represent a significant percentage of the emerging economies of Eastern Europe, 20% of gross domestic product (GDP) on average, and Asia, just under 50% of GDP on average. As investment in the regions have increased, bank-intermediated lending
has increased exponentially, from $427.6 billion in December 2005 to $898.6 billion in December 2007 to developing Eastern European countries and from $470.0 billion in December 2005 to $818.1 billion in December 2007 to developing Asian countries. According to the Bank of International Settlement, bank lending to the region continues to grow despite financial turmoil in the United States, Western Europe and Japan. Because the economies in these regions continue to grow at a faster pace than more developed countries and banks in these regions do not face competition in lending from the non-bank sector, we believe opportunities exist to acquire an attractive financial services company in Eastern Europe and Asia.
Money Remittance Businesses
Money remittance businesses seek to provide immigrants with fast, reliable and convenient ways to send money back to their native countries. It is estimated that about 200 million immigrants are living outside their native countries, of which individuals and households representing 150
million people regularly send remittances to their relatives in their native countries. According
to the World Bank, these immigrants are responsible for $337 billion in remittance flows globally, of which $251 billion has gone to developing countries, representing a 118% increase from 2002. By 2050, the number of immigrants worldwide is expected to grow to 280
million, leading to greater remittance volume and transactions. As sector participants continue to differentiate themselves from one another by tailoring services for each particular type of money transfer and focusing on major corridors of remittances, such as the Mexico-United States corridor and the South Asia-Gulf Cooperation Council countries corridor, we believe established market participants, such as banks and money
transfer operators, will continue to be challenged by an ever-growing number of new players,
replete with new consumer-friendly technologies based around mobile phones that promise to make remittances cheaper, safer and more reliable.
Business Strategy
We will initially focus our search for an initial business combination on banks, thrifts and
other financial institutions in the U.S., with an emphasis on institutions located in states that
have favorable demographics, are under served or are otherwise experiencing substantial industry
consolidation. In particular, we will emphasize the geographic markets that meet the foregoing
criteria along the Mid-Atlantic, Southeastern and Pacific seaboards, as well as Southwestern border
states and Southern Gulf states, all of which have enjoyed substantial household income and
population growth, including significant growth in the population of under served ethnic groups.
We refer to these markets as our target markets. However, we may enter into a business combination
with a target business outside these geographic markets if our board of directors determines that
such a transaction is in our best interests and the best interests of
our public stockholders, including a business combination with
financial services businesses in the emerging markets of Eastern Europe and Asia (including
businesses involved in the rapidly growing money remittance business).
We believe we can benefit from the experience and expertise of the members of our management
in investing capital in and managing operating companies with successful enterprises and business
platforms, and that their skills in investing, financial structuring, risk underwriting, due
diligence and implementing financial controls will be valuable in our efforts to complete our
initial business combination.
We intend to focus our efforts on acquiring one or more privately held or publicly traded
banks and/or thrifts which are undervalued or financially challenged.
There are more than 6,200
privately held banks and thrifts in the U.S. and over 1,400 publicly traded banks and thrifts.
The average price to tangible book value of all
exchange-listed U.S. banks and thrifts was 123.8% as
of August 8, 2008. As of such date, there were more than 650 banks and thrifts in the U.S. that
were trading below 123.8% of their tangible book value, 452 of which were trading below 100% of their tangible book value, many of
which are in our target markets. In addition, as of August 8, 2008, there were more than 100
banks and thrifts under supervisory agreements or memoranda of understanding with their respective
regulators.
We believe that sellers’ pricing expectations have, and will continue to, come down, driven
primarily by competitive factors, asset quality, net interest margin, and asset generation issues.
Therefore, we will focus primarily on three types of opportunities in connection with our initial
business combination: a “buy and fix” strategy, a “buy and rollup” strategy, and a “private to
public” strategy. However, we may enter into a business
combination with one or more target businesses that
do not meet any or all of these criteria if we believe such target
businesses have the potential to
create significant stockholder value.
•
“Buy and Fix” Strategy. This involves (i) identifying institutions that are
undervalued, or are financially challenged and operating under agreements with their
banking regulators, but which can be positioned to provide our stockholders with
superior, sustainable returns over the intermediate or long term, (ii) identifying
their balance sheet or operating problems, (iii) fixing those problems, and (iv)
enhancing value by growing the institution via organic growth and/or by acquisition for
so long as the net present value and prospects of the institution to our stockholders
are greater than exiting the investment through a sale.
•
“Buy and Rollup” Strategy. This involves indentifying institutions located in
strategically important markets which are positioned and have the infrastructure and
ability to serve as the vehicle for a multi-bank rollup strategy. In this strategy,
stockholder value will be driven off (i) an internal rate of return assessment of any
potential acquisition target, (ii) target pricing, cost savings and revenue enhancement
potential from consolidation, and (iii) the availability of other acquisition
opportunities that would permit the acquired institution to yield superior, sustainable
returns. This strategy contemplates follow on investments by the acquired institution,
including acquisitions of specialty finance or fee income driven businesses, in order
to diversify their revenues or to improve their yield on earning assets. This strategy
of creating value would be pursued as long as the net present value and prospects of
the institution to our stockholders are greater than exiting the investment through a
sale.
•
“Private to Public” Strategy. This involves (i) identifying privately held
institutions that can be acquired at a purchase price multiple that is less than the
trading multiple ascribed to comparable exchange listed institutions, and (ii)
enhancing value by improving operations and growing the institution via organic growth
and/or by acquisition, including acquisitions of specialty finance or fee income driven
businesses in order to diversify their revenues or to improve their yield on earning
assets. This strategy of creating value would be pursued as long as the net present
value and prospects of the institution to our stockholders are greater than exiting the
investment through a sale.
Additionally, we may also seek to acquire banks, thrifts and other businesses that have
strong, experienced management teams. We will focus on management teams with a proven track record
of driving growth and enhancing profitability. We believe that the operating expertise of our
officers and directors will complement, not replace, the target’s management team. Although it is
possible that one or more of our initial officers or directors will remain associated in some
capacity with us following a business combination, it is unlikely that any of them will devote
their full efforts to our affairs prior to or subsequent to a business combination.
We also intend to employ both an opportunistic and structured proactive acquisition strategy.
We plan to leverage industry expertise and an extensive network of relationships throughout the
U.S., Europe and Asia to source and execute a business combination. We will also use research and
analytical tools to systematically identify target institutions and to seek to generate attractive
risk-adjusted returns. Consistent with an opportunistic strategy, we will seek, preferably on a
“first look, noncompetitive basis,” acquisitions of banks, thrifts and other
financial service companies in the United States and the emerging
economies of Eastern Europe and Asia where we believe we can increase their value through improved
financial performance, organic growth and/or by in-market or contiguous market “bolt on”
acquisitions.
We anticipate that target business candidates will be brought to our attention from various
sources, including CEOs and other senior executive officers who participate in the industry,
investment bankers, private
equity funds, leveraged buyout funds, management buyout funds and other
members of the financial and banking community. Target businesses may be brought to our attention
by such unaffiliated sources as a result of being solicited by us through calls or mailings. These
sources may also introduce us on an unsolicited basis to target businesses they think we may find
attractive, since many of these sources will have read this prospectus and know what types of
businesses we are targeting. Our officers and directors, as well as their affiliates, may also
bring to our attention target business candidates that they become aware of through their business
contacts as a result of formal or informal inquiries or discussions they may have, as well as by
attending trade shows or conventions. We expect to receive opportunities that may not be generally
available to others as a result of the industry relationships and experience of Mr. Sidhu, our
chairman and chief executive officer.
Although we intend to focus our efforts on effecting a business
combination with a depository institution located in the United
States or a financial services company in Eastern Europe or Asia, we are not limited as
to the type of business or industry in which a target business is primarily engaged or the country
in which such target business operates. If we are unable to negotiate a business combination with
an acquisition candidate that we deem to be attractive in the depository institutions sector or in
the broader financial services industry after having expended a reasonable amount of time and
effort to identify such a candidate, we may then decide to more actively seek opportunities in
other industries. We anticipate that we may actively expand our focus to candidates outside of
the depository institutions sector and the financial services industry during the latter half of
the initial 18-month period that we have to sign a letter of intent or
definitive agreement for a business combination. However, we will
at all times consider candidates outside of the depository institutions sector or the financial
services industry that might otherwise be brought to our attention if, in the judgment of our
management team, such candidates have similar market positions, purchase price valuations,
industry consolidation opportunities, management teams, growth and earnings potential or other
financial or market characteristics than acquisition opportunities in the depository institutions
sector or the broader financial services industry available to us at such relevant time.
The criteria we will use in considering candidates outside of the financial services industry will
be substantially similar to the criteria we will use in considering candidates within the
financial services industry. In addition, any such business combination opportunities outside the
financial services industry would be of the same size as any business combination opportunity
considered by us in the financial services industry. At present, we are not able to ascertain (i)
what opportunities, if any, in industries outside of the financial services industry may be
presented to us, (ii) how much time and effort we may expend prior to determining that we may not
be able to identify favorable investment opportunities in the financial services industry or (iii)
which other industries we may choose to examine with the objective of identifying a favorable
investment opportunity. In the event we elect to pursue an investment outside of the depository
institutions sector and the financial services industry, we expect that our management, in
conjunction with our board of directors, will engage in discussions to identify, based upon their
respective familiarity with the business climate in general and specific industries in particular,
one or more other industries which are likely to include a significant number of companies that
would be attractive acquisition candidates. In the event we elect to pursue an investment outside
of the depository institutions sector or the financial services industry, our management’s
expertise in these areas would not be directly applicable to the evaluation or operation of such
investment, and the information contained herein regarding the depository institutions sector and
financial services industry would not be relevant to an understanding of the business that we
elect to acquire.
Mr. Sidhu
has significant contacts with financial institutions and other businesses in India and
other countries, including in Eastern Europe and Asia, and may become aware of opportunities to effect a business combination with
companies located outside of the United States. Our management does not have significant
experience in evaluating or managing a business other than a depository institution and is not
familiar with the regulatory, economic or other factors that affect the operations of a business
outside of the financial institution sector or operating outside of the United States. See “Risk
Factors— Risks Related to Our Structure as a Development Stage Company” and “— Risks Relating to
Our Business Combination.”
Competitive Strengths
We believe we have the following competitive strengths:
Unique Platform for Deal Generation.
We will seek to capitalize on the significant acquisition and operating experience and
contacts of our chairman and chief executive officer, Mr. Sidhu. Mr. Sidhu is the former Chairman
and CEO of Sovereign. In his capacity as CFO and COO of Sovereign from 1986 to 1989 and CEO of
Sovereign from 1989 until October 2006, Mr. Sidhu was largely responsible for designing, overseeing
and executing Sovereign’s growth from a small financially challenged thrift with assets of
approximately $600 million that generated proceeds in an initial public offering of approximately
$24 million in 1986 to a financial institution with over $90 billion in assets, a market
capitalization of approximately $12 billion and more than 785 branch locations spanning from
Maryland to New Hampshire in 2006. In building the nation’s 17th largest financial institution by
assets and one of the most valuable banking franchises in the Mid-Atlantic and Northeast regions of
the U.S., Mr. Sidhu created significant value for Sovereign investors by developing and executing
organic growth and acquisition strategies which emphasized (i) opportunistic geographic targeting,
(ii) creative acquisition pricing, and (iii) superior integration strategy and execution. During
his tenure at Sovereign, Sovereign identified, acquired and integrated 27 banking and thrift
operations, including two of the largest bank branch divestitures in U.S. history to date,
and three other financial services businesses.
Mr. Sidhu has an agreement with Sovereign that prohibits him from, among other things,
directly or indirectly, owning more than 4.9% of a publicly traded banking institution located in
any county which was contiguous to a branch, office or other facility of Sovereign as of October
2006. The covenant not to compete expires upon the earlier of (i) a change in control of Sovereign
or (ii) October 11, 2011. Because our efforts to identify and complete an initial business
combination will be significantly broader than Sovereign’s geography and because our efforts are
not confined to the depository institutions sector, we do not expect that Mr. Sidhu’s
non-competition obligation will have a material impact on our ability to find and complete a
business combination, nor do we expect Mr. Sidhu’s non-solicitation obligation to have a material
impact on us. See “— Conflicts of Interest and Contractual Restrictions” below regarding this
non-solicitation obligation.
In addition to Mr. Sidhu, we will seek to capitalize on the significant banking and other
experience and relationships of Griffin Financial, an affiliate of Mr. Harenza, chief executive
officer of Griffin Financial and a member of our board of directors. Griffin Financial is an M&A
advisory firm specializing in the depository institutions sector in the Mid-Atlantic region of the
United States. Its members have over 150 years of combined transaction and operations-related
experience in the financial services industry and have participated in transactions with a value of
over $30 billion over the past 10 years. Griffin Financial also has significant expertise in the
manufacturing and distribution, building products, higher education finance and healthcare
industries.
We will arrange meetings, primarily through Mr. Sidhu’s relationships, with potential targets
in order to (i) learn their perception of their challenges and opportunities and competitive
conditions in the markets in which they operate, (ii) assess their management’s capability, (iii)
assess the degree of difficulty, timing and cost of fixing an institution’s operating challenges or
of one or more “bolt on” acquisitions, (iv) learn about their cultural and personal motivations and other non-economic factors which might drive decision making with a
view to assessing compatibility of investment horizon and potential alignment of interest, and (v)
build the rapport and trusting relationship necessary to position us for a potential business
combination without a competitive process, or with a limited competitive process, when the
opportunity arises.
We believe the skills and expertise of Mr. Sidhu, other members of our management, and our
sponsor and its affiliates, their collective access to acquisition opportunities and ideas, their
contacts and their transactional experience will contribute to our ability to successfully
identify, price and complete an acquisition. However, none of these individuals have been or
currently are principals of, or affiliated with, a blank check company, and therefore we can give
no assurance that their past successes will be repeated in the context of a special purpose
acquisition company. Also, the past experience of Mr. Sidhu, other members of our management, our
sponsor and its affiliates and members of our board does not guarantee that we will be successful
in completing a business combination. There are numerous risks and uncertainties detailed
elsewhere in this prospectus that could impact our ability to complete a business combination
outside of the control of such individuals. We cannot assure you that we will be able to complete
a business combination at all or on terms favorable to us, nor can we guarantee that we will be
successful following the completion of a business combination.
Proactive Deal Identification and Potential Deal Evaluation
Our management and our sponsor and its affiliates consist of experienced bank operations
professionals, each with substantial segment and technical expertise in their respective areas who
will assist us in connection with evaluating transactions and related due diligence reviews, as
well as monitoring post-transaction operations and enhancing and accelerating growth. They have
successfully integrated over 50 transactions in the depository institution sector and worked
together and with others in senior management positions to drive post-acquisition value. We
believe another distinguishing feature is that the backgrounds of our officers, directors and our
sponsor and its affiliates provide an exceptional mix of sector-specific knowledge and hands-on
experience necessary, in our judgment, to effectively source, structure, complete and provide
operational oversight over businesses. They have knowledge and hands-on experience with (i) the
bank and thrift regulatory landscape and related, complex compliance issues specific to the sector,
(ii) complex financial accounting principles as they apply to depository institutions, (iii) risk
management, (iv) head count, salary and employee benefits optimization, (iv) asset/liability
management, (v) asset origination and credit quality, (vi) risk management and credit policy and
(vii) finance, financial structuring and tax provision mitigation.
We
intend to identify, review and analyze banks
and thrifts in each target market, taking into account factors such as area demographics,
competition, asset size, performance and balance sheet metrics compared to peers, trading price as
a function of reported tangible book value, exit premiums for comparable transactions as a function
of reported tangible book value and future availability of acquirers to facilitate exit.
As part of this process, preliminarily, we will (i) review a target institution’s financial
condition and operating results, with a heavy emphasis on trends and components of net interest
margin, asset and deposit composition, and asset quality from publicly available information and
other sources against peer metrics to determine strengths and weaknesses, (ii) review geographic
and market demographic trends, (iii) seek to identify operational challenges and corporate finance
weaknesses, (iv) conduct market research and background checks on target management and board, (v)
research composition and dynamics of investor base, (vi) identify potential competing bidders and
ascertain their (a) capacity to pay for the target and (b) willingness to bid for the target based
on history and subjective estimation, (vii) consider and model alternative funding and
transactional structures to preliminarily solve for what level of pricing, enhanced operating
returns, and exit multiples or intermediate or long term growth and return potential are most
attractive for our public stockholders, and (viii) identify potential buyers of the target and
estimate the willingness and capacity of buyers to purchase the target from us. We will seek to
prepare models and forecasts on a branch by branch basis to identify operational opportunities
(such as revenue enhancements and expense reductions).
Once a potential acquisition has been identified, we will conduct due diligence, focusing on
asset generation, yield and quality, deposit generation and funding costs, asset/liability
management, the quality of non-interest income, the ability to reduce non-interest expense via
branch system rationalization, head count reduction and payroll and employee benefits optimization,
the ability to reduce the provision for taxes, and regulatory, financial accounting, internal control, systems, legal, information technology and
other issues. Particular areas of more specific focus include a disciplined approach to asset
quality and credit policy to determine real tangible book value, cash versus non-cash earnings,
non-recurring earnings items, credit quality and reserve methodologies, hedging activities, credit
concentration issues and issues related to Statement No. 140, Accounting for the Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, published by the Financial
Accounting Standards Board; and Statement of Position 03-03, Accounting for Loans or Certain
Securities Acquired
in a Transfer, issued by the American Institute of Certified Public
Accountants; as well as compliance with the Sarbanes-Oxley Act of 2002. Our due diligence review
is the first step in conceiving a plan to drive post-acquisition value if a business combination is
completed.
After a review of (i) the results of our the due diligence effort, (ii) the models and
forecasts prepared and preliminary business plan, and (iii) the results of meetings with potential
acquisition candidates and terms of any transaction, our board of directors will discuss each
potential acquisition target and related pricing, structure and business plan. In connection with
this undertaking, we intend to use sector-specific financial accounting, tax, and regulatory
knowledge and skills sets of our management to determine and
implement an optimal transaction
structure. Our management plans to use corporate finance techniques to enhance returns, including
(i) use of a thrift charter to prudently increase leverage and (ii) asset sales and
securitizations, hedging strategies and other tax, financial accounting and tax driven structures
to mitigate risk or support the business plan post-closing. We believe our extensive experience
will enable us to structure a successful business combination.
Accounting and Regulatory Aspects of Deal Identification and Evaluation
Accounting practices in the financial services industry are extremely complex and replete with
nuances with substantial implications. The regulatory trends and constraints impacting a potential
acquisition are critical components of due diligence in the financial services industry. The
experience of our management and our sponsor and its affiliates in analyzing regulatory risk
provides us with (i) knowledge of key issues important to regulators, (ii) an understanding of the
underlying potential business complications in a regulatory situation and (iii) access to
regulators. Additionally, through our sponsor, we have access to professionals with similar
backgrounds. We believe that this ability to analyze complex regulatory risk provides us with a
competitive advantage, particularly over generalist firms who may lack the expertise of
sector-focused resources.
Present Market Conditions
Over the last few years,
changes in interest rates and in the slope of the yield curve, or the spread between short-term and
long-term interest rates, have put pressure on net interest income, which has resulted in a deterioration of banks’ earnings and a significant reduction in market valuation.
Asset generation has been highly competitive, which has led to lower yields on earning assets,
lengthening of maturities and softening of underwriting standards and a shift in mix to more real
estate based loans. We believe that macroeconomic factors, coupled with recent turmoil in the
markets relating to bank and thrift liquidity, credit quality, capital and sustainability of
earnings is also impacting pricing for stocks of banks, thrifts and
other financial services companies. As asset quality has become a concern of both buyers and
sellers, historically unwilling sellers may be forced to seek significant sources of capital and/or
become willing sellers in the near-term, which we believe will lead to unprecedented opportunities
for financial buyers, including blank check companies, that have been structured to become bank or
thrift holding companies. We believe that continued asset quality, margin and capital adequacy
pressures on the performance and public market valuation of acquiring banks and the potential
market volatility in reaction to the announcement of a transaction, or even later if integration is
not as successful as planned, will give us a competitive advantage in terms of sourcing
transactions on an exclusive basis and/or in submitting the prevailing bid in a competitive
process.
In addition to those depository institutions that have recently failed, many banks and thrifts are under pressure from their regulators to raise additional capital. Unlike many of the largest institutions in the financial services industry, we believe most of these banks and thrifts have limited access to the capital market.
Institutions that do not attempt to raise capital voluntarily may explore asset sales or become willing sellers to financial buyers, in part because of their ability to inject capital, which we believe will give us a competitive advantage.
Many of the institutions we will focus on are outside of the focus of large, strategic buyers
because of concerns about regulatory challenges, market reaction and related earnings volatility,
and the opportunity cost and reputational risk associated with acquiring and integrating
undervalued, financially challenged or smaller institutions. Given the current environment, the
appetite of many of these competing public companies for these depository institutions is reduced
because of (i) the impact of the decline in price to earnings ratios on the ability of competing
public companies to pay for a target, (ii) the need for capital in light of asset quality issues of
such acquirors, (iii) the present high cost and availability of replacement equity, generally in
the form of trust preferred capital, and (iv) general uncertainty relating to the economy.
In addition, we believe that that because of Mr. Sidhu’s network of relationships in the
sector and our proactive, systematic and structured approach to transaction sourcing, using Mr.
Sidhu’s rapport-building one-on-one meetings with target management and directors, we will have the opportunity to acquire
institutions in which the motivation of the seller is driven in substantial part by non economic
factors, such as competitive considerations, the need for strict confidentiality, social issues or
the need for streamlined execution.
Financial
Position and Cash as Acquisition Currency
Upon
the completion of this offering, we will have approximately
$90,000,000 in funds
available in the trust for a business combination and will be able to offer a target business a
variety of options such as creating a
liquidity event for its owners, providing capital for the
potential growth and expansion of its operations and strengthening its balance sheet by reducing
its debt ratio. Because we may be able to complete a business combination using our cash, debt or
equity securities, or a combination of the foregoing, we should have the flexibility to use the
most efficient combination that would allow us to tailor the consideration to be paid to the target
business to fit its needs and desires. However, we have not taken any steps to secure third party
financing, and there can be no assurance it will be available to us. In the event our business
combination is with an entity in the financial services industry, the amount of debt we can use to
effect an acquisition will be subject to substantial regulatory restrictions.
Effecting our Business Combination
General
We are not presently engaged in, and we will not engage in, any operations for an indefinite
period of time following this offering. We intend to utilize the cash proceeds of this offering
and the sale of the sponsor units, our capital stock, debt or a combination of
these as the consideration to be paid in a business combination. Although we have allocated
substantially all of the net proceeds of this offering for the purpose of completing a business
combination, the proceeds are not otherwise designated for more specific purposes. We have not
identified any acquisition target and we have not, nor has anyone on our behalf, initiated any
substantive discussions with an entity that we will acquire in a business combination. In
addition, we have not engaged or retained any agent or other representative to identify or locate
any suitable acquisition candidate, to conduct any research or take any measures, directly or
indirectly, to locate or contact a target business.
Subject to the requirement that a business combination have a fair market value of at least
200% of our net assets held in trust (net of taxes and up to $2,400,000 of interest earned on the
trust account permitted to be disbursed to us for working capital purposes and excluding the amount
of the underwriters’ deferred commission and discount held in trust) at the time of the execution of the definitive agreement for our initial business
combination, and we will have virtually unrestricted flexibility in identifying and selecting one
or more prospective acquisition candidates. Accordingly, there is no current basis for investors
in this offering to evaluate the possible merits or risks of the target business with which we may
ultimately complete a business combination. Although our management will assess the risks inherent
in a particular target business with which we may enter into a business combination, we cannot
assure you that this assessment will result in our identifying all risks that a target business may
encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do
nothing to control or reduce the chances that those risks will adversely impact a target business.
In
addition, depository institutions and insurance companies generally are subject to rigorous capital
requirements and may be examined on a regular basis for their general safety and soundness and
compliance with various federal and state legal laws. Any debt used in the completion of the
business combination may adversely affect the potential target businesses’ ability to maintain
capitalization requirements in certain regulated segments of the financial services industry. If
we were to acquire businesses in segments of the financial services industry which are subject to
maintaining capitalization requirements and ratios and subject to regulatory approvals and
consents, the structure of the potential business combination, including our use of leverage, and
the size of the potential business combination may be impacted, the potential pool of target
businesses may be limited, and our ability to complete a business combination within the requisite
time period may be adversely affected.
Waiver of claims and liability for certain claims
Prior to completion of a business combination, we will seek to have all vendors, prospective
target businesses or other entities, which we refer to as potential contracted parties or a
potential contracted party, that we engage, execute agreements with us waiving any right, title, interest or claim of any kind in
or to any monies held in the trust account for the benefit of our public stockholders. In the
event that a potential contracted party was to refuse to execute such a waiver, we will execute an
agreement with that entity only if our management first determines that we would be unable to
obtain, on a reasonable basis, substantially similar services or opportunities from another entity
willing to execute such a waiver. If a potential contracted party refuses to execute such a
waiver, then Mr. Sidhu will be liable to cover the potential claims made by such party for
services rendered and goods sold, in each case to us, to the extent we do not have working capital
outside the trust account (including amounts available for release) sufficient to cover such
claims. However, the agreement entered into by Mr. Sidhu specifically provides for two
exceptions to this indemnity: there will be no liability (i) as to any claimed amounts
owed to a
third party who executed a waiver (even if such waiver is subsequently found to be invalid and
unenforceable) or (ii) as to any claims under our indemnity of the underwriters of this offering
against certain liabilities, including liabilities under the Securities Act.
There is no guarantee that potential contracted parties will execute such waivers, or even if
they execute such waivers that they would be prevented from bringing claims against the trust
account, including but not limited to fraudulent inducement, breach of fiduciary responsibility and
other similar claims, as well as claims challenging the enforceability of the waiver, in each case
in order to seek recourse against our assets, including the funds held in the trust account.
Further, we could be subject to claims from parties not in contract with us who have not executed a
waiver, such as a third party claiming tortious interference as a result of a business combination.
In addition, the indemnification provided by Mr. Sidhu is limited to claims by vendors that do
not execute such waivers as described above. Claims by target businesses or other entities and
vendors that execute agreements waiving any right, title, interest or claim of any kind in or to
any monies held in the trust account would not be indemnified by Mr. Sidhu. In the event that
this indemnity obligation arose and Mr. Sidhu did not comply with such obligation, we believe
that we would have an obligation to seek enforcement of the obligation and that our board of
directors would have a fiduciary duty to seek enforcement of such obligation on our behalf and that
such enforcement efforts, if necessary, would be brought. We cannot assure you that Mr. Sidhu will be able to satisfy those obligations. As a
result, the steps outlined above may not effectively mitigate the risk of creditors’ claims
reducing the amounts in the trust account.
Sources of target businesses
We anticipate that target business candidates will be brought to our attention from various
sources, including CEOs and other senior executive officers who participate in the industry,
investment bankers, private equity funds, leveraged buyout funds, management buyout funds and other
members of the financial community. Target businesses may be brought to our attention by such
unaffiliated sources as a result of being solicited by us through calls, mailings or
advertisements. These sources may also introduce us on an unsolicited basis to target businesses
they think we may find attractive, since many of these sources will have read this prospectus and
know what types of businesses we are targeting and know we seek to complete a business combination.
We believe that we will receive opportunities that may not generally be available to others as
a result of the industry relationships and experience that Mr. Sidhu, our chairman and chief
executive officer, has developed over time. However, we can make no assurances that our business
relationships will result in opportunities to acquire a target business.
While we do not presently anticipate engaging the services of professional firms or other
individuals that specialize in business acquisitions on any formal basis, we may engage these firms
or other individuals in the future, in which event we may pay a finder’s fee, consulting fee or
other compensation to be determined in an arm’s length negotiation based on the terms of the
transaction. We will engage a finder only to the extent our management determines that the use of
a finder may bring opportunities to us that may not otherwise be available to us or if finders
approach us on an unsolicited basis with a potential transaction that our management determines is
in our best interest to pursue. Payment of finder’s fees is customarily tied to completion of a
transaction, in which case any such fee will be paid out of the funds held in the trust account.
In no event, however, will our sponsor or any of our existing officers or directors, or any entity
with which they are affiliated, be paid any finder’s fee, consulting fee or other compensation
prior to, or for any services they render in order to effectuate, the completion of a business
combination (regardless of the type of transaction that it is), other than (i) the reimbursement of
out-of-pocket expenses, (ii) a monthly fee to Griffin Holdings Group, LLC, an entity affiliated
with Mr. Harenza, (iii) customary fees and charges to
Stevens & Lee and its affiliates, whom we intend to engage to
provide professional services for us, including professional services in connection with this offering, our
operations, and in connection with a
business combination, such as, among other things, planning associated with the acquisition process, identifying and
evaluating potential target businesses and performing due diligence,
and (iv) by virtue of their ownership
of sponsor shares, sponsor warrants or any securities included in or issuable upon exercise of such
securities. Although some of our officers and directors may enter into employment or consulting
agreements with the acquired business following a business combination, the presence or absence of
any such arrangements will not be used as criteria in our selection process of an acquisition
candidate.
Our sponsor, officers and directors, and their respective affiliates, are not required to
commit their full time to our affairs and, accordingly, may have conflicts of interest in
allocating their time among various business
activities. However, our sponsor, officers and
directors, as well as their affiliates, may also bring to our attention target business candidates
that they become aware of through their business relationships as a result of formal or informal
inquiries or discussions they may have, as well as attending financial services industry
conventions. These opportunities may be appropriate for presentation to our company as well as the
other entities with which they are affiliated. Additionally, we may decide to acquire one or more businesses affiliated with our officers,
directors or sponsor. However, our officers, directors and sponsor are not currently aware of any
specific opportunities for us to consummate a business combination with any entities with which
they are affiliated, and there have been no preliminary discussions concerning a business
combination with any such entity or entities. For a complete description of the affiliations of
our directors and officers, see “Management—Directors and Executive Officers.”
In order to minimize potential conflicts of interest that may arise from multiple
affiliations, our sponsor, members and officers of our sponsor and
officers of our sponsor and each of our officers and directors
(except for our independent directors, Griffin Financial, Stevens & Lee, and Joseph M.
Harenza, except where opportunities are presented to him in his
capacity as a member of our board of directors) has agreed,
until the earliest of the completion of a business combination, 24 months (or up to 30 months if
our stockholders approve an extension) after the date of this prospectus and such time as he ceases
to be one of our officers or directors, to present to our company for our consideration, prior to
presentation to any other entity, any business combination opportunity involving the potential
acquisition of a controlling interest (whether through the acquisition of a majority of the voting
equity interests of the target or through other means) in a company in the financial service
industry with assets of less than $3 billion, subject to any other pre-existing
fiduciary duties or contractual obligations they may have. We expect primarily to target
businesses within this range of assets, although we have the flexibility to acquire a business
outside of this range.
We intend to comply with Mr. Sidhu’s non-solicitation covenant, as well as his covenant not to
compete with Sovereign. The covenant not to compete provides, among other things, that Mr. Sidhu
may not, directly or indirectly, (a) own more than 4.9% of a publicly traded banking institution or
(b) be an agent, consultant, employee, partner, officer, director, proprietor or otherwise of any
firm, corporation or enterprise, or provide financial or other assistance to such firm, corporation
or enterprise, engaged in the banking or financial services industry, in each case in any county
which is contiguous to a branch, office or other facility of Sovereign as of October 2006 the time
he ceased to be employed by Sovereign. This covenant specifically permits Mr. Sidhu to engage,
directly or indirectly, for his own account or as an officer, director or investor with respect to
any investment company or private equity, hedge, or similar fund which makes portfolio investments
in entities in the financial services industry if (x) the ownership interest of such investment
company or fund in such financial services entity represents less than 5% of the
outstanding voting power of the financial services entity, or (y) such financial services entity does not have a
substantial percentage of its loans or deposits in, and/or does not have a substantial physical or
economic presence in, any county which is contiguous to a branch, office or other facility of
Sovereign at the time he ceased to be employed by Sovereign. The covenant not to compete expires
upon the earlier of (i) October 11, 2011 or (ii) a change in control of Sovereign. As a result, we
are largely prohibited from acquiring depository institutions located in certain portions of Massachusetts,
Connecticut, Rhode Island, Maryland, New York, Pennsylvania and New Jersey. Accordingly, we are
somewhat limited in the degree to which we can select potential
candidates which operate in the depository institutions sector and
are located, in any of those
areas.
The
non-solicitation covenant, which expires at the same time as the
covenant not to compete, provides, among other things, that Mr. Sidhu will not solicit,
recruit or encourage any employee of Sovereign or any of its subsidiaries to leave their
employment. Accordingly, we may not be able to hire certain individuals who may possess the
requisite abilities to assist us in meeting our investment goals.
There will be no fees or other cash payments paid to our sponsors, officers, directors or
their affiliates prior to, or for any services they render in order to effectuate, the completion
of the initial business combination (regardless of the type of transaction that it is) other than:
•
repayment of a $200,000 loan that is made to us by our sponsor to cover operating
expenses;
•
customary fees and charges to Stevens & Lee, an
affiliate of Mr. Harenza, and its affiliates for performing
professional services for us, including professional services in
connection with this offering, our operations, and in connection with an acquisition;
•
a payment of an aggregate of $7,500 per month to Griffin Holdings Group, LLC, an
affiliate of Mr. Harenza, for office space, technological and administrative services,
and secretarial support; and
•
reimbursements for any out-of-pocket expenses incurred in connection with actions on
our behalf, such as identifying potential target businesses and performing due
diligence on suitable business combinations.
Selection of a target business and structuring of a business combination
Subject to the requirement that a business combination have a fair market value of at least
200% of our net assets held in trust (net of taxes and interest earned
of up to $2,400,000 on the
trust account permitted to be disbursed to us for working capital purposes and excluding the amount
of the underwriters’ deferred commission and discount held in trust) at the time of
the execution of the definitive agreement for our initial business
combination, we will have virtually unrestricted flexibility in identifying and selecting one or
more prospective target businesses.
Initially, we will target companies in the financial services industry with assets of between $500
million and $3 billion. However, we anticipate that we may actively expand our focus to candidates
outside of the depository institutions sector and the financial services industry during the latter
half of the initial 24-month period that we have to consummate a business combination.
In addition, we will not complete a business combination
unless we acquire a controlling interest in the target company. We will acquire a controlling
interest either through the acquisition of a majority of the voting equity interests in the target
or through the acquisition of a significant voting equity interest that enables us to exercise a
greater degree of control over the target than any other equity holder. In the event we acquire
less than a majority of the voting equity interests in the target, we may seek an even greater
degree of control through contractual arrangements with the target and/or other target equity
holders, or through special rights associated with the target equity security that we hold, which
arrangements or rights may grant us the ability, among other things, to appoint certain members of
the board (or equivalent governing body) or management of the target or the ability to approve
certain types of significant transactions that the target may seek to enter into.
We have not established any specific attributes or criteria (financial or otherwise) for
prospective target businesses, other than the general guidelines set forth under “—Business
Strategy” above. Consistent with our operations-centric investment strategy, our management may
consider a variety of factors in evaluating a prospective target business, including one or more of
the following:
•
net interest margin trends, including trends in earning assets and cost of
liabilities;
•
economy and demography of the market in which the target competes;
•
the target’s market share in terms of its deposit gathering in those geographic
markets;
•
asset mix and loan mix, with an emphasis on yield, risk and sustainability;
•
presence or absence of non-spread businesses and sustainable and growth potential of
such businesses;
•
efficiency ratio with an emphasis on cost reduction opportunities via branch
rationalization, head count reduction, and payroll and employee benefits optimization;
•
the ability to reduce tax provision;
•
balance sheet leverage and capital in light of regulatory requirements and ability
to deploy;
•
results of operations and potential for increased profitability and growth;
•
exit potential including relevancy to strategic buyers in those markets or
contiguous markets;
•
pricing based on a review of peer company price to earnings, price to book and
tangible book value, and premium to deposits ratios;
•
competitive dynamics including barriers to entry, future competitive threats and the
target business’ competitive position;
•
development of detailed projections, quantification of sensitivity of drivers of
growth and profit enhancement;
•
quality and depth of the management team as it relates to current company
operations, as well as the envisioned company in the future;
•
capital requirements;
•
regulatory, financial accounting, internal control, systems, legal, information
technology, and other issues; and
•
costs associated with effecting the business combination.
These criteria are not intended to be exhaustive and our management may consider additional
factors it deems to be relevant. Any evaluation relating to the merits of a particular business
combination may be based, to the extent relevant, on the above factors as well as other
considerations our management deems relevant to our business objective. In evaluating a
prospective target business, we expect to conduct an extensive due diligence review which will
encompass, among other things, meetings with incumbent management and employees, document reviews,
interviews of customers and suppliers, inspection of facilities, as well as review of financial and
other information which will be made available to us.
The time required to select and evaluate a target business and to structure and complete a
business combination, and the costs associated with this process, are not currently ascertainable
with any degree of certainty. Any costs incurred with respect to the identification and evaluation
of a prospective target business with which a business combination is not ultimately completed will
result in our incurring losses and will reduce the funds we can use to complete another business
combination.
If we determine to simultaneously acquire several businesses and such businesses are owned by
different sellers, we will need each such seller to agree that our purchase of its business is
contingent on the simultaneous closings of the other acquisitions, which may make it more difficult
for us, and delay our ability, to complete the business combination. With multiple acquisitions,
we could also face additional risks, including additional burdens and costs with respect to
possible multiple negotiations and due diligence investigations (if there are multiple sellers) and
the additional risks associated with the subsequent assimilation of the operations and services or
products of the acquired companies in a single operating business.
If we acquire less than a majority of the voting equity interests in a target business, we may
be deemed to be an “investment company” and subject to the Investment Company Act of 1940 and the
restrictions imposed under such act. The additional costs that we would incur in complying with
the requirements of such act as well as the restrictions on our permitted activities could severely
impair our ability to generate a profit or to continue in business.
See “Risk Factors—Risks Related to Our Structure as a
Development Stage Company—If we are
deemed to be an investment company, we may be required to institute burdensome compliance
requirements and our activities may be restricted, which may make it more difficult for us to
complete a business combination.”
Fair market value of target business or businesses
Our business combination must occur with one or more target businesses that have a collective
fair market value of at least 200% of our net assets held in trust (net of taxes and interest earned
of up to $2,400,000 on the trust account permitted to be disbursed to us for working capital
purposes and excluding the amount of the underwriters’ deferred commission and discount held in
trust) at the time of the execution of the definitive agreement for our initial business combination. Our board of directors will determine the fair
market value based on standards generally accepted by the financial community, such as price to
earnings, price to book and tangible book value, price to deposits, or discounted cash flow
valuation. If our board of directors is not able to independently determine the fair market value
of a business combination, we will obtain an opinion from an unaffiliated, independent investment
banking firm that is subject to oversight by FINRA as to the
fair market value. We will seek to have any such opinion provide that our stockholders would be
entitled to rely upon such opinion. The willingness of an investment banking firm to provide for
such reliance would be a factor considered by us in selecting an independent investment banking
firm. If no opinion is obtained, our public stockholders will be relying solely on the judgment of
our board of directors.
If we acquire less than 100% of the equity interests or assets of a target business or
businesses, the portion of such business or businesses that we acquire will be the basis of our
valuation for purposes of the 200% of net assets test. If we determine to simultaneously acquire
several businesses and such businesses are owned by different sellers, we will need each seller to
agree that our purchase of its business is contingent on the simultaneous closings of sufficient
other acquisitions such that we can satisfy the 200% net assets test.
In order to complete such business combination, we may issue a significant amount of our debt
or equity securities to the sellers of such business or businesses and/or seek to raise additional
funds through an offering of debt or equity securities or borrowings under a credit facility. If
we issue equity securities in order to complete a business combination, our stockholders prior to the business combination could end up owning a
minority of the voting and/or equity interests of the surviving company after giving effect to the
business combination.
Lack of business diversification
While we may seek to effect business combinations with more than one target business, a
business combination must be with one or more target businesses whose collective fair market value
is at least equal to 200% of our net assets held in trust (net of taxes and interest earned of up to
$2,400,000 on the trust account permitted to be disbursed to us for working capital purposes and
excluding the amount of the underwriters’ deferred commission and discount held in trust), as
discussed above. Consequently, we expect to complete only a single business combination, although
this may entail a simultaneous combination with several operating businesses at the same time. At
the time of our initial business combination, we may not be able to acquire more than one target
business because of various factors, including complex accounting or financial reporting issues.
For example, we may need
to present pro forma financial statements reflecting the operations of
several target businesses as if they had been combined historically. A simultaneous combination
with several target businesses also presents logistical issues such as the need to coordinate the
timing of negotiations, proxy statement disclosure and closings. In addition, if conditions to
closings with respect to one or more of the target businesses are not satisfied, the fair market
value of the businesses, collectively, could fall below the required fair market value threshold of
200% of our net assets held in trust (net of taxes and interest
earned of up to $2,400,000 on the
trust account permitted to be disbursed to us for working capital purposes and excluding the amount
of the underwriters’ deferred commission and discount held in trust) at the time of the execution of the definitive agreement for our initial business
combination.
Accordingly, while it is possible that we may attempt to effect our initial business
combination with more than one target business, we are more likely to choose a single target
business if all other factors appear equal. This means that for an indefinite period of time after
completion of a business combination, the prospects for our success may depend entirely on the
future performance of a single business. Unlike other entities that have the resources to complete
business combinations with multiple entities in one or several industries, it is probable that we
will not have the resources to diversify our operations and mitigate the risks of being in a single
line of business. By completing a business combination with only a single entity, our lack of
diversification may:
•
subject us to negative economic, competitive and regulatory developments, any or all
of which may have a substantial adverse impact on the particular industry in which we
operate after a business combination, and
•
cause us to depend on the marketing and sale of a single product or limited number
of products or services.
Limited ability to evaluate the target’s management team
Although we intend to closely scrutinize the management of a prospective target business when
evaluating the desirability of effecting a business combination with that business, we cannot
assure you that our assessment of the target business’ management will prove to be correct. In
addition, we cannot assure you that the future management will have the necessary skills,
qualifications or abilities to manage a public company. Furthermore, the future role of members of
our management team, if any, in the target business cannot presently be stated with any certainty.
While it is possible that one or more of our directors will remain associated in some capacity with
us following a business combination, it is unlikely that any of them will devote their full efforts
to our affairs subsequent to a business combination. Moreover, we cannot assure you that members
of our management team will have significant experience or knowledge relating to the operations of
the particular target business. We cannot assure you that any of our key personnel will remain in
senior management or advisory positions with the combined company. The determination as to whether
any of our key personnel will remain with the combined company will be made at the time of a
business combination.
Following a business combination, we may seek to recruit additional managers to supplement the
incumbent management of the target business. We cannot assure you that we will have the ability to
recruit additional managers, or that additional managers will have the requisite skills, knowledge
or experience necessary to enhance the incumbent management.
Stockholder approval of a business combination
We will seek stockholder approval before we effect a business combination, even if the nature
of the acquisition would not ordinarily require stockholder approval under applicable state law.
In connection with a business combination, we will also seek stockholder approval for a proposal to
amend our amended and restated certificate of incorporation to provide for our corporate life to
continue perpetually following the completion of such business combination. Any vote to extend our
corporate life to continue perpetually following the completion of a business combination will be
taken only if such business combination is approved.
We will only proceed with a business combination if:
•
the business combination is approved by a majority of the
aggregate votes cast by our public
stockholders and holders of the sponsor shares at a duly held stockholders meeting,
an amendment to our amended and restated certificate of incorporation to provide for
our perpetual existence is approved by a holders of a majority of our outstanding
shares of common stock, and
•
conversion rights have been exercised with respect to less than 35% of the shares of
common stock issued in this offering, on a cumulative basis (including the shares as to
which conversion rights were exercised in connection with (i) a stockholder vote, if
any, to approve an extension of the time period within which we must complete a
business combination and (ii) the stockholder vote to approve such business
combination).
In connection with seeking the approval of
our stockholders for any business combination, we
will furnish our stockholders with proxy solicitation materials prepared in accordance with the
Exchange Act, which, among other things, will include a description of the operations of target
candidates and audited historical financial statements of the target candidates.
It is our understanding and intention in every case to structure and complete a business
combination in which approximately 35% of the public stockholders on a cumulative basis may exercise their conversion
rights and the business combination will still go forward. Voting against the proposed business
combination alone will not result in conversion of a stockholder’s shares of common stock into a
pro rata share of the amount then held in the trust account. Such stockholder must also exercise its conversion rights
described below.
Our threshold for conversion rights has been established at 35%, although historically blank
check companies have used a 20% threshold. This structural change will increase the likelihood of
an approval of any proposed business combination by making it easier for us to complete a business
combination with which public stockholders may not agree. However, the 35% threshold entails
certain risks described under “Risk Factors—Risks Relating to Our Structure as a Development Stage
Company.”
For purposes of seeking approval of a business combination, non-votes will have no effect on the approval of a business combination once a quorum
is obtained (although non-votes would have an effect on the approval of the amendment to our
amended and restated certificate of incorporation to provide for our perpetual existence). We
intend to give approximately 30 (but not less than 10 nor more than 60) days prior written notice
of any meeting at which a vote shall be taken to approve a business
combination. In addition, we will publicly announce the record date for determining the shareholders entitled to
vote at the meeting to approve our business combination at least three business days prior to such
record date.
In
connection with the vote required to approve a business combination,
our
sponsor, officers and directors have agreed, and their permitted
transferees will agree, to vote the initial shares in accordance with the majority of the shares of common stock voted by the
public stockholders. Our sponsor, officers and directors have also agreed, and their permitted
transferees will agree, that they will vote the initial shares, the
sponsor shares and any shares of common stock acquired in this
offering or in the aftermarket in favor of the amendment to our
amended and restated certificate of incorporation to provide for our perpetual existence in
connection with a vote to approve a business combination or any extension of
our corporate existence to up to 30 months from the date of this prospectus in the event we have
entered into a definitive agreement for, but have not yet completed, a business combination. In addition, our existing stockholders will vote the sponsor shares and any shares of common stock acquired in
this offering or in the aftermarket in favor of an initial business combination submitted to our
stockholders for approval. Accordingly, our existing stockholders will not be able to exercise
conversion rights with respect to any potential initial business combination.
We are not aware of any present intention on the part of our sponsor, officers or directors to
make any purchases in this offering or in the aftermarket. Although we do not know for certain the
factors that would cause our sponsor, officers or directors to purchase our securities, we believe
that some of the factors they would consider are: (i) the trading price of our securities, (ii)
their aggregate investment in our securities, (iii) whether it appears that a substantial number of
public stockholders are voting against a proposed initial business combination, and (iv) their
interest in the target business once the target business has been identified.
Although we and our sponsor, officers and directors have no current intention to make such
purchases, we and our sponsor and directors and officers and their respective affiliates are not
prohibited from purchasing shares of our common stock in the open market and/or in privately
negotiated transactions. Any such privately negotiated transaction with a public stockholder would
include a contractual acknowledgement that such stockholder, although still a holder of record of
our common stock, is no longer the beneficial owner thereof and therefore agrees to vote such
shares of common stock as directed by the purchasers of such shares. In the event we or our sponsor, directors or officers or their respective
affiliates purchase shares in privately negotiated transactions from public stockholders who have
already cast votes against the proposed business combination or extension and exercise conversion rights with
respect to their shares, such selling stockholders would be required to revoke their prior votes
against the proposed business combination or extension and to revoke their prior conversion elections and to
cast new votes in favor of the proposed business combination or extension. The revocation of prior negative
votes and substitution therefor of votes in favor of the proposed business combination or extension would have
the effect of reducing conversions and increasing votes in favor of the proposed business
combination or extension, thereby making it more likely that a proposed business combination or extension would be approved.
Although we and our sponsor, officers, directors and their respective affiliates currently
have no intention of entering into private stock purchase arrangements with our public stockholders
subsequent to this offering, they may do so in the future both as an expression of confidence in
the value of our common stock following the initial business combination or extension and as a means of
increasing the likelihood that the initial business combination or extension will be approved.
We, our sponsor, officers, directors and/or their respective affiliates anticipate that they
will identify the public stockholders with whom we, our sponsor, officers, directors or their
respective affiliates may pursue privately negotiated purchases by either the public stockholders
contacting us directly or by our receipt of proxy cards submitted by public stockholders at the
time of the initial business combination or extension. To the extent that we, our sponsor, officers, directors
or their respective affiliates enter into a private purchase, we would identify and contact only
potential selling stockholders who have expressed their intention to vote, or who have already
voted, against the initial business combination or extension. Pursuant to the terms of such arrangements, any
shares so purchased by us, our sponsor, officers, directors or their respective affiliates would
then be voted, or prior votes against would then be changed to votes, in favor of the initial
business combination or extension. The terms of such purchases would operate to facilitate the consummation of
the proposed business combination or the approval of the extension by potentially reducing the number of shares voted against the
business combination or extension to less than 35% of the shares sold
in this offering, on a cumulative basis.
Any shares purchased from public stockholders by us, our sponsor, officers, directors or their
respective affiliates would be purchased at a price to be negotiated between such stockholders on
the one hand and us, our sponsor, officers, directors or their respective affiliates on the other
hand. Such price would depend on a variety of factors including, but not limited to, the size of
the stockholders’ position in our stock and the method and timing of payment from us or from our
sponsor, officers, directors or affiliates for such shares. Should such purchases be negotiated, it is possible that the value of the purchase price
thereof would exceed the per share amount to be distributed from trust upon liquidation. We have
agreed with the underwriters, however, that if we enter into any such privately negotiated
transactions, we may only pay to applicable public stockholders funds up to the amount per share
that would be received upon the exercise of conversion rights; negotiated premiums, if any, to such
per share conversion price would thus need to be paid by someone other than us, which would most
likely be our existing stockholders, officers, directors, their respective affiliates or third
parties and would not be paid by us.
Any stock purchases by us, our sponsor, officers, directors or affiliates, as described above,
will be consummated pursuant to privately negotiated arrangements rather than through open market
purchases in order to avoid disruption in the marketplace due to the possible relative illiquidity
of our stock and in order to avoid the potential characterization of such open market purchases as
a tender offer by us, our officers, directors or affiliates. Any such purchases would be conducted
in conformance with applicable securities laws and regulations,
including Regulation M. The inability of such persons or entities to
effect such purchases could impair our ability to obtain approval of
a business combination or to extend the period to effect a business
combination.
If a vote on a business combination is held and the conditions to proceeding with a business
combination are not satisfied, we may continue to try to complete a
business combination until 24 months (or up to 30 months if our
stockholders approve an extension) after the date of this
prospectus.
Upon the completion of a business combination, unless required by Delaware law, the federal
securities laws and the rules and regulations promulgated thereunder, or the rules and regulations
of an exchange upon which our securities are listed, we do not presently intend to seek stockholder
approval for any subsequent mergers, acquisitions or similar transactions.
Extension of time to complete a business combination to up to 30 months
We
have a period of 18 months from the completion of this offering
within which to sign a letter of intent or definitive agreement for a
business combination. However, if we have entered into a letter of
intent or definitive agreement within such 18-month
period, we may, prior to the expiration of the 24-month period in which we must effect a business combination, call one or more meetings of our stockholders
for the purpose of soliciting their approval to extend the date before which we must complete a
business combination by up to six months to avoid being required to liquidate. If
the extension is approved by a majority of our stockholders, we would have a total of up to 30
months from the completion of this offering to complete a business combination. In
connection with
seeking stockholder approval for the extended period, we will furnish our stockholders with proxy
solicitation materials prepared in accordance with the Exchange Act.
If a majority of the shares held by our stockholders vote against the proposed
extension to up to 30 months, or if holders of 35% or more of the shares sold in this offering vote
against the proposed extension to up to 30 months and elect to convert their shares into a pro rata
share of the amount then held in the trust account, we will not extend the date before which we must complete a business
combination beyond 24 months. In such event, if we cannot complete the business combination within
such 24 month period, we will be required to liquidate, with the amount remaining in the trust
account returned to all public stockholders. Subject to the foregoing, approval of the extension
to up to 30 months will require the affirmative vote of the
majority of our outstanding shares.
In connection with the vote required for the extension to up to 30 months, our sponsor,
officers and directors have agreed, and their permitted transferees
will agree, to vote the initial shares, the sponsor shares and any
shares of common stock acquired in this offering or in the
aftermarket in
favor of such extension.
If the majority of our outstanding shares are voted at the special (or annual)
meeting called for the purpose of approving such extension vote in favor of such extension and less
than 35% of the shares sold in this offering are voted against the proposed extension and elect to
convert their shares, we will then have an additional six month period in which to
complete the business combination.
If the proposal for the extension to up to 30 months is approved, we will still be required to
seek stockholder approval before effecting a business combination, even if the business combination
would not ordinarily require stockholder approval under applicable law.
If at the end of such 30-month period we have not effected such business combination, our
corporate existence will automatically cease without the need for a stockholder vote and we will
liquidate.
Conversion rights
At the time we seek stockholder approval of a business combination, each public stockholder
voting against a business combination will have the right to convert its shares of common stock
into a pro rata share of the aggregate amount then on deposit in the trust account, including both
interest earned on the trust account and the deferred underwriting commission and discount (net of
taxes payable and interest earned of up to $2,400,000 on the trust account permitted to be
disbursed to us for working capital purposes), provided that a business combination is approved and
completed. In addition, any stockholders voting against a proposed extension of the time period
within which we must complete a business combination will be eligible to convert their shares into
a pro rata share of the amount then held in the trust account if we effect the extension. Our sponsor, our officers and
directors, and their permitted transferees will not have such
conversion rights with respect to the initial shares and the
sponsor shares.
The actual per-share conversion price will be equal to the per share amount of approximately
$10.00 initially deposited in the trust account, or approximately
$9.95 if the over-allotment option
is exercised (plus any interest earned on the proceeds in the trust account in excess of the amount permitted to be disbursed
to us for working capital purposes, net of taxes payable on such income, on such amount per share). As this amount may be lower than the $10.00 per unit offering price and it may be less than the market
price of the common stock on the date of repurchase, there may be a disincentive on the part of
public stockholders to exercise their conversion rights.
Notwithstanding the foregoing, a public stockholder, together with any affiliate of his or any
other person with whom he is acting as a “group” (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) will be restricted from seeking conversion rights with respect to more than
10% of the shares of common stock included in the units being sold in this offering, on a
cumulative basis, which includes any exercise of conversion rights in connection with either the
stockholder vote, if any, required to approve an extension of the time period within which we must
complete a business combination or the stockholder vote required to approve a business combination.
Shares converted in connection with the vote on an extension of the time period within which we
must complete a business combination and in connection with the vote on the business combination
will be aggregated for purposes of this 10% limit. Such a public stockholder would still be
entitled to vote against an extension or a proposed business combination with respect to all shares
owned by him or his affiliates. We believe this restriction will deter stockholders from
accumulating large blocks of stock before the vote held to approve an extension or a proposed
business combination and prevent an attempt to use the conversion right as a means to force us or
our management to purchase their stock at a premium to the then current market price. For example,
absent this provision, a public
stockholder who owns 15% of the shares included in the units being
sold in this offering could threaten to vote against an extension or a proposed business
combination and seek conversion, regardless of the merits of the transaction, if his shares are not
purchased by us or our management at a premium to the then current market price (or if our sponsor
or management refuses to transfer to him some of their shares). By limiting a stockholder’s
ability to convert only 10% of the shares included in the units being sold in this offering, we
believe we have limited the ability of a small group of stockholders to unreasonably attempt to
block a transaction that is favored by our other public stockholders. However, we are not
restricting the stockholders’ ability to vote all of their shares against the transaction or
against an extension.
We view the right to seek conversion as an obligation to our stockholders and will not take
any action to amend or waive this provision in our amended and restated certificate of
incorporation without the affirmative vote of holders of 95% of our outstanding shares of common
stock.
An eligible public stockholder may request conversion of its shares at any time after the
mailing to our stockholders of the proxy statement and prior to the vote taken with respect to a
proposed business combination or an extension of the time period within which we must complete a
business combination at a meeting held for that purpose, but the request will not be granted unless
the stockholder votes against a business combination or an extension, a business combination is
approved and completed or the extension is approved, the stockholder holds its shares through the
closing of a business combination or the date of the approval of the extension and the stockholder
follows the specific procedures for conversion that will be set forth in the proxy statement
relating to the stockholder vote. Following the approval of a business combination by our
stockholders and until the completion of a business combination or termination of the definitive
agreement relating to the proposed business combination or the approval of an extension until the
payment date for stockholders exercising conversion rights, any transfer of shares owned by a
public stockholder who has requested to exercise its conversion rights will be blocked. If a
public stockholder votes against a business combination or an extension but fails to properly
exercise its conversion rights, such public stockholder will not have its shares of common stock
converted. It is anticipated that the funds to be distributed to public stockholders who elect
conversion will be distributed within three business days after completion of a business
combination or the approval of an extension of the time period within which we must complete a
business combination, as applicable. Public stockholders who exercise their conversion rights will
still have the right to exercise any warrants they may hold after our
business combination.
We may require public stockholders to tender their certificates to our transfer agent prior to
the stockholders meeting or to deliver their shares to the transfer agent electronically using the
Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System. We will notify investors
on a Current Report on Form 8-K and in our proxy statement related to the business combination or
extension if we impose this requirement. Traditionally, in order to perfect conversion rights in
connection with a blank check company’s business combination, a holder could simply vote against a
proposed business combination and check a box on the proxy card indicating such holder was seeking
to exercise their conversion rights. After the business combination was approved, the company would contact such stockholder to arrange for him to deliver his
certificate to verify ownership. As a result, the stockholder then had an “option window” after
the completion of the business combination during which he could monitor the price of the stock in
the market. If the price rose above the conversion price, he could sell his shares in the open
market before actually delivering his shares to the company for cancellation in consideration for
the conversion price. Thus, the conversion right, to which stockholders were aware they needed to
commit before the stockholder meeting, would become a “put” right surviving past the completion of
the business combination until the converting holder delivered his certificate. The requirement
for physical or electronic delivery prior to the meeting ensures that a converting holder’s
election to convert is irrevocable once the business combination or extension is approved.
If we elect to require physical delivery of the share certificates, we would expect that
stockholders would have to comply with the following steps. If the shares are held in street name,
stockholders must instruct their account executive at the stockholders’ bank or broker to withdraw
the shares from the stockholders’ account and request that a physical certificate be issued in the
stockholders’ name. Our transfer agent will be available to assist with the process. No later
than the day prior to the stockholder meeting, the written instructions stating that the
stockholder wishes to convert his or her shares into a pro rata share of the amount then held in the trust account and
confirming that the stockholder has held the shares since the record date and will continue to hold
them through the stockholder meeting and the closing of a business combination or the date of the
approval of the extension must be presented to our transfer agent. Certificates that have not been
tendered in accordance with these procedures by the day prior to the stockholder meeting will not
be converted into cash.
Any request for conversion, once made, may be withdrawn at any time up to the date of the
meeting of stockholders being held for the purpose of approving the business combination or the
extension. Furthermore, if a stockholder delivered his certificate for conversion and subsequently
decided prior to the meeting not to elect conversion, he may simply request that the transfer agent
return the certificate (physically or electronically).
If a vote on the business combination is held and the business combination is not approved, we
may continue to try to complete a business combination with a
different target until 24 months (or
up to 30 months if our stockholders approve an extension) from
the date of this prospectus, assuming that we have signed a letter of
intent or definitive agreement for such business combination within the
initial 18-month period from the date of this prospectus. If the
business combination is not approved or completed for any reason or the extension is not approved,
then public stockholders voting against a business combination or the extension who exercised their
conversion rights would not be entitled to convert their shares of common stock into a pro rata
share of the aggregate amount then on deposit in the trust account. In such case, if we have
required public stockholders to deliver their certificates prior to the meeting, we will promptly
return such certificates to the public stockholders.
Dissolution and liquidation if no business combination is completed
Our amended and restated certificate of incorporation, which we intend to adopt immediately
prior to the completion of this offering, will provide that our corporate existence will
automatically cease 24 months (or up to 30 months if our
stockholders approve an extension) after
the date of this prospectus except for the purposes of winding up our affairs and liquidating
pursuant to Section 278 of the Delaware General Corporation Law. This has the same effect as if
our board of directors and stockholders had formally voted to approve our dissolution pursuant to
Section 275 of the DGCL. Limiting our corporate existence to a specified date as permitted by
Section 102(b)(5) of the DGCL removes the necessity to obtain formal stockholder approval of our
dissolution and liquidation and to file a certificate of dissolution with the Delaware Secretary of
State. Instead, we will notify the Delaware Secretary of State in writing on the termination date
that our corporate existence is ceasing, and include with such notice payment of any franchise
taxes then due to or assessable by the state. We view this provision terminating our corporate
life by 24 months (or up to 30 months if our stockholders
approve an extension) from the date of
this prospectus as an obligation to our stockholders and will not take any action to amend or waive
this provision to allow us to survive for a longer period of time except in connection with the
completion of a business combination or with the affirmative vote of 95% of our outstanding shares
of common stock.
If
we are unable to complete a business combination within 24 months (or up to 30 months if
our stockholders approve an extension), as soon as practicable thereafter we will adopt a plan of
distribution in accordance with Section 281(b) of the DGCL. Section 278 of the DGCL provides that
our existence will continue for at least three years after its expiration for the purpose of
prosecuting and defending suits, whether civil, criminal or administrative, by or against us, and
of enabling us gradually to settle and close our business, to dispose of and convey our property, to discharge our liabilities and to distribute to our stockholders any
remaining assets, but not for the purpose of continuing the business for which we were organized.
Our existence will continue automatically even beyond the three-year period for the purpose of
completing the prosecution or defense of suits begun prior to the expiration of the three-year
period, until such time as any judgments, orders or decrees resulting from such suits are fully
executed. Section 281(b) will require us to pay or make reasonable provision for all then-existing
claims and obligations, including all contingent, conditional, or unmatured contractual claims
known to us, and to make such provision as will be reasonably likely to be sufficient to provide
compensation for any then-pending claims and for claims that have not been made known to us or that
have not arisen but that, based on facts known to us at the time, are likely to arise or to become
known to us within 10 years after the date of dissolution. Under Section 281(b), the plan of
distribution must provide for all of such claims to be paid in full or make provision for payments
to be made in full, as applicable, if there are sufficient assets. If there are insufficient
assets, the plan must provide that such claims and obligations be paid or provided for according to
their priority and, among claims of equal priority, ratably to the extent of legally available
assets. Any remaining assets will be available for distribution to our stockholders. We will
distribute to all of our public stockholders, in proportion to their respective equity interests,
an aggregate sum equal to the amount in the trust account, inclusive of any interest earned on the
trust account (net of (i) taxes, (ii) interest earned of up
to $2,400,000 on the trust account
permitted to be disbursed to us for working capital purposes and (iii) up to $15,000 that we may
request from the account agent to pay for liquidation costs and expenses) plus any remaining net assets
(subject to our obligations under Delaware law to provide for claims of creditors as described
below).
We
anticipate notifying the account agent of the trust account to begin liquidating such assets
promptly after our dissolution and expect that the distribution will occur as promptly as
reasonably practicable thereafter. We cannot
provide investors with assurances of a specific
timeframe for our dissolution and liquidation. Our sponsor and its
permitted transferees will have no right to participate in any liquidation distribution occurring
upon our failure to complete a business combination and a subsequent liquidation with respect to
the initial shares or the sponsor shares. In addition, the underwriters have agreed to waive
their rights to the $2,925,000
of the underwriters’ deferred commission and discount (or
$3,363,750 if the over-allotment option
is exercised in full) deposited in the trust account in the event we do not timely complete a
business combination and dissolve and distribute the funds held in the trust account upon our
dissolution. There will be no distribution from the trust account with respect to our warrants,
which will expire worthless if we dissolve and liquidate before the completion of a business
combination. We will pay the costs of liquidation from our remaining assets outside of the trust
account; however, we may request up to $15,000 of interest earned on the trust account from the
account agent to pay for liquidation costs and expenses.
If
we do not complete a business combination within 24 months (or up to 30 months if our
stockholders approve an extension) after the date of this prospectus and expend all of the net
proceeds of this offering, other than the proceeds deposited in the trust account, and without
taking into account income, if any, earned on the trust account, the initial per-share liquidation
price would be approximately $10.00 per share eligible to receive distributions, or approximately
$9.95 if the underwriters’ over-allotment option is exercised in
full. The per share liquidation
price includes $2,925,000 in deferred underwriting commission and
discount (or $3,363,750 if the
underwriters’ over-allotment option is exercised in full) that would also be distributable to our
public stockholders.
The proceeds deposited in the trust account could, however, become subject to the claims of
our creditors (which could include vendors and service providers we have engaged to assist us in
any way in connection with our search for a target business and that are owed money by us, as well
as target businesses themselves), if any, which could have higher priority than the claims of our
public stockholders. We cannot assure you that the actual per-share liquidation price will not be
less than approximately $10.00 per share, or approximately $9.95 per share if the underwriters’
over-allotment option is exercised in full, plus income, net of (i) taxes, (ii) interest earned of
up to $2,400,000 on the trust account permitted to be disbursed to us for working capital purposes
and (iii) up to $15,000 to be withdrawn to pay our expenses of liquidation and dissolution, if
necessary, due to claims of creditors. Although we will seek to have all vendors, prospective
target businesses or other entities with which we engage execute agreements with us waiving any
right, title, interest or claim of any kind in or to any monies held in the trust account for the
benefit of our public stockholders, there is no guarantee that they will execute such agreements or
even if they execute such agreements that they would be prevented from bringing claims against the
trust account. In addition, there is no guarantee that such entities will agree to waive any
claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not
seek recourse against the trust account for any reason.
If we dissolve and liquidate prior to completing a business combination, Mr. Sidhu has
agreed that he will be liable to us if and to the extent any claims by a third party for services
rendered or products sold, or by a prospective target business for fees and expenses of third
parties that we agree in writing to pay in the event we do not complete a business combination with
such target business, reduce the amounts in the trust account, except as to (i) any claims by a
third party who executed a waiver (even if such waiver is subsequently found to be invalid and
unenforceable) of any and all rights to seek access to the funds in the trust account, or (ii) any
claims under our indemnity of the underwriters of this offering against certain liabilities,
including liabilities under the Securities Act. In the event that this indemnity obligation arose
and Mr. Sidhu did not comply with such obligation, we believe that we would have an obligation to
seek enforcement of the obligation and that our board of directors would have a fiduciary duty to
seek enforcement of such obligation on our behalf. In the event Mr. Sidhu has liability to us
under this indemnification arrangement, we cannot assure you that he will have the assets necessary
to satisfy those obligations. In addition, the underwriters have agreed to forfeit any rights or
claims against the proceeds held in the trust account, which includes
their deferred underwriters’ commission and discount in the
event of our liquidation. Accordingly, the actual per-share liquidation price could be less than
approximately $10.00, or approximately $9.95 if the underwriters’ over-allotment option is exercised
in full, plus interest, due to claims of creditors. In addition, if we are forced to file a
bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the
proceeds held in the trust account could be subject to applicable bankruptcy law, and may be
included in our bankruptcy estate and subject to the claims of third parties with priority over the
claims of our stockholders. To the extent any bankruptcy claims deplete the trust
account, we
cannot assure you we will be able to return to our public
stockholders at least approximately $10.00
per share, or approximately $9.95 per share if the underwriters’ over-allotment option is exercised
in full.
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. If the corporation
complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it
makes reasonable provision for all claims against it, including a 60-day notice period during which
any third-party claims can be brought against the corporation, a 90-day period during which the
corporation may reject any claims brought, and an additional 150-day waiting period before any
liquidating distributions are made to 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, we do not intend to comply with those
procedures since, as stated above, it is our intention to make liquidating distributions to our
stockholders as soon as reasonably possible after 24 months (or up to 30 months if our stockholders
approve an extension) following the date of this prospectus in the event a business combination has
not been completed. As such, our stockholders could potentially be liable for any claims to the
extent of distributions received by them (but no more) and any liability of our stockholders may
extend beyond the third anniversary of such date. Because we will not be complying with Section
280, Section 281(b) of the DGCL requires us to adopt a plan that will provide for our payment,
based on facts known to us at such time, of (i) all existing claims, (ii) all pending claims and
(iii) all claims that may be potentially brought against us within the subsequent 10 years.
Accordingly, we would be required to provide for any claims of creditors known to us at that time
or those that we believe could be potentially brought against us within the subsequent 10 years
prior to our distributing the funds in the trust account to our public stockholders. As a result,
if we liquidate, the per-share distribution from the trust account could be less than approximately
$10.00, or approximately $9.95 if the underwriters’ over-allotment option is exercised in full, due
to claims or potential claims of creditors. However, because we are a blank check company, rather
than an operating company, and our operations will be limited to searching for prospective target
businesses to acquire, the most likely claims, if any, to arise would be from our vendors and
service providers (such as accountants, lawyers, investment bankers, etc.) and potential target
businesses.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against
us 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 our stockholders. Furthermore, because we intend to distribute the then-remaining
proceeds held in the trust account, this may be viewed or interpreted as giving preference to our
public stockholders over any potential creditors with respect to access to or distributions
from our assets. Furthermore, our board of directors may be viewed as having breached its
fiduciary duties to our creditors and/or may have acted in bad faith, and thereby exposed itself
and our company to claims of punitive damages, by paying public stockholders from the trust account
prior to addressing the claims of creditors. We cannot assure you that claims will not be brought
against us for these reasons.
Our amended and restated certificate of incorporation will set forth certain requirements and
restrictions relating to this offering that apply to us until the completion of a business
combination. Specifically, our amended and restated certificate of incorporation will provide,
among other things, that:
•
upon completion of this offering, approximately 100% of the
offering proceeds (approximately 99.5% if the underwriters’
over-allotment option is exercised in full) will be
placed into the trust account, which proceeds may not be disbursed from the trust
account except (i) in connection with or following a business combination or
thereafter, (ii) for the payment to holders exercising their conversion rights, (iii)
for the payment of taxes in respect of the company and the trust account, (iv) to the extent of
$2,400,000 of interest earned that may be disbursed to us for working capital purposes
or (v) upon our dissolution and liquidation and to the extent of $15,000 of interest
earned to pay our expenses of liquidation and dissolution, if necessary;
•
prior to the completion of an initial business combination, we will submit any
proposed business combination to our stockholders for approval, even if the nature of
the transaction is such as would not ordinarily require stockholder approval under
applicable state law;
we will submit any proposed extension of the time period within which we must
complete a business combination to our stockholders for approval prior to giving
effect to any such extension;
•
our public stockholders will have the right to convert their shares of common stock
into cash in accordance with the conversion rights described in this prospectus
(subject to the limitation on conversion rights of stockholders or “groups” holding
more than 10% of the shares included in the units being sold in this offering);
•
we will complete a business combination only if it has a fair market value equal to
at least 200% of our net assets held in trust (net of taxes and interest earned of up to
$2,400,000 on the trust account permitted to be disbursed to us for working capital
purposes and excluding the amount of the underwriters’ deferred commission and discount
held in trust) at the time of the execution of the definitive agreement for our initial business combination;
•
we may not complete any business combination, merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar transaction prior to the
completion of a transaction that satisfies the conditions of a business combination;
•
we will complete a business combination only if (i) the business combination is
approved by a majority of the aggregate votes cast by our public stockholders and
holders of the sponsor shares at a duly held
stockholders meeting, (ii) an amendment to our amended and restated certificate of
incorporation to provide for our perpetual existence is approved by holders of a
majority of our outstanding shares of common stock and (iii) conversion rights have
been exercised with respect to less than 35% of the shares of common stock issued in
this offering, on a cumulative basis (including the shares as to which conversion
rights were exercised in connection with a stockholder vote, if any, to approve an
extension of the time period within which we must complete a business combination and
the stockholder vote to approve a business combination); and
•
if we do not complete a business combination within 24 months (or up to 30 months if
our stockholders approve an extension) after the date of this prospectus, our corporate
purposes and powers will immediately thereupon be limited to acts and activities
related to liquidating and winding up our affairs, including liquidation, and we will
not be able to engage in any other business activities.
Our amended and restated certificate of incorporation will provide that the above-referenced
requirements and restrictions may only be amended prior to completion of a business combination
with the affirmative vote of 95% of our outstanding shares of common stock. In light of the 95%
vote required for amendments to these provisions, we do not anticipate any changes to such
requirements and restrictions prior to the completion of a business combination, if any.
Certain Banking Regulation and Supervision Matters
General
Financial holding companies, bank holding companies, banks, savings and loan holding
companies, thrifts, and their subsidiaries and affiliates (“banking institutions”) operate in a
highly regulated environment and are subject to extensive federal and state legal and regulatory
restrictions and limitations and to supervision, examination and enforcement by regulatory
authorities. Regulation of these banking institutions is intended primarily for the protection of
depositors, the deposit insurance funds of the FDIC, and the banking system as a whole. This
regulation is not intended for the protection of stockholders or other investors and in some
instances may be contrary to their interests. If we complete a business combination with an entity
in the financial services industry, we may become subject to such regulation.
Important federal statutes regulating banking institutions include, among others, the Bank
Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), the Federal Deposit
Insurance Act, as amended (the “FDIA”), the Federal Reserve Act, as amended, the National Bank Act,
as amended, the Home Owners Loan Act of 1933, as amended, including the Savings and Loan Holding
Company Act contained therein (the “HOLA”), the Securities Act, the Securities Exchange Act of
1934, as amended, the Advisers Act, and the 1940
Act. These and other laws affecting banking
institutions have been amended, often materially, over the years. Federal regulatory agencies,
including principally the Federal Reserve, the OCC, the FDIC, the OTS and the SEC, together in
certain cases with state banking and securities regulatory agencies (individually, a “Regulatory
Agency” or, collectively, the “Regulatory Agencies”), have adopted regulations, interpretations and
guidelines implementing these and other federal and state statutes.
Failure to comply with any of the laws, rules or regulations governing banking institutions,
some of which are subject to interpretation and may be subject to change, could result in a variety
of adverse consequences, including civil penalties, fines, suspension or expulsion, and termination
of deposit insurance, which may have material adverse effects. The regulations may require a
banking institution to meet specific capital adequacy guidelines or rules that involve either or
both qualitative and quantitative measures of its assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. A banking institution may be
subject to qualitative judgments by the regulatory authorities regarding interest rate risk,
concentration of credit risk and other factors. Compliance with capital requirements could limit
the operations of a banking institution. A change in such requirements, or the imposition of new
rules affecting the scope, coverage, calculation or amount of such capital requirements, or a
significant operating loss or any unusually large charge against capital may adversely affect the
ability of a banking institution to expand or maintain levels of business or to pay dividends. The
laws and regulations affecting banking institutions have been in the past, and are likely to be in
the future, subject to material changes. Changes in laws, rules or regulations governing banking
institutions could adversely affect companies we seek to acquire and thereby us and returns to
investors. The subsequent adoption of a law or regulation or a change of a law or regulation or of
the interpretation thereof by a court or regulatory authority could result in us having to divest
some or all of our investments under unfavorable market conditions.
This prospectus does not purport to contain a complete description of all federal and state
statutes and regulations applicable to banking institutions. Where provided, descriptions of
statutes or regulations are only brief summaries of those provisions, which are extensive, complex,
detailed and generally subject to broad interpretation. These summaries are qualified in their
entirety by reference to the statutes and regulations.
Holding Company Act Regulation
It is possible that we will acquire control of one or more banking entities or holding
companies and thus we will become a holding company subject to either the Bank Holding Company Act
and the regulations issued thereunder by the Federal Reserve, or the HOLA and the regulations of
the OTS. In such event, we would be required to file an application with the Federal Reserve or the OTS, as applicable, for prior
approval to become a holding company. Entities that control banks are bank holding companies (or
financial holding companies) subject to the Bank Holding Company Act, and entities that control
savings institutions are savings and loan holding companies subject to the HOLA.
It is also possible that we may also become a financial holding company under the Bank Holding
Company Act. A financial holding company is a bank holding company that meets the requirements of
Subpart I of Regulation Y issued by the Federal Reserve pursuant to the Bank Holding Company Act.
In order to be a financial holding company, all depository institutions controlled by a bank
holding company must be and remain both “well capitalized” and “well managed” and the bank holding
company must have made an effective election with the Federal Reserve to become a financial holding
company. A depository institution is well capitalized if it has a total risk-based capital ratio
of 10% or greater, has a tier 1 risk-based capital ratio of 6% or greater, has a leverage ratio of
5% or greater, and is not subject to any written agreement, order, capital directive, or
prompt-corrective-action directive to meet and maintain a specific capital level for any capital
measure.
The Bank Holding Company Act requires prior Federal Reserve approval for, among other things,
(i) the acquisition by a bank holding company or financial holding company of direct or indirect
ownership or control of more than 5% of the outstanding shares of any class of voting securities of
a bank or bank holding company, (ii) the acquisition by a bank holding company or financial holding
company of all or substantially all of the assets of a bank, (iii) the merger or consolidation of a
bank holding company or financial holding company with another bank holding company or financial
holding company, (iv) the acquisition by a bank holding company or financial holding company of 25%
or more of the total equity (voting and nonvoting) or other controlling interest of a bank, bank
holding company or financial holding company, and (v) the acquisition by a bank holding company of
more than 5% of any class of the voting securities or 25% or more of the total equity of a non-bank
financial company (in the case of a non-bank financial company, if the bank holding company is a
financial holding company, then prior approval
is not required, but notice is). The HOLA requires
thrift holding companies to obtain similar approvals from the OTS.
Accordingly, for example, if we were to become a financial holding company or bank holding
company, we would be required to file an application with the Federal Reserve for such prior
approval each time we propose to acquire control of more than 5% of the outstanding shares of any
class of voting securities of a bank or bank holding company. No assurance can be given that an
application would be approved by the Federal Reserve or that approval would be given without delay
or without conditions to approval that would be unacceptable to us.
In determining whether we control a bank, bank holding company or financial holding company
for purposes of the Bank Holding Company Act, generally if we own less than 10% of the total equity
of the bank, bank holding company or financial holding company and have no greater than
proportionate representation on the board of directors of such bank, bank holding company or
financial holding company, then the Federal Reserve would not find control. The Federal Reserve
will presume control if we own 10% or more of the total equity of a bank, bank holding company or
financial holding company and we have one or more representatives on the board of directors of such
bank, bank holding company or financial holding company, but such presumption can be rebutted.
Control will exist as a statutory matter if we or a group of entities acting together own 25% or
more of any class of voting securities of a bank, bank holding company or financial holding
company, and the Federal Reserve will generally find control if we or a group of entities acting
together own 25% or more of the total equity of a bank, bank holding company or financial holding
company. In determining whether a stockholder controls us for purposes of the Bank Holding Company
Act, generally if a stockholder owns less than 25% of our interests, then the Federal Reserve would
not find control. With respect to us or a stockholder, there is a presumption of non-control if
we, or a stockholder, as applicable, own or control less than 5% of the outstanding shares of any
class of voting securities of another entity.
If we become a holding company, we and each bank holding company or financial holding company
we acquire that is a holding company will be subject to supervision by the Federal Reserve under
the Bank Holding Company Act, or by the OTS under HOLA, as applicable. We, along with each bank or
thrift that we acquire, would be required to file with the Federal Reserve periodic reports and
such additional information as the Federal Reserve may require pursuant to the Bank Holding Company
Act. The Federal Reserve would examine us and each bank, bank holding company or financial holding
company. If we acquire control of a thrift institution, we would file reports with and be subject
to examination by the OTS.
Minimum Capital Requirements
The Federal Reserve has adopted several measures for assessing the capital adequacy of
financial holding companies and bank holding companies. These measures establish minimum capital
requirements in relation to assets and various off-balance sheet risk exposures. The Federal
Reserve’s risk-based capital guidelines apply on a consolidated basis for such holding companies
with consolidated assets of $150 million or more and on a “bank-only” basis for such holding
companies with consolidated assets of less than $150 million, subject to certain terms and
conditions. Failure of a depository institution to meet or exceed specified capital levels may
result in the depository institution paying higher deposit insurance premiums to the FDIC. Failure
to meet applicable capital guidelines may also subject the banking institution to a variety of
enforcement remedies available to the Regulatory Agencies, including limitations on the ability to
pay dividends, the issuance by the regulatory authority of a capital directive to increase capital,
and the termination of deposit insurance by the FDIC, as well as other remedial measures. The OTS
has not established minimum capital requirements for savings and loan holding companies, but will
address the capital adequacy of each institution on a case by case basis.
If a depository institution fails to meet certain capital standards or requirements (such
institution is referred to as an “undercapitalized institution”), then the appropriate Regulatory
Agency would be required by law to take one or more of certain specific actions with respect to
such institution (for example, the Regulatory Agency may require the institution to issue new
shares, merge with another depository institution, restrict the interest rates it pays on deposits,
restrict its asset growth, terminate certain activities, have a new election for its board of
directors, dismiss certain directors or officers, divest of certain subsidiaries and/or take any
other action that will better resolve the problems of the institution at the least possible
long-term loss to the FDIC) in the event the undercapitalized institution failed to submit an
acceptable capital restoration plan or failed to implement such plan. If we were to
control an
undercapitalized institution, then the appropriate Regulatory Agency would be required by law to
take one or more of such actions if (i) we and any other company that controls the undercapitalized
institution did not agree to guarantee the capital restoration plan for such undercapitalized
institution or (ii) such institution is “significantly undercapitalized” as defined in regulations
issued by the appropriate Regulatory Agency. In either such case, the appropriate Regulatory
Agency may (i) prohibit us from making any capital distribution without the prior approval of the
Federal Reserve, (ii) require us to divest companies that are controlled by us and that are in
danger of becoming insolvent and pose a significant risk to the undercapitalized institution and
(iii) require us to divest the undercapitalized institution. Further, if we were to become a
financial holding company and controlled a bank that is not “well capitalized” and/or “well
managed” pursuant to regulations issued under the Bank Holding Company Act, then we would become
subject to certain requirements, including the requirement to enter into an agreement with the
Federal Reserve to take the steps necessary to remedy the deficiency or potentially divest its
controlling interest in the bank (during the period the bank is not well capitalized or well
managed, the financial holding company could not make additional investments under the merchant
banking provisions of Section 4(k)(4)(H) of the Bank Holding Company Act that are discussed below).
It is the policy of the Federal Reserve that a financial holding company or bank holding
company is expected to act as a source of financial strength to its subsidiary banks and to commit
resources to support such banks. The Federal Reserve takes the position that in implementing this
policy it may require a financial holding company or bank holding company to provide such support
when such holding company otherwise would not consider itself able to do so. Thus in certain cases
if we were to become a bank holding company or a financial holding company, we may be required to
serve as a “source of strength” for a bank that is a bank, bank holding company or financial
holding company by standing ready to provide capital funds to the bank during periods of financial
stress or adversity.
Under the FDIA, the FDIC may impose “cross-guarantee” liability upon commonly controlled
insured depository institutions for deposit insurance losses incurred by the FDIC. This law
provides that an insured depository institution shall be liable for any loss incurred by the FDIC,
or any loss that the FDIC reasonably anticipates incurring, in connection with the default of its
commonly controlled insured depository institution or in connection with any assistance provided by
the FDIC to a commonly controlled insured depository institution that is in danger of default. For
purposes of this law, depository institutions are commonly controlled if (i) such institutions are
controlled by the same depository institution holding company or (ii) a depository institution is
controlled by another depository institution. The FDIC may waive this cross-guarantee
requirement. The liability of any insured depository institution under this cross guarantee
provision is subordinated to deposit liabilities, secured obligations (other than those owed to
affiliates), and other general or senior liabilities of the non-defaulting commonly controlled
insured depository institution, but such liability has priority with respect to other obligations
and liabilities of such depository institution, including any obligations to stockholders arising
as a result of their status as stockholders and any obligation or liability owed to any affiliate
of the depository institution. Banks, bank holding companies or financial holding companies that
are insured depository institutions may thus be subject to such cross-guarantee liability with
respect to other such bank, bank holding company or financial holding company.
Permitted Activities and Investments
The Bank Holding Company Act restricts a bank holding company from engaging in, or acquiring
direct or indirect ownership or control of more than 5% of any class of voting securities or more
than 25% of the total equity of any company engaged in, any non-financial activity (i.e., any
activity other than banking or managing or controlling banks or performing services for its
authorized subsidiaries). Accordingly, if we were to become a bank holding company (but not a
financial holding company), then we may not acquire more than 5% of any class of voting securities
or more than 25% of the total equity of any non-financial company. If we were to become a
financial holding company, then we could make, with prior approval of the Federal Reserve, a
limited number of controlling investments in non-financial companies (but not in any bank or
non-bank financial company) pursuant to the merchant banking provisions of Section 4(k)(4)(H) of
the Bank Holding Company Act, as amended by the Gramm-Leach Bliley Act, and the regulations issued
thereunder (e.g., such regulations impose a maximum 10- or 15-year holding period, aggregate
investment limits, restrictions on routine management of such bank, bank holding company or
financial holding company, requirements for risk management systems, record keeping and reporting
requirements, cross marketing restrictions, limitations on transactions involving an affiliated
bank and such non-financial companies and a capital charge for risk-based and leverage capital
ratios).
A financial holding company or bank holding company may engage in, or acquire an interest in a
company that engages in, activities that the Federal Reserve has determined by regulation or order
to be so closely related to banking or managing or controlling banks as to be a proper incident
thereto. Such permissible non-bank financial activities include, for example, owning and operating
a savings association, insurance agency, escrow company or trust company, acting as an investment
or financial adviser or a real estate appraiser, providing management consulting services to
depository institutions and providing securities brokerage services. Each of these permissible
activities is subject to certain limitations specified by regulation, order or policy of the
Federal Reserve. A bank holding company must receive prior Federal Reserve approval to engage in,
or acquire an interest in a company that engages in, such permissible non-bank financial
activities; prior approval is not required for a financial holding company, but it must provide a
notice to the Federal Reserve demonstrating that the investment is permissible.
Savings and loan holding companies are subject to similar activity restrictions and prior
approval requirements under HOLA.
Under the Bank Holding Company Act and Federal Reserve regulations, financial holding
companies, bank holding companies and their subsidiary banks are prohibited from entering into
certain tie-in arrangements in connection with an extension of credit, lease, sale of property or
furnishing of services.
Dividends and Distributions
If we were to become a financial holding company or bank holding company, our ability to pay
distributions would be primarily limited by the capital adequacy guidelines applicable to such
holding companies. In addition, the Federal Reserve has issued a policy statement on the payment
of cash dividends by bank holding companies. The policy would apply to distributions by us, if we
were to become a bank holding company, that are in the nature of cash dividends. In the policy
statement, the Federal Reserve expressed its view that a bank holding company experiencing earnings
weaknesses should not pay cash dividends exceeding its net income or which could only be funded in
ways that would weaken the bank holding company’s financial health, such as by borrowing.
Additionally, the Federal Reserve possesses enforcement powers over financial holding companies,
bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and regulations. Among these
powers is the ability to proscribe the payment of dividends by banks and such holding companies.
Savings and Loan Holding Company Regulation
If we acquire ownership or control of a thrift (a savings bank or a savings and loan
association), we would become subject to additional regulation under the HOLA. Subject to certain
limited exceptions, control of a thrift may only be obtained with the approval of the OTS under the
HOLA and applicable OTS regulations. Any company acquiring control of a thrift becomes a savings
and loan holding company under the HOLA. It must register and file periodic reports with the OTS
and is subject to OTS examination and supervision. Payments of dividends and capital distributions
from thrifts to their savings and loan holding companies are restricted in a manner similar to
banks, and require the submission of an application or prior notice to the OTS of a thrift’s
intent to pay a dividend. Minimum capital guidelines, like those applicable to banks and bank
holding companies, also limit the payment of dividends and other capital distributions by thrifts.
If we become a savings and loan holding company, investors wishing to acquire our securities may be
required to obtain the approval of the OTS, as described below under “Ownership of Our Securities.”
Ownership of Our Securities
An investor could acquire less than 10% of any class of our voting interests, and less than
25% of our total equity, without Federal Reserve or OTS approval, provided that the investor: (i)
does not otherwise control us, and (ii) is not already a bank or savings and loan holding company
prior to such acquisition. If we made controlling investments, directly or indirectly, in a U.S.
bank or thrift, then any investor that acquires 10% or more of any class of our voting interests,
or 25% or more of our total equity, will be deemed to have a controlling interest in such bank or thrift
and would have to obtain the written approval of the Federal Reserve or the OTS prior to making
such acquisition of such interests in us. If we do not make controlling investments, directly or
indirectly, in a U.S. bank or thrift, then any investor that already is a bank holding company
under the Bank Holding Company Act or a savings and loan holding company under HOLA may have to
receive the prior written approval of the Federal Reserve to acquire more than 5% of any class of
our voting interests, or 25% or more of our total equity. Similarly,
if a person holds 10% or more
of any class of our voting interests or 25% or more of our total equity, then such person would
also have to apply to become a bank holding company, savings and loan holding company, or financial
holding company if we make an investment that requires us to make such an application.
If an investor that is a bank holding company or savings and loan holding company controls us,
then we would be subject to the “umbrella” supervision of the Federal Reserve or the OTS. Each
such investor that controls us would have to obtain the prior approval of the Federal Reserve under
the Bank Holding Company Act whenever we acquire, directly or indirectly, more than 5% of any class
of voting securities of a U.S. bank (or approval from the OTS in the case of a savings and loan
holding company). In addition, acquisitions of more than 5% of any class of voting shares of a
non-bank financial company would be limited to those types of businesses permissible to be acquired
under the Bank Holding Company Act, and such acquisitions would require either prior approval of
the Federal Reserve (or the OTS) or, in the case of a financial holding company, a notice. If a
bank holding company investor controls us, then we could not acquire more than 5% of any class of
voting securities or 25% or more of the total equity of any nonfinancial company, except where each
investor that controls us is a financial holding company and we and the investor receive prior
approval of the Federal Reserve to acquire such entity. If each investor that controls us is such
a financial holding company, then we could make limited investments in certain nonfinancial
companies (but not in a bank or non-bank financial company) pursuant to the merchant banking
provisions of Section 4(k)(4)(H) of the Bank Holding Company Act and the regulations issued
thereunder. If a holding company investor controls us, then any direct or indirect investment by
us in more than 5% of any class of voting securities of a foreign company (including a foreign
bank) would have to comply with the provisions of Regulation K issued by the Federal Reserve.
If we made controlling investments, directly or indirectly, in one or more U.S. banks or
savings banks chartered in the United States (“U.S. savings banks”), then a nonfinancial company
may not acquire 25% or more of (i) any class of our voting interests or (ii) our total equity, or
otherwise control us. A nonfinancial company that controls, directly or indirectly, a U.S. savings
bank may not make such acquisition, or otherwise control us, if we made a controlling investment,
directly or indirectly, in a U.S. savings bank.
Each prospective investor is strongly urged to consult its own legal advisors with respect to
the consequences under applicable regulatory regimes regarding banks and other financial
institutions and investors therein of the purchase and ownership of our securities.
Facilities
We currently lease our executive offices at 485 Madison Avenue, 20th Floor, New York, New York10022 and at Center City Executive Centre, 607 Washington Street, Reading, Pennsylvania19601. The
cost for this space is included in the $7,500 per month fee described above that Griffin Holdings
Group, LLC, an entity affiliated with Mr. Harenza, charges us for office space, technological and
administrative services, and secretarial support. We believe that the fee charged by Griffin
Holdings Group, LLC is at least as favorable as we could have obtained from an unaffiliated person.
We consider our current office space adequate for our current operations.
Employees
We currently have two executive officers. These individuals are not obligated to devote any
specific number of hours to our matters and do not have employment agreements with us, but they
intend to devote as much of their time as they deem necessary to our affairs until we have
completed a business combination. The amount of time they will devote in any time period will vary
based on whether a target business has been selected for a business combination and the stage of
the business combination process the company is in. We do not intend to have any full-time
employees prior to the completion of a business combination.
Periodic Reporting and Financial Information
We have filed a registration statement with the SEC to register our units, common stock and
warrants under the Exchange Act, and upon the completion of this offering will have reporting
obligations, including the requirement that we file annual, quarterly and current reports with the
SEC. In accordance with the requirements of the Exchange Act, our annual reports will contain
financial statements audited and reported on by our independent registered public accounting firm.
We will provide stockholders with audited financial statements of the prospective target
business as part of the proxy solicitation materials sent to stockholders to assist them in
assessing the target business. In all likelihood, these financial statements will need to be
prepared in accordance with United States generally accepted accounting principles. We cannot
assure you that any particular target business identified by us as a potential acquisition
candidate will have financial statements prepared in accordance with United States generally
accepted accounting principles or that the potential target business will be able to prepare its
financial statements in accordance with United States generally accepted accounting principles. To
the extent that this requirement cannot be met, we may not be able to acquire the proposed target
business. While this may limit the pool of potential acquisition candidates, we do not believe
that this limitation will be material.
We will be required to have our internal control over financial reporting audited for the fiscal year ending
December 31, 2009 as required by the Sarbanes-Oxley Act. A target company may not be in compliance
with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The
development of the internal controls of any such entity to achieve compliance with the
Sarbanes-Oxley Act may increase the time and costs necessary to complete any business combination.
Legal Proceedings
There is no material litigation, arbitration or governmental proceeding currently pending
against us or any members of our management team in their capacity as such, and we and the members
of our management team have not been subject to any such proceeding in the twelve months preceding
the date of this prospectus.
Competition
In identifying, evaluating and selecting a target business for a business combination, we may
encounter intense competition from other entities having a business objective similar to ours,
including other blank check companies, private equity groups and leveraged buyout funds, and
operating businesses seeking strategic acquisitions. Many of these entities are well established
and have extensive experience identifying and effecting business combinations directly or through
affiliates. Moreover, many of these competitors possess greater financial, technical, human and
other resources than us. Our ability to acquire larger target businesses will be limited by our
available financial resources. This inherent limitation gives others an advantage in completing a
business combination. Furthermore:
•
our obligation to seek stockholder approval of a business combination or obtain
necessary financial information may delay the completion of a transaction;
•
our obligation to convert into cash shares of common stock held by our public
stockholders who vote against the business combination or an extension and exercise
their conversion rights may reduce the resources available to us for a business
combination;
•
we will not complete a business combination if conversion rights have been exercised
with respect to less than 35% of the shares of common stock issued in this offering, on
a cumulative basis (including the shares as to which conversion rights were exercised
in connection with (i) a stockholder vote, if any, to approve an extension of the time
period within which we must complete a business combination and (ii) the stockholder
vote to approve a business combination);
•
our outstanding warrants, and the future dilution they potentially represent, may
not be viewed favorably by certain target businesses; and
•
the requirement to effect a business combination with one or more businesses or
assets that have a fair market value of at least 200% of our net assets held in trust
(net of taxes and interest earned of up to $2,400,000 on the trust account permitted to
be disbursed to us for working capital purposes and excluding the amount of the
underwriters’ deferred commission and discount held in trust) at the time of the execution of the definitive agreement for our initial business combination, could require us to acquire the assets of several businesses at
the same time, all of which sales would be contingent on the closings of the other
sales, which could make it more difficult to complete the business combination.
Notwithstanding the reasons set forth under “Proposed Business — Business Strategy” and
“Proposed Business — Competitive Strengths” in this prospectus, (i) the impact of the decrease in
price to earnings ratios on the ability of competing public company competitors to pay, (ii) the
need for capital in light of asset quality issues of
such competitors, (iii) the present high cost
of replacement equity, generally in the form of trust preferred capital, and (iv) general
uncertainty relating to the company, we expect competition from other depository institutions which
may be located in the same geographic markets as a potential target or in markets contiguous
thereto. Because these institutions are existing and may have the ability to effect cost savings
and revenue enhancements, they may have a competitive advantage over us.
Any of these factors may place us at a competitive disadvantage in successfully negotiating a
business combination.
Comparison of This Offering to Those of Blank Check Companies Subject to Rule 419
The following table compares the terms of this offering to the terms of an offering by a blank
check company subject to the provisions of Rule 419. This comparison assumes that the gross
proceeds, underwriting commissions and underwriting expenses of our offering would be identical to
those of an offering undertaken by a company subject to Rule 419, and that the underwriter will not
exercise its over-allotment option. None of the provisions of Rule 419 apply to our offering.
Terms of Our Offering
Terms Under a Rule 419 Offering
Escrow of offering
proceeds
$82,823,000 of the
net offering
proceeds
($95,378,000 if the
underwriters’
over-allotment
option is exercised
in full), as well as
the $4,252,000 net
proceeds from the
sale of the sponsor
units and
$2,925,000 in
deferred
underwriting
commissions
($3,363,750 if the
underwriters’
over-allotment
option is exercised
in full), will be
deposited into a
trust account
maintained by
Mellon Bank, N.A., as account agent.
$75,330,000 of the offering
proceeds would be required to
be deposited into either an
escrow account with an insured
depositary institution or in a
separate bank account
established by a broker-dealer
in which the broker-dealer
acts as trustee for persons
having the beneficial
interests in the account.
Investment of net
proceeds
$82,823,000 of the
net offering
proceeds
($95,378,000 if the
underwriters’
over-allotment
option is exercised
in full), as well as
the $4,252,000 net
proceeds from the
sale of the sponsor
units and
$2,925,000 in
deferred
underwriting
commissions
($3,363,750 if the
underwriters’
over-allotment
option is exercised
in full) held in
trust will be
invested only in
U.S. government
securities with
a maturity of 180
days or less or in
money market funds
meeting certain
conditions under
Rule 2a-7 under the
Investment Company
Act.
Proceeds could be invested
only in specified securities
such as a money market fund
meeting conditions of the
Investment Company Act or in
securities that are direct
obligations of, or obligations
guaranteed as to principal or
interest by, the United
States.
Receipt of interest
on escrowed funds
Interest earned on
proceeds from the
trust account to be
paid to stockholders
is reduced by (i)
any taxes paid or
due on the interest
and then (ii) up to
$2,400,000 that can
be used for working
capital purposes,
and (iii) in the
event of our
liquidation for
failure to complete
a business
combination within
the allotted time,
up to $15,000 that
may be released to
us should we have no
or insufficient
working capital to
fund the costs and
expenses of our
dissolution and
liquidation.
Interest on funds in escrow
account would be held for the
sole benefit of investors,
unless and only after the
funds held in escrow were
released to us in connection
with our completion of a
business combination.
Limitation on fair
value or net assets
of target business
To constitute a
business
combination, an
acquisition must
have a fair market
value equal to at
least a fair market
value of at least
200% of our net
assets held in trust
(net of taxes and
interest earned of
up to $2,400,000 on
the trust account
permitted to be
disbursed to us for
working capital
purposes and
excluding the amount
of the underwriters’
deferred commission
and discount held in
trust) at the time
of the execution of the definitive agreement for our initial business
combination, although this may entail simultaneous acquisitions of
several operating businesses. If we
acquire less than
100% of the equity
interests or assets
of a target business
or businesses, the
portion of such
business or
businesses that we
acquire will be the
basis for a
valuation for
purposes of the 200%
net assets test.
The fair value or net assets
of a target business must
represent at least 80% of the
maximum offering proceeds.
Trading of
securities issued
The units will begin
trading on or
promptly after the
date of this
prospectus. The
common stock and
warrants comprising
the units will begin
separate trading
ten business days
(or as soon as
practicable
thereafter)
following the
earlier to occur of
(1) the expiration
or termination of
the underwriters’
over-allotment
option and (2) its
exercise,
subject in either
case to our having
filed the Current
Report on Form 8-K
described below and
having issued a
press release
announcing when such
separate trading
will begin. In no
event will the
common stock and
warrants be traded
separately until we
have filed a Current
Report on Form 8-K
with the SEC
containing an
audited balance
sheet reflecting our
receipt of the gross
proceeds of this
offering. We will
file the Current
Report on Form 8-K
upon the completion
of this offering,
which is anticipated
to take place three
business days from
the date of this
prospectus. If the
over-allotment
option is exercised
following the
initial filing of
such Current Report
on Form 8-K, an
amended Current
Report on Form 8-K
will be filed to
provide updated
financial
information to
reflect the exercise
and closing of the
over-allotment
option.
No trading of the units or the
underlying common stock and
warrants would be permitted
until the completion of a
business combination. During
this period, the securities
would be held in the escrow or
trust account.
Exercise of the
warrants
The warrants cannot
be exercised until
the later of our
completion of a
business combination
or one year from the
date of this
prospectus, provided
that we have an
effective
registration
statement covering
the common stock
issuable upon
exercise of the
warrants and a
current prospectus
is available.
The warrants could be
exercised prior to the
completion of a business
combination, but securities
received and cash paid in
connection with the exercise
would be deposited in the
escrow or trust account.
Stockholders will
have the opportunity
to vote on a
business combination
and any proposed
extension of the
time period within
which we must
complete a business
combination. Each
stockholder will be
sent a proxy
statement containing
information
regarding such
business combination
or extension. A
public stockholder
who wishes to
exercise its
conversion rights
will be required to
notify us of its
election to exercise
its conversion
rights at any time
after the mailing to
our stockholders of
the proxy statement
and prior to the
vote taken with
respect to a
proposed business
combination or
extension at a
meeting held for
that purpose.
However, a
stockholder’s
election to convert
will not be valid
unless the public
stockholder votes
against a business
combination or
extension, a
business combination
is approved and
completed or
extension is
approved, the public
stockholder holds
its shares through
the closing of a
business combination
or the approval of
the extension and
the public
stockholder follows
the specific
procedures for
conversion that will
be set forth in the
proxy statement
relating to the
A prospectus containing
information pertaining to the
business combination required
by the SEC would be sent to
each investor. Each investor
would be given the opportunity
to notify the company in
writing, within a period of no
less than 20 business days and
no more than 45 business days
from the effective date of a
post-effective amendment to
the company’s registration
statement, to decide if he,
she or it elects to remain a
stockholder of the company or
require the return of his, her
or its investment. If the
company has not received the
notification by the end of the
45th business day, funds and
interest or dividends, if any,
held in the trust or escrow
account are automatically
returned to the stockholder.
Unless a sufficient number of
investors elect to remain
investors, all funds on
deposit in the escrow account
must be returned to all of the
investors and none of the
securities are issued.
proposed business
combination or
extension. A
stockholder who does
not follow these
procedures or a
stockholder who does
not take any action
would not be
entitled to the
return of any funds
from the trust
account.
Business combination
deadline
Pursuant to our
amended and restated
certificate of
incorporation, which
will be in effect
upon completion of
this offering, our
corporate existence
will cease 24 months
(or up to 30 months
if our stockholders
approve an
extension) after the
date of this
prospectus except
for the purposes of
winding up our
affairs and we will
liquidate. However,
if we complete a
business combination
within this time
period, we will
amend this provision
to allow for our
perpetual existence
following such
business
combination.
If an acquisition has not been
completed within 18 months
after the effective date of
the company’s registration
statement, funds held in the
trust or escrow account are
returned to investors.
If we are unable to
complete a business
combination prior to
the date that is 24
months (or up to 30
months if our
stockholders approve
an extension) after
the date of this
prospectus, our
existence will
automatically
terminate and as
promptly as
practicable
thereafter the
account agent will
commence liquidating
the investments
constituting the
trust account and we
will
distribute the
proceeds to our
public stockholders,
including any
interest earned on
the trust account
not used to cover
liquidation
expenses, net of
income taxes payable
on such income and
after distribution
to us of income on
the trust account
balance as described
in this prospectus.
Release of funds
Except for (i) any
taxes paid or due in respect of the company and the trust account and (ii)
up to $2,400,000 of
the interest earned
on the trust account
balance that may be
released to us to
fund our working
capital
requirements, the
full proceeds held
in the trust account
will not be released
to us until the
completion of a
business combination
or the failure to
complete a business
combination within
the allotted time.
The proceeds held in the
escrow account are not
released until the earlier of
the completion of a business
combination or the failure to
complete a business
combination within the
allotted time.
Chairman of the Board, President and
Chief Executive Officer
James D. Hogan
63
Chief Financial Officer
Kevin G. Champagne
58
Director
Joseph M. Harenza
64
Director
Constantine N. Papadakis
62
Director
Daniel K. Rothermel
70
Director
Jay
S. Sidhu — Mr. Sidhu is the former Chairman and CEO of Sovereign. In his capacity as CFO
and COO of Sovereign from 1986 to 1989 and CEO of Sovereign from 1989 until October 2006, Mr. Sidhu
was responsible for designing, overseeing and executing Sovereign’s growth from a small financially
challenged thrift with assets of approximately $600 million that generated proceeds, in an initial public offering,
of approximately $24 million in 1986 to a financial institution, with over $90
billion in assets, a market capitalization of approximately $12 billion and more than 785 branch
locations spanning from Maryland to New Hampshire in 2006. In building the nation’s 17th largest
financial institution by assets and one of the most valuable banking franchises in the Mid-Atlantic
and Northeast regions of the U.S., Mr. Sidhu created significant value for Sovereign investors by
developing and executing organic growth and acquisition strategies which emphasized (i)
opportunistic geographic targeting, (ii) creative, but disciplined, acquisition pricing and (iii)
superior integration strategy and execution. During his tenure at Sovereign, Mr. Sidhu identified,
acquired and integrated 27 banking and thrift operations, including two of the largest bank
branch divestitures in U.S. history to date, and 3 other financial services businesses. Mr. Sidhu
also serves as an advisor to Adara Venture Partners, a venture capital fund based in Madrid, Spain
that invests in early stage technology companies in the software, telecommunications, semiconductor
and clean tech sectors. Mr. Sidhu received a B.B.A. from Banaras University (India) and a M.B.A.
from Wilkes University, and is a graduate of the Harvard University Business School’s CEO
Leadership Course.
James
Hogan — Mr. Hogan was the former Chief Financial Officer of Sovereign from April 2001
until May 2005. Prior to that, Mr. Hogan served as Executive Vice President and Controller at
Firstar Corporation (“Firstar”), formerly Star Bancorp, from May 1993 until April 2001, and as
Controller of Star Bancorp from 1987 until 1993. While at Firstar, Mr. Hogan oversaw at least 22
transactions and, at the time of his departure, Firstar had grown into an $80 billion financial
institution. Upon the acquisition of US Bancorp by Firstar, Mr. Hogan joined Sovereign and was
involved in three additional transactions. He retired from Sovereign in May 2005. Mr. Hogan
received a B.S. in Accounting from Miami University of Ohio and is a Certified Public Accountant.
Kevin G. Champagne — Mr. Champagne served as President and Chief Executive Officer of
Seacoast Financial Services Corp. since 1994 and as President and Chief Executive Officer of
Compass Bank since 1994 until their acquisition by Sovereign in July 2004. He served as a director
of Sovereign Bank from 2004 until 2006. He served as past chairman of the board of directors of
the YMCA Southcoast, and is a member of the executive committee of the board of directors of
Savings Bank Life Insurance Company of Massachusetts, which offers life insurance, annuities and
related products and is licensed in 15 states and the District of Columbia. He was appointed to
the Southeastern Massachusetts Regional Competitive Council by Gov. Mitt Romney of Massachusetts in
1993 and was a former director and, from 1992 to 1993, chairman of the board of directors of
Massachusetts Bankers Association. Mr. Champagne received a B.S. in Accounting from Stonehill
College.
Joseph
M. Harenza — Mr. Harenza is currently the President, CEO and a Senior Managing Director
of Griffin Financial Group LLC, an M&A advisory firm specializing in the depository institutions
sector primarily in the Mid-Atlantic region of the United States. Mr. Harenza has been a principal
advisor to financial institutions in
connection with the strategic aspects of mergers and
acquisitions and capital formation for over 25 years. He has served as a principal strategic
advisor in more than 75 mergers and acquisitions and over 100 financing transactions in the
depository institutions sector. Mr. Harenza has significant experience advising financial
institutions in connection with unsolicited offers, board destabilization attempts, proxy contests
and other non-negotiated takeover attempts. He was a principal outside strategic advisor to
Sovereign in connection with over 30 acquisition and related financing transactions from its IPO in
1987 through 2006, and to Meridian Bancorp through its acquisition of over 24 financial
institutions and fee generation businesses from 1979-1996. He also holds NASD Series 7 and 24
licenses. Mr. Harenza received an A.B. from Western Michigan University, a
J.D. from The Dickinson School of Law of The Pennsylvania State University and an L.L.M. in
Taxation from Temple University. He is also the Non-Executive Chairman of Stevens & Lee, an AmLaw
200 law firm, which specializes in providing legal, regulatory, and consulting services to the
financial services industry.
Constantine N. Papadakis — Dr. Papadakis has been President of Drexel University in
Philadelphia, Pennsylvania since 1995. He presently serves as a member of the Business Higher
Education Forum and the Council on Competitiveness. Dr. Papadakis also serves on the board of
directors of the National Commission for Cooperative Education and the World Trade Center of
Greater Philadelphia. He is currently a member of the Greater Philadelphia Chamber of Commerce
Executive Committee, the Board of Directors of the Opera Company of Philadelphia, the Hellenic
College/Holy Cross Board of Trustees, and the Judicial Council of the Supreme Court of
Pennsylvania. He currently serves on the Board of Directors of Amkor Technology, Inc., a semiconductor packaging
and test services company, Aqua America, Inc., a regulated water and wastewater services company,
CDI Corp., an outsourcing and professional staffing company, Mace Security International, personal
defense and surveillance equipment manufacturer, Met-Pro Corporation, product recovery and
pollution control equipment manufacturer, and The Philadelphia Stock Exchange, Inc., a securities
exchange. Dr. Papadakis received a B.S. in civil engineering from the National Technical
University of Athens (Greece), an M.S. in civil engineering from the University of Cincinnati and a
Ph.D. from the University of Michigan.
Daniel K. Rothermel — Mr. Rothermel became President and Chief Executive Officer of Cumru
Associates, Inc., a private holding company, in 1989. In 2007, he retired as a director of
Sovereign where he had served since its formation in 1987 and as a director of Sovereign Bank where
he had served continuously as director of Sovereign Bank and its predecessor since 1976. While at
Sovereign, he served as Lead Director from 2002 through 2006. He served as Vice President, General
Counsel and Secretary of Carpenter Technology Corporation, a specialty metals manufacturer and a
NYSE-listed company, a position he held for more than ten years,
until his retirement in 1989. Mr. Rothermel received a B.S. in
business administration from The Pennsylvania State University and a
J.D. from The Washington College of Law of American University.
Number and Terms of Office of Directors and Officers
Our amended and restated certificate of incorporation, which we intend to adopt prior to the
closing of this offering, divides our board of directors into three classes with only one class of
directors being elected in each year and each class (except for those directors appointed prior to
our first annual meeting of stockholders) serving a three-year term. The term of office of the
first class of directors, consisting of Mr. Champagne, will expire at our first annual meeting of
stockholders after this offering in 2009. The term of office of the second class of directors,
consisting of Messrs. Papadakis and Rothermel, will expire at the second annual meeting of
stockholders in 2010. The term of office of the third class of directors, consisting of Messrs.
Harenza and Sidhu, will expire at the third annual meeting of stockholders in 2011.
Our officers are appointed by the board of directors and serve at the discretion of the board
of directors, rather than for specific terms of office. Our board of directors is authorized to
appoint persons to the offices set forth in our amended and restated bylaws as it deems
appropriate. Our amended and restated bylaws provide that our officers may consist of a Chairman
of the Board, Chief Executive Officer, President, Chief Financial Officer, Vice Presidents,
Secretary, Treasurer and such other officers as may be determined by the board of directors.
Collectively, through their positions described above, our officers and directors have
extensive experience in investing in, owning and operating businesses. These individuals will play
a key role in identifying and evaluating prospective acquisition candidates, selecting the target
businesses, and structuring, negotiating and completing their acquisition.
Executive Officer and Director Compensation
None of our executive officers or directors has received or will receive any cash compensation
for services rendered prior to the completion of a business combination. Other than (i) the $7,500
per-month administrative fee paid to Griffin Holdings Group, LLC, an entity affiliated with Mr.
Harenza, (ii) reimbursement of any out-of-pocket
expenses incurred in connection with activities on
our behalf such as identifying potential target businesses and performing due diligence on suitable
business combinations, (iii) customary fees and charges to
Stevens & Lee, an affiliate of Mr. Harenza, and its
affiliates for
performing professional services for us, including professional
services in connection with this offering, our operations, and in connection with
an acquisition, (iv) the underwriting discount and commission payable
to Griffin Financial Group, LLC, an entity affiliated with Mr. Harenza, out of the underwriters’ deferred commission and discount upon completion of a business combination, and (v) by virtue
of the ownership of the initial shares, the sponsor units and any securities included in or
issuable upon exercise of such units, no compensation or fees of any kind, including finder’s
fees, consulting fees or other similar compensation, will be paid to our sponsor, officers or
directors, or to any of their respective affiliates, prior to or with respect to a business
combination (regardless of the type of transaction that it is). We are not party to any agreements
with our executive officers and directors that provide for benefits upon termination of employment.
After the completion of a business combination, directors or members of our management team
who remain with us may be paid consulting, management or other fees from the combined company with
any and all amounts being fully disclosed to stockholders, to the extent then known, in the proxy
solicitation materials furnished to our stockholders in connection with the stockholder meeting to
approve a proposed business combination. It is unlikely the amount of such compensation will be
known at the time of a stockholder meeting held to consider a business combination, as it will be
up to the directors of the post-combination business to determine executive and director
compensation. We do not intend to take any action to ensure that members of our management team
maintain their positions with us after the completion of a business combination, although it is
possible that some or all of our executive officers and directors may negotiate employment or
consulting arrangements to remain with the company after the business combination. The existence
or terms of any such employment or consulting arrangements to retain their positions with the
company may influence our management’s motivation in identifying or selecting a target business but
we do not believe that the ability of our management to remain with the company after the
completion of a business combination will be a determining factor in our decision to proceed with
any potential business combination.
Director Independence
The American Stock Exchange requires that a majority of our board of directors must be
composed of independent directors, which are defined generally as persons other than an officer or
employee of the company or its subsidiaries or any other individual having a relationship, which,
in the opinion of the company’s board of directors would interfere with the director’s exercise of
independent judgment in carrying out the responsibilities of a director. Our board of directors
has determined that each of Messrs. Champagne, Papadakis and Rothermel are independent directors as
such term is defined under the rules of the American Stock Exchange and Rule 10A-3 of the Exchange
Act. Our independent directors will have regularly scheduled meetings or executive sessions at
which only independent directors are present.
Committees of the Board
Upon the completion of this offering, our board of directors will have two standing
committees: a nominating and corporate governance committee and an audit committee. Subject to
phase-in rules and a limited exception, the rules of the American Stock Exchange require that the
nominating and corporate governance committees of a listed company be comprised solely of
independent directors. Subject to phase-in rules and a limited exception, the rules of the
American Stock Exchange and Rule 10A-3 of the Exchange Act require that the audit committee of a
listed company be comprised solely of independent directors.
Audit Committee
Effective upon completion of this offering, we will establish an audit committee of the board
of directors, which will consist of Messrs. Champagne, Papadakis and Rothermel. Mr. Rothermel will
serve as the chairman of our audit committee. The independent directors we appoint to our audit
committee will each be an independent member of our board of directors, as defined by the rules of the SEC. The audit committee’s
duties, which are specified in our Audit Committee Charter, include, but are not limited to:
•
reviewing and discussing with management and the independent auditor the annual
audited financial statements and recommending to the board whether the audited
financial statements should be included in our Form 10-K;
discussing with management and the independent auditor significant financial
reporting issues and judgments made in connection with the preparation of our financial
statements;
•
discussing with management major risk assessment and risk management policies;
•
monitoring the independence of the independent auditor;
•
verifying the rotation of the lead (or coordinating) audit partner having primary
responsibility for the audit and the audit partner responsible for reviewing the audit
as required by law;
•
reviewing and approving all related-party transactions;
•
inquiring and discussing with management our compliance with applicable laws and
regulations;
•
pre-approving all audit services and permitted non-audit services to be performed by
our independent auditor, including the fees and terms of the services to be performed;
•
appointing or replacing the independent auditor;
•
determining the compensation and oversight of the work of the independent auditor
(including resolution of disagreements between management and the independent auditor
regarding financial reporting) for the purpose of preparing or issuing an audit report
or related work; and
•
establishing procedures for the receipt, retention and treatment of complaints
received by us regarding accounting, internal accounting controls or reports which
raise material issues regarding our financial statements or accounting policies.
Prior to our completion of a business combination, the audit committee will also monitor
compliance on a quarterly basis with the terms described below and the other material terms
relating to this offering. If any noncompliance is identified, then the audit committee will be
charged with the responsibility to immediately take all action necessary to rectify such
noncompliance or otherwise cause compliance with the terms of this offering.
Financial expert on audit committee
The audit committee will at all times be composed exclusively of “independent directors”
within the meaning of the independent director standards of the SEC and the American Stock
Exchange. Each member of the audit committee will meet the financial literacy requirements under
the rules of the SEC and the American Stock Exchange.
In addition, we must certify to the American Stock Exchange that the committee has, and will
continue to have, at least one member who has past employment experience in finance or accounting,
requisite professional certification in accounting, or other comparable experience or background
that results in the individual’s financial sophistication. The board of directors has determined
that Mr. Champagne satisfies the American Stock Exchange’s definition of financial sophistication
and also qualifies as an “audit committee financial expert,” as defined under rules and regulations
of the SEC.
Nominating and Corporate Governance Committee
Immediately following the closing of this offering, we will establish a nominating and
corporate governance committee of the board of directors, which will consist of at least three of
our independent directors. The nominating and corporate governance committee is responsible for
overseeing the selection of persons to be nominated to serve on our board of directors. The
nominating and corporate governance committee considers persons identified by its members,
management, stockholders, investment bankers and others.
Guidelines for selecting director nominees
The guidelines for selecting nominees, which are specified in the Charter of the Nominating
and Corporate Governance Committee, generally provide that persons to be nominated:
•
should have demonstrated notable or significant achievements in business, education
or public service;
should possess the requisite intelligence, education and experience to make a
significant contribution to the board of directors and bring a range of skills, diverse
perspectives and backgrounds to its deliberations; and
•
should have the highest ethical standards, a strong sense of professionalism and
intense dedication to serving the interests of the stockholders.
Code of Ethics
As of the date of this prospectus, we have adopted a code of ethics that applies to our
officers, directors and employees and have filed a copy of our code
of ethics as an exhibit to the registration
statement of which this prospectus is a part. You will be able to review this document by
accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the code
of ethics will be provided without charge upon request to us. We intend to disclose any amendments
to or waivers of certain provisions of our code of ethics in a Current Report on Form 8-K.
Conflicts of Interest and Contractual Restrictions
Potential investors should be aware of the following potential conflicts of interest:
•
Our officers and directors are not required to commit their full time to our affairs
and, accordingly, may have conflicts of interest in allocating their time among various
business activities.
•
We intend to comply with Mr. Sidhu’s non-solicitation covenant, as well as his
covenant not to compete with Sovereign. The covenant not to compete provides, among
other things, that Mr. Sidhu may not, directly or indirectly, (a) own more than 4.9% of
a publicly traded banking institution or (b) be an agent, consultant, employee,
partner, officer, director, proprietor or otherwise of any firm, corporation or
enterprise, or provide financial or other assistance to such firm, corporation or
enterprise, engaged in the banking or financial services industry, in each case in any
county which is contiguous to a branch, office or other facility of Sovereign as of
October 2006, the time he ceased to be employed by Sovereign. This covenant
specifically permits Mr. Sidhu to engage, directly or indirectly, for his own account
or as an officer, director or investor with respect to any investment company or
private equity, hedge, or similar fund which makes portfolio investments in entities in
the financial services industry if (x) the ownership interest of such investment
company or fund in such financial services entity represents less than 5% of the
outstanding voting power of the financial services entity, or (y) such financial
services entity does not have a substantial percentage of its loans or deposits in,
and/or does not have a substantial physical or economic presence in any county which is
contiguous to a branch, office or other facility of Sovereign at the time he ceased to
be employed by Sovereign. The covenant not to compete expires upon the earlier of (i)
October 11, 2011 or (ii) a change in control of Sovereign. As a result, we are largely
prohibited from acquiring depository institutions located in certain portions of Massachusetts,
Connecticut, Rhode Island, Maryland, New York, Pennsylvania and New Jersey.
Accordingly, we are somewhat limited in the degree to which we can select potential
candidates which operate in the depository institutions sector and
are located in any of these areas.
•
The non-solicitation covenant, which expires at the same time
as the covenant not to compete, provides, among other things, that Mr. Sidhu will not
solicit, recruit or encourage any employee of Sovereign or any of its subsidiaries to
leave their employment. Accordingly, we may not be able to hire certain individuals
who may possess the requisite abilities to assist us in meeting our investment goals.
•
In the course of their other business activities, our officers and directors may
become aware of investment and business opportunities that may be appropriate for
presentation to our company as well as the other entities with which they are affiliated. Our management may have
conflicts of interest in determining to which entity a particular business
opportunity should be presented. For a complete description of our management’s
other affiliations, see “—Directors and Executive Officers.”
•
Our officers and directors may in the future (including prior to the completion of a
business combination) become affiliated with entities, including other development
stage companies, engaged in business activities similar to those we intend to conduct.
Since our officers and directors may acquire initial shares
or sponsor units
from the sponsor that will be freely transferable
only if a business combination is successfully completed and that
will become worthless if a business combination is not completed, our board and our management may have a
conflict of interest in determining whether a particular target business is appropriate
to effect a business combination. In addition, 281,250 of the initial
shares (or 323,437 of the
initial shares if the underwriter’s over-allotment option is exercised in full) placed into
an escrow account with Mellon Investor Services LLC, as escrow agent, described below, will be
forfeited on the one-year anniversary of the date of this prospectus unless we announce
that we have entered into a letter of intent or definitive
agreement with an acquisition candidate, which, by itself, does not have to satisfy
our 200% of net assets test. We will continue to have up to 24 months (or up to 30
months if our stockholders approve an extension) after the date of this prospectus to
complete a business combination with one or more target businesses that together have a
fair market value of at least 200% of our net assets held in trust (net of taxes and up
to $2,400,000 of interest earned on the trust account that is permitted to be disbursed
to us for working capital purposes and excluding the amount of the underwriters’ deferred
commission and discount held in trust) at the time of the execution of the definitive agreement for our initial business
combination. Also, members of our management team may
enter into consulting or employment agreements with us as part of a business
combination, pursuant to which they may be entitled to compensation for their services.
The personal and financial interests of our officers and directors may influence their
motivation in identifying and selecting a target business, timely completing a business
combination and securing the release of their securities.
•
We may engage in a business combination with one or more target businesses that have
relationships or are affiliated with our officers or directors or our sponsor. We have
adopted a policy that, prior to the completion of a business combination, none of our
officers or directors or our sponsor, or any entity with which they are affiliated,
will be paid, either by us or a target business, any finder’s fee, consulting fee or
other compensation for any services they render in order to effectuate the completion
of a business combination, other than (i) the reimbursement of out-of-pocket expenses,
(ii) the monthly fee to Griffin Holdings Group, LLC, an entity affiliated with Mr.
Harenza, (iii) customary fees and charges to Stevens &
Lee, an affiliate of Mr. Harenza, and its affiliates for
performing professional services for us, including professional
services in connection with this offering, our operations, and in connection with an acquisition,
and (iv) by virtue of their ownership of initial shares, sponsor
units or any
securities included in or issuable upon exercise of such securities. Other than this
policy, we have not adopted a policy that expressly prohibits our directors, officers,
security holders or affiliates from having a direct or indirect pecuniary interest in
any investment to be acquired or disposed of by us or in any transaction to which we
are a party or have an interest. Nor do we have a policy that expressly prohibits any
such persons from engaging for their own account in business activities of the types
conducted by us. Accordingly, such parties may have an interest in certain
transactions in which we are involved, and may also compete with us.
•
Our officers and directors may have a conflict of interest with respect to
evaluating a particular business combination if the retention or resignation of any
such officers and directors were included by a target business as a condition to any
agreement with respect to a business combination.
•
Our sponsor and our officers and directors may purchase shares of common stock as
part of the units being sold in this offering or in the open market. If they did, they
would be entitled to vote such shares as they choose on a proposal to approve a
business combination.
Griffin Financial, an affiliate of Mr. Harenza, a member of our board of directors, undertakes
engagements relating to financial advisory, investment banking, and other activities for a wide
variety of clients, including institutions, companies and individuals, primarily in the
Mid-Atlantic region of the United States. Nonetheless, there may be situations in which Griffin
Financial has an obligation or an interest that actually or potentially conflicts with our
interests. These conflicts may not be resolved in our favor and, as a result, we may be denied
certain investment opportunities or may be otherwise disadvantaged in some situations by our
relationship to Griffin Financial.
Despite Griffin Financial’s focus on the Mid-Atlantic region of the United States, other
clients of its advisory business may also compete with us for investment opportunities meeting our
investment objectives. If Griffin Financial is engaged to act for any such clients, we may be
precluded from pursuing such opportunities. In addition, investment ideas generated within Griffin Financial, including by Mr. Harenza and
other persons who may make decisions for the company, may be suitable for both us and for an
investment banking client or a current or future Griffin Financial internal investment vehicle,
including other blank check companies in which Griffin Financial may participate, and may be
directed to such client or investment vehicle rather than to us. Griffin Financial’s advisory
business may also be engaged to advise the seller of a company, business or assets that would
qualify as an investment opportunity for us. In such cases, we may be precluded from participating
in the sale process or from purchasing the company, business or assets. If we are permitted to
pursue the opportunity, Griffin Financial’s interests or its obligations to the seller will diverge
from our interests. Griffin Financial and/or Mr. Harenza, in his capacity as an officer or
managing director of Griffin Financial or in his other endeavors, may choose to present potential
business combinations to current or future Griffin Financial internal investment vehicles,
including other blank check companies in which Griffin Financial may participate, or third parties,
including clients of Griffin Financial, before they present such opportunities to us.
We cannot assure you that any of the above mentioned conflicts will be resolved in our favor.
In general, officers and directors of a corporation incorporated under the laws of the State
of Delaware are required to present business opportunities to a corporation if:
•
the corporation could financially undertake the opportunity;
•
the opportunity is within the corporation’s line of business; and
•
it would not be fair to the corporation and its stockholders for the opportunity not
to be brought to the attention of the corporation.
Accordingly, as a result of multiple business affiliations, our officers and directors may
have similar legal obligations relating to presenting business opportunities meeting the
above-listed criteria to multiple entities.
In order to minimize potential conflicts of interest that may arise from multiple
affiliations, each of our officers and directors (other than our independent directors) has agreed,
until the earliest of the completion of a business combination,
24 months (or up to 30 months if
our stockholders approve an extension) after the date of this prospectus and such time as he ceases
to be an officer or director, to present to our company for our consideration, prior to
presentation to any other entity, any business combination opportunity involving the potential
acquisition of a controlling interest (whether through the acquisition of a majority of the voting
equity interests of the target or through other means) in a company (i) in the financial services
industry and (ii) with assets of less than $3.0 billion, subject to any other
pre-existing fiduciary duties or contractual obligations they may have. We expect primarily to
target businesses within this range of assets, although we have the flexibility to acquire a
business outside of this range.
We do not believe that any of the foregoing fiduciary duties or contractual obligations will
materially undermine our ability to complete a business combination.
Limitation on Liability and Indemnification of Directors and Officers
Our amended and restated certificate of incorporation provides that our officers and directors
will be indemnified by us to the fullest extent authorized by Delaware law as it now exists or may
in the future be amended. In addition, our amended and restated certificate of incorporation
provides that our directors will not be personally liable for monetary damages to us for breaches
of their fiduciary duty as directors, unless they violated their duty of loyalty to us or our
stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized unlawful
payments of dividends, unlawful stock purchases or unlawful redemptions, or derived an improper
personal benefit from their actions as directors.
We will enter into agreements with our officers and directors to provide contractual
indemnification in addition to the indemnification provided for in our amended and restated
certificate of incorporation. Prior to a business combination, our obligations under these
agreements will be guaranteed by our sponsor. We believe that these provisions and agreements are
necessary to attract qualified officers and directors. Our amended and restated bylaws also will
permit us to secure insurance on behalf of any officer, director or employee for any liability
arising out of his or her actions, regardless of whether Delaware law would permit such
indemnification. We will purchase a policy of directors’ and officers’ liability insurance that
insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our
obligations to indemnify our officers and directors.
These provisions may discourage stockholders from bringing a lawsuit against our directors for
breach of their fiduciary duty. These provisions also may have the effect of reducing the
likelihood of derivative litigation against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s
investment may be adversely affected to the extent we pay the costs of settlement and damage awards
against directors and officers pursuant to these indemnification provisions. We believe that these
provisions, the insurance and the indemnity agreements are necessary to attract and retain talented
and experienced directors and officers.
The following table sets forth information regarding the beneficial ownership of our common
stock as of the date of this prospectus, and as adjusted to reflect the sale of our common stock
included in the units offered by this prospectus, and assuming no purchase of units in this
offering, by:
•
each person known by us to be the beneficial owner of more than 5% of our
outstanding shares of common stock;
•
each of our officers and directors; and
•
all our officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the table have sole voting
and investment power with respect to all shares of common stock beneficially owned by them. The
following table does not reflect record or beneficial ownership of the sponsor warrants as these
warrants are not exercisable within 60 days of the date of this prospectus.
Unless otherwise noted, the business address of each of the following is 607 Washington
Street, Reading, Pennsylvania19601.
(2)
Gives effect to our 28,750 for 1 stock split that was
declared on February 27, 2008 and
our 0.6 for 1 reverse stock split that was
declared on July 11, 2008.
(3)
These shares represent 100% of our shares of common stock held by our sponsor. Mr. Sidhu,
through his control of our sponsor, may be deemed to be the beneficial owner of all the shares
of our outstanding common stock held by our sponsor. Mr. Sidhu disclaims beneficial ownership
of any shares in which he does not have a pecuniary interest. This
amount includes the shares included in the sponsor units and a total
of up to 337,500 shares of common stock (giving effect to our stock split) issued to our sponsor that
will be forfeited to the extent the underwriter does not exercise its over-allotment option.
(4)
WNH Holdings, LLC, our sponsor, intends to sell [ • ] shares of our common stock out of the sponsor
shares it purchased to each of Messrs. Hogan, Champagne, Papadakis and Rothermel at a price of
$0.010 per share, which is equal to the adjusted purchase price per share paid by our sponsor. For
each of Messrs. Hogan, Champagne, Papadakis and Rothermel, this amount will include up to [ • ]
shares of common stock that will be forfeited from each of them to the extent the underwriter does
not exercise its over-allotment option.
In
October 2007, our sponsor purchased 150 shares of our common
stock (or 2,587,500 shares of
our common stock after giving effect to our stock split and reverse
stock split) for an aggregate purchase price of $25,000
or approximately $166.67 per share (or $0.010 per share after giving
effect to our stock split and reverse
stock split).
On
February 27, 2008, we declared a 28,750 for 1 stock split of our
common stock and on July 11, 2008, we declared a 0.6 for 1 reverse
stock split.
To the extent
the underwriters do not exercise the over-allotment option, up to an aggregate
of 337,500 initial shares held by our existing stockholders will be
subject to forfeiture. Our
existing stockholders will only forfeit a number of initial shares necessary to maintain the 20% ownership interest of our
sponsor
and its permitted transferees in our issued and outstanding
shares (excluding the sponsor shares) after giving effect to this offering and the exercise, if any, of
the underwriters’ over-allotment option. Our existing stockholders will forfeit on the one-year anniversary of the date of this
prospectus such number of initial shares so that, following such forfeiture, the number of
initial shares issued and outstanding shall equal 17.5% of the aggregate number of initial
shares and shares of common stock issued to the public in this offering (but
excluding the sponsor shares) unless we have entered into a letter of
intent or definitive agreement with a target business.
Additionally, in the event that, in connection with a stockholder vote to approve either a
proposed business combination or an extension of the time periods within which a
business combination must be completed, any public stockholder elects to convert any of
such stockholder’s shares into a pro rata share of the amount then held in the trust account, then
the existing stockholders will forfeit such number of the initial
shares so that they will represent no more than 20% of the aggregate number of initial shares and shares
of common stock issued to the public in this offering and remaining outstanding following any such
conversion. However, if any initial shares were previously forfeited on the one-year anniversary
of the date of this prospectus, our existing stockholders will forfeit only such additional number
of initial shares so that the initial shares represent no more than 20% of the aggregate number of
initial shares and shares of common stock issued to the public in
this offering and remaining
outstanding following any such conversion.
Immediately after this offering (assuming exercise of the underwriters’ over-allotment option
and assuming our sponsor does not purchase units in this offering), our sponsor will beneficially
own 22.55% of the then issued and outstanding shares of our common
stock (including the sponsor shares). Because of this
ownership, it may be able to effectively influence the outcome of all matters requiring approval by
our stockholders, including the election of directors and approval of significant corporate
transactions, other than approval of a business combination.
Our
sponsor has entered into an agreement with us to purchase 425,200
sponsor units, at a
price of $10.00 per unit. Our sponsor is obligated to purchase such
sponsor units from us
immediately prior to the closing of this offering. The purchase price
of the sponsor units will
be added to the proceeds from this offering to be held in the trust account pending the completion
of a business combination. If we do not complete a business
combination within 24 months (or up to 30 months if our
stockholders approve an extension) after the date of this prospectus, the proceeds
of the sale of the sponsor units will become part of the distribution of the trust account to
our public stockholders and the warrants and shares that comprise the sponsor units will be worthless.
Our
existing stockholders will place their respective initial shares, the sponsor shares and sponsor warrants into
an escrow account maintained by Mellon Investor Services LLC, acting as escrow agent. Subject to
certain limited exceptions (as described below), the initial shares will not be transferable until
the earlier of 12 months following the completion of a business combination and, after the
completion of a business combination, the completion of a transaction that results in all of the
stockholders having the right to exchange their shares of common stock for cash, securities or
other property and the sponsor shares and sponsor warrants are not
transferable until the completion of a business combination. Our sponsor may not transfer
interests in itself prior to the expiration of the escrow period, with certain limited exceptions
(as described below).
Transfers of Common Stock and Warrants by our Existing Stockholders
Pursuant to lock-up provisions in letter agreements with us and the underwriter to be entered
into by our existing stockholders, our existing stockholders have
agreed, subject to certain exceptions described below, not to transfer, assign or sell, directly or
indirectly, any of the sponsor shares or any of the sponsor warrants (including the common stock
issuable upon exercise of the warrants) until we complete a business combination or any of the initial shares until 12 months after we complete a business combination.
Notwithstanding
the foregoing, the initial shares, the sponsor units, the sponsor shares and the sponsor warrants will be
transferable to the following permitted transferees under the following circumstances:
•
to our officers, directors and employees, any affiliates or family
members of such individuals, any affiliates of us or our sponsor and any officers,
directors, members and employees of our sponsor or such affiliates,
and to our sponsor to the extent of any securities previously
transferred to any permitted transferee, provided that any transfers
of or agreements to transfer securities to Griffin Financial or its
affiliates shall not be made within 90 days after the closing of
this offering;
•
in the case of individuals, by gift to a member of the individual’s immediate family
or to a trust, the beneficiary of which is a member of the individual’s immediate
family or a person related by blood, marriage or adoption;
•
in the case of an individual pursuant to a qualified domestic relations order;
•
if the transferor is a corporation, partnership or limited
liability company, any officer, director,
stockholder, or member of the transferor; and
•
to any individual or entity by virtue of laws or agreements governing descent or
distribution upon the death or dissolution of the transferor.
All permitted transferees receiving such securities must agree in writing to be subject to the
same transfer restrictions as our sponsor and any such transfers will be made in accordance with
applicable securities laws.
Registration Rights
Pursuant to a
registration rights agreement between us and our existing
stockholders, the holders of the initial shares, the sponsor shares and the sponsor warrants (and the common stock
issuable upon exercise of such
warrants) will be entitled to demand registration rights,
“piggy-back” registration rights and short-form resale registration rights commencing twelve months after the completion of a business combination, in the case of the
initial shares, and after the completion of a business combination in
the case of the sponsor shares and the sponsor
warrants. We will bear the expenses incurred in connection with the filing of any such
registration statements pursuant to such rights.
In
October 2007, we issued an aggregate of 150 shares of our common
stock (or 2,587,500 shares
of our common stock after giving effect to our stock splits) to our sponsor, for an aggregate
purchase price of $25,000 in cash, or approximately $166.67 per share
(or $0.010 per share after
giving effect to our stock splits). Our sponsor intends to sell an aggregate of sponsor shares to certain of our officers
and directors for a purchase price per share equal to the adjusted purchase price per share paid by
the sponsor. The proposed sales of shares of our common stock to the officers and directors are
listed below:
Name
Number of Shares
Relationship to Us
James D. Hogan
Chief Financial Officer
Kevin G. Champagne
Director
Constantine N. Papadakis
Director
Daniel K. Rothermel
Director
If
the underwriters do not exercise all or a portion of the over-allotment option, our
existing stockholders have agreed, pursuant to a written agreement with us, that up to an aggregate
of 337,500 initial shares will be forfeited in proportion to the portion of the over-allotment
option that is not exercised. Upon receipt, such forfeited shares would then be immediately
cancelled. In addition, 281,250 of the initial shares (or 323,437 of the initial shares if the
underwriters’ over-allotment option is exercised in full) placed into an escrow account with
Mellon Investor Services LLC, as escrow agent, described below, will be forfeited on the one-year
anniversary of the date of this prospectus unless we announce that we have entered into a
letter of intent or definitive agreement with an acquisition candidate,
which, by itself, does not have to satisfy our 200% of net assts test. We will continue to
have up to 18 months
to sign a letter of intent or a definitive agreement for a business
combination and up to 24 months (or up to 30 months if our stockholders
approve an extension) after
the date of this prospectus to complete a business combination with one or more target businesses
that together have a fair market value of at least 200% of our net assets held in trust (net of
taxes and up to $2,400,000 of interest earned on the trust account that is permitted to be
disbursed to us for working capital purposes and excluding the amount
of the underwriters’ deferred commission and discount held in trust) at the time of the execution of the definitive agreement for our initial
business combination.
Our sponsor has also agreed, pursuant to a written subscription agreement with us, to purchase
425,200 units, which we refer to as sponsor units, from us in a
private placement that will occur immediately prior to the closing of this offering. Each sponsor
unit consists of one share of our common stock and a warrant
to purchase one share of our common stock. Our sponsor has agreed that the sponsor units (including the common stock issuable upon exercise of the warrants) will not, subject to certain
limited exceptions, be transferred, assigned or sold by it until after the completion of a business
combination.
Griffin Financial, an entity affiliated with Mr. Harenza, has served as the exclusive
financial advisor to us and to our sponsor in connection with this
offering. Griffin Financial is acting as a co-manager in
connection with this offering and will be entitled to receive a
portion of the underwriters’ commission and discount. See “Underwriting.”
We have engaged and intend to continue to engage Stevens & Lee, a law firm at which Mr.
Harenza is the Non-Executive Chairman and with whom he is deemed to
be affiliated, and its affiliates at customary
fees and charges to perform professional services for us, including professional services
in connection with this offering, our operations and in connection
with an acquisition, such as, among other things, planning associated with the
acquisition process, identifying and evaluating potential candidates and performing due diligence. There are no limitations that restrict us from engaging Stevens & Lee or its affiliates to perform
such services and other customary legal and consulting services for us for customary fees and on
customary terms and conditions and any such engagement will be approved by a majority of our
independent and disinterested directors. Although fees may be paid to Griffin Financial for financial advice in connection with a business combination,
no finder’s fee will be paid to Stevens & Lee, Griffin
Financial or any other entity or person affiliated with us or any
of our officers or directors. Each of Griffin Financial and Griffin Holdings Group, LLC is affiliated with Stevens &
Lee. Each of Mr. Harenza and Stevens & Lee, through a subsidiary of an affiliate, hold minority non-voting interests of, and are passive investors
in, our sponsor.
Griffin Holdings Group, LLC, an entity affiliated with Mr. Harenza, has agreed to, from the
date of the closing of this offering through the earlier of our completion of a business
combination or our liquidation, make available to us office space and certain office and
secretarial services in New York City, Philadelphia and Reading, Pennsylvania, as we may require
from time to time. We have agreed to pay Griffin Holdings Group, LLC $7,500 per month for these
services. However, this arrangement is solely for our benefit and is not intended to provide Mr.
Harenza compensation in lieu of salary. We believe that the fee charged by Griffin Holdings Group,
LLC is at least as favorable as we could have obtained from an unaffiliated person.
We may decide to acquire one or more businesses affiliated with our officers, directors and
sponsor. However, our officers, directors and sponsor are not currently aware of any specific
opportunities for us to consummate a business combination with any entities with which they are
affiliated, and there have been no preliminary discussions concerning a business combination with
any such entity or entities. For a complete description of the affiliations of our directors and
officers, see “Management—Directors and Executive Officers.” See also “Risk Factors – Risks
Related to Our Officers and Directors and Our Sponsor – We may engage in a business combination
with one or more target businesses that have relationships or are affiliated with our officers or
directors or our sponsor, which may raise potential conflicts.”
Other than
(i) the $7,500 per-month administrative fee paid to Griffin Holdings Group, LLC, an
affiliate of Mr. Harenza, (ii) customary fees and charges to
Stevens & Lee, an affiliate of Mr. Harenza, and its
affiliates for performing professional services in connection with, among other
things, an acquisition, (iii)
reimbursement of any out-of-pocket expenses
incurred in connection with activities on our behalf
such as identifying potential target businesses and performing due diligence on suitable business
combinations, (iv) the underwriting commission and discount payable
to Griffin Financial Group, LLC, an entity affiliated with Mr. Harenza, out of the underwriters’ deferred commission and discount payable upon completion of a business combination, and (v) by virtue of the ownership of the initial
shares, the sponsor shares, the sponsor warrants and any
securities included in or issuable upon exercise of such securities, no compensation or fees of any
kind, including finder’s fees, consulting fees or other similar compensation, will be paid to our
sponsor, officers or directors, or to any of their respective affiliates, prior to or with respect
to a business combination (regardless of the type of transaction that it is).
Our sponsor has agreed to make a $200,000
line of credit loan to us to cover organizational and offering expenses and
other start-up costs, which will be repaid out of the proceeds of this offering. The loan is
interest-free with the principal balance repayable on the earlier of (i) 60 days following the date
of the completion of this offering and (ii) March 2, 2009. The principal balance is prepayable
without penalty at any time in whole or in part.
We have agreed to indemnify our officers and directors against certain liabilities and
expenses. Prior to a business combination, our sponsor will provide guarantees of certain of our
obligations to our officers and directors under the indemnity agreements. We will not pay a fee
for any such guarantees.
We have entered into a registration rights agreement with respect to the sponsor shares and
sponsor warrants, which is described under the heading “Principal Stockholders—Registration
Rights.”
After a business combination, members of our management team who remain with us may be paid
consulting, management or other fees from the combined company with any and all amounts being fully
disclosed to our stockholders, to the extent then known, in the proxy solicitation materials
furnished to our stockholders. It is unlikely the amount of such compensation will be known at the
time of a stockholder meeting held to consider a business combination, as it will be up to the
directors of the post-combination business to determine executive and director compensation.
All ongoing and future transactions between us and any member of our management team or his or
her respective affiliates, including loans by members of our management team, will be on terms as a
whole believed by us at that time, based upon other similar arrangements known to us, to be no less
favorable to us than are available from unaffiliated third parties. Such transactions or loans,
including any forgiveness of loans, will require prior approval in each instance by our audit
committee, which will have access, at our expense, to our attorneys or independent legal counsel.
If a transaction with an affiliated third party were found to be on terms as a whole less favorable
to us than with an unaffiliated third party, we would not engage in such transaction.
Our amended and restated certificate of incorporation authorizes the issuance of up to
24,199,500 shares of common stock, par value $0.0001 per share, and
500 shares of preferred
stock, par value $0.0001 per share. Prior to the issuance of
9,000,000 units to the public (or up to 10,350,000 units
if the underwriters exercise their over-allotment option) in this
offering, 3,012,700 shares of common stock (giving effect to our stock splits) will be outstanding (including
the shares included in the sponsor units and 337,500 shares subject to forfeiture if and to the extent the underwriters’ over-allotment option
is not exercised in full). No shares of preferred stock are currently outstanding.
Due to the fact that our amended and restated certificate of incorporation authorizes the
issuance of up to 24,199,500 shares of common stock, if we were to enter into a business
combination, we may (depending on the terms of such a business combination) be required to increase
the number of shares of common stock that we are authorized to issue at the same time as our
stockholders vote on the business combination.
The following description summarizes the material terms of our capital stock. Because it is
only a summary, it may not contain all the information that is important to you. For a complete
description you should refer to our amended and restated certificate of incorporation and bylaws,
which are filed as exhibits to the registration statement of which this prospectus is a part, and
to the applicable provisions of Delaware law.
Units
Each unit consists of one share of common stock and one warrant. Each warrant entitles the
holder to purchase one share of common stock at an exercise price of
$6.50. The units will begin
trading on or promptly after the date of this prospectus. The common stock and warrants comprising
the units will begin separate trading ten business days (or as soon as practicable thereafter)
following the earlier to occur of (1) the expiration or termination of the underwriters’
over-allotment option and (2) its exercise, subject in either case to our having filed a
Current Report on Form 8-K with the SEC containing an audited balance sheet reflecting our receipt
of the gross proceeds of this offering and having issued a press release announcing when such
separate trading will begin. We will file the Form 8-K promptly upon the completion of this
offering, which is anticipated to take place three business days from the date of this prospectus.
If the over-allotment option is exercised following the initial filing of such Form 8-K, an amended
Form 8-K will be filed to provide updated financial information to reflect the exercise and closing
of the over-allotment option. Following the date the common stock and warrants are eligible to
trade separately, the units will continue to be listed for trading, and any security holder may
elect to break apart a unit and trade the common stock or warrants separately or as a unit. Even
if the component parts of the units are broken apart and traded separately, the units will continue
to be listed as a separate security, and consequently, any subsequent security holder owning common
stock and warrants may elect to combine them together and trade them as a unit. Security holders
will have the ability to trade our securities as units until such time as the warrants expire or
are redeemed. Although we will not distribute copies of the Form 8-K to individual unit holders,
it will be available on the SEC’s website (www.sec.gov) after it is filed.
Common Stock
Prior
to the closing of this offering, 3,012,700 shares of our common
stock will be outstanding. This includes the shares included in the
sponsor units and an aggregate of 337,500 initial shares that are subject
to forfeiture if and to the extent the underwriters’ over-allotment option is not exercised, so
that our sponsor and its permitted transferees will own a 20% ownership
interest in our issued and outstanding shares (excluding the sponsor
shares) after this offering (assuming they do not purchase
units in this offering).
If we have
not entered into a letter of intent or a definitive agreement in
connection with a business combination within 12 months after the
date of this prospectus, our existing stockholders will forfeit on the one-year anniversary of the date of this
prospectus such number of initial shares so that, following such forfeiture, the number of
initial shares issued and outstanding shall equal 17.5% of the aggregate number of initial
shares and shares of common stock issued to the public in this offering (but
excluding the sponsor shares). Additionally, in the event that in connection with a stockholder vote to approve either a
proposed business combination or an extension of the time periods within which a
business combination must be completed, any public stockholder elects to convert any of
such stockholder’s shares into a pro rata share of the amount then held in the trust account, then
the existing stockholders will forfeit such number of the initial shares so that they will represent no more than 20% of the aggregate number of initial shares and shares
of common stock issued to the public in this offering and remaining outstanding following any such
conversion. However, if any initial shares were previously forfeited on the one-year anniversary
of the date of this prospectus, our existing stockholders will forfeit only such additional number
of initial shares so that the initial shares represent no more than 20% of the aggregate number of
initial shares and shares of common stock issued to the public in this offering and remaining
outstanding following any such conversion.
Initial
shares and sponsor shares
In
October 2007, our sponsor purchased an aggregate of 150 initial shares of our common stock
(or 2,587,500 initial shares of our common stock after giving effect
to our stock splits) for an aggregate purchase price of $25,000, or
approximately $166.67 per initial share
(or $0.010 per initial share after giving effect to our stock splits). This includes an aggregate
of up to 337,500 initial shares that are subject to forfeiture if and to the extent the
underwriters’ over-allotment option is not exercised, so that our sponsor
and its permitted transferees will own a 20% ownership interest in our issued and
outstanding shares after this offering (excluding the sponsor shares
and assuming they do not purchase units in this offering).
The initial shares
were purchased separately and not in combination with any warrants or units.
The initial shares and the sponsor shares are identical to the common stock comprising a part of the units being sold in
this offering, except that:
•
our existing stockholders and their permitted transferees will not be able to
exercise conversion rights with respect to the initial shares and the sponsor shares;
•
our existing stockholders have agreed, and any permitted transferees will agree, to
vote the initial shares in the same manner as a majority of the votes cast by the
public stockholders with respect to approving a proposed
business combination;
•
our existing stockholders and their permitted transferees will have no right to
participate in any liquidation distribution with respect to
the initial shares and the sponsor shares if we
fail to complete a business combination; and
•
the initial shares will be subject to certain transfer restrictions until 12 months
after the completion of a business combination, and the sponsor shares will be subject to certain restrictions on transfer
until the completion of a business combination.
On
February 27, 2008, we declared a 28,750 for 1 stock split of our
common stock, and on July 11,2008, we declared a 0.6 for 1 reverse stock split.
Our
existing stockholders have agreed, and their permitted transferees
will agree, that they will vote the sponsor shares to approve a
business combination and in favor of an extension of our corporate
existence to up to 30 months from the date of this prospectus.
Our
sponsor will be permitted to transfer all or any portion of the initial shares and the sponsor shares to certain permitted transferees described under “Principal Stockholders—Transfers
of Common Stock and Warrants by our Existing Stockholders.”
Public shares
Common
stockholders of record are entitled to one vote for each share held on all matters to
be voted on by stockholders. In connection with the stockholder vote required for approving a
business combination, our sponsor has agreed, and its
permitted transferees will agree, to vote the initial shares in
accordance with the majority of the shares of common stock held by
the public stockholders. Our
sponsor has also agreed, and its permitted transferees will agree,
that they will vote the initial shares, the sponsor shares and any
shares acquired in this offering or in the aftermarket in
favor of the amendment to our amended and restated certificate of incorporation to provide for our
perpetual existence in connection with a vote to approve a business
combination and any extension of our corporate existence to
up to 30 months from the date
of this prospectus in the event we have entered into a definitive agreement for, but have not yet
completed, a business combination.
Opportunity for stockholder approval of a business combination
In accordance with Article IX of our amended and restated certificate of incorporation (which
Article IX cannot be amended prior to a business combination without the affirmative vote of
holders of 95% of our outstanding shares of common stock), we will seek stockholder approval before
we effect a business combination, even if the nature of the acquisition would not ordinarily
require stockholder approval under applicable state law. In connection with a business
combination, we will also seek stockholder approval for a proposal to amend our amended and
restated certificate of incorporation to provide for our corporate life to continue perpetually
following the completion of such business combination. Any vote to extend our corporate life to
continue perpetually following the completion of a business combination will be taken only if such
business combination is approved.
We will proceed with a business combination if:
•
the business combination is approved by a majority of the
aggregate votes cast by our public
stockholders and holders of the sponsor shares at a duly held stockholders meeting,
•
the amendment to our amended and restated certificate of incorporation to provide
for our perpetual existence is approved by holders of a majority of our outstanding
shares of common stock, and
conversion rights have been exercised with respect to less than 35% of the shares of
common stock issued in this offering, on a cumulative basis (including the shares as to
which conversion rights were exercised in connection with (i) a stockholder vote, if
any, to approve an extension of the time period within which we must complete a
business combination and (ii) the stockholder vote to approve a business combination).
For purposes of seeking approval of a business combination, non-votes will have no
effect once a quorum is
obtained (although non-votes will have an effect on the approval of the amendment to our amended
and restated certificate of incorporation to provide for perpetual existence). We intend to give
approximately 30 (but not less than 10 nor more than 60) days prior written notice of any meeting
at which a vote will be taken to approve a business combination. In addition, we will publicly announce the record date for determining the shareholders entitled to
vote at the meeting to approve our business combination at least three business days prior to such
record date.
Extension of time to complete a business combination to up to 30 months
We
have a period of 24 months from the completion of this offering within which to effect a
business combination. However, if we have entered into a letter of
intent or definitive
agreement within the 18-month
period following the date of this prospectus, we may, prior to the expiration of the 24-month period, call a meeting of our stockholders
for the purpose of soliciting their approval to extend the date before which we must complete a
business combination by up to an additional six months to avoid being required to liquidate. In
connection with seeking stockholder approval for the extended period, we will furnish our
stockholders with proxy solicitation materials prepared in accordance
with the Exchange Act.
If a majority of the shares held by our stockholders are voted against the proposed
extension to up to 30 months, or if holders of 35% or more of the shares sold in this offering vote
against the proposed extension to up to 30 months and elect to convert their shares into a pro rata
share of amount then held in the trust account, we will not extend the date before which we must complete a business
combination beyond 24 months. In such event, if we cannot complete the business combination within
such 24-month period, we will be required to liquidate, with the amount remaining in the trust
account returned to all public stockholders. Subject to the foregoing, approval of the extension
to up to 30 months will require the affirmative vote of the
majority of the votes cast by our stockholders who vote at the special or annual meeting called for the purpose of approving
such extension.
In connection with the vote required for the extension, our sponsor
has agreed, and its permitted transferees will agree, to vote the
initial shares and the sponsor shares in favor of such extension.
If the majority of votes cast by our stockholders at the meeting called for the purpose
of approving such extension vote in favor of such extension and less than 35% of the shares sold in
this offering are voted against the proposed extension and elect to convert their shares, we will
then have an additional period of up to six months in which to complete the business combination.
If
the proposal for the extension to up to 30 months is approved, we will still be required to
seek stockholder approval before effecting a business combination, even if the business combination
would not ordinarily require stockholder approval under applicable law.
If
at the end of such 30-month period we have not effected such business combination, our
corporate existence will automatically cease without the need for a stockholder vote and we will
liquidate.
Conversion rights
Pursuant to our amended and restated certificate of incorporation, at the time we seek
stockholder approval of a business combination, each public stockholder voting against a business
combination will have the right to convert its shares of common stock into a pro rata share of the
aggregate amount then on deposit in the trust account, including both interest earned on the trust
account and the deferred underwriting commissions and discounts (net of taxes payable and interest
earned of up to $2,400,000 on the trust account permitted to be disbursed to us for working capital purposes), provided that a business combination is approved and completed. In
addition, any stockholders voting against a proposed extension of the time period within which we
must complete a business combination will be eligible to convert their shares into a pro rata share
of the amount then held in trust account if we effect the extension. Our sponsor and
its permitted transferees will not have such conversion rights with respect to the initial shares and the sponsor
shares.
The actual per-share conversion price will be equal to the per share amount of approximately
$10.00 initially deposited in the trust account, or approximately
$9.95 if the over-allotment option
is exercised (plus any interest earned on the proceeds in the trust account in excess of the amount
permitted to be disbursed to us for working capital purposes, net of taxes payable on such income,
on such amount per share).
As this amount may be lower than the $10.00 per unit offering price and it
may be less than the market price of the common stock on the date of repurchase, there may be a
disincentive on the part of public stockholders to exercise their conversion rights.
Notwithstanding the foregoing, a public stockholder, together with any affiliate of his or any
other person with whom he is acting as a “group” (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), will be restricted from seeking conversion rights with respect to more than
10% of the shares of common stock included in the units being sold in this offering, on a
cumulative basis, which includes any exercise of conversion rights in connection with either the
stockholder vote, if any, required to approve an extension of the time period within which we must
complete a business combination or the stockholder vote required to approve a business combination.
Shares of common stock converted in connection with the vote on the extension and in connection
with the vote on a business combination will be aggregated for purposes of this 10% limit. Such a
public stockholder would still be entitled to vote against an extension or a proposed business
combination with respect to all shares owned by him or his affiliates. We believe this restriction
will deter stockholders from accumulating large blocks of stock before the vote held to approve an
extension or a proposed business combination and prevent an attempt to use the conversion right as
a means to force us or our management to purchase their stock at a premium to the then current
market price. For example, absent this provision, a public stockholder who owns 15% of the shares
included in the units being sold in this offering could threaten to vote against an extension or a
proposed business combination and seek conversion, regardless of the merits of the transaction, if
his shares are not purchased by us or our management at a premium to the then current market price
(or if our sponsor or management refuses to transfer to him some of their shares). By limiting a
stockholder’s ability to convert only 10% of the shares included in the units being sold in this
offering, we believe we have limited the ability of a small group of stockholders to unreasonably
attempt to block a transaction which is favored by our other public stockholders. However, we are
not restricting the stockholders’ ability to vote all of their shares against the transaction or
against an extension.
Dissolution and liquidation if no business combination is completed
If
we have not completed a business combination within 24 months
(or up to 30 months if our
stockholders approve an extension) from the date of this prospectus, our corporate existence will
cease except for the purposes of winding up our affairs and liquidating pursuant to Section 278 of
the DGCL, in which case we will as promptly as practicable thereafter adopt a plan of distribution
in accordance with Section 281(b) of the DGCL. Section 278 provides that our existence will
continue for at least three years after its expiration for the purpose of prosecuting and defending
suits, whether civil, criminal or administrative, by or against us, and of enabling us gradually to
settle and close our business, to dispose of and convey our property, to discharge our liabilities
and to distribute to our stockholders on a pro rata basis any remaining assets, but not for the
purpose of continuing the business for which we were organized. Our existence will continue
automatically even beyond the three-year period for the purpose of completing the prosecution or
defense of suits begun prior to the expiration of the three-year period, until such time as any
judgments, orders or decrees resulting from such suits are fully executed.
Section 281 of the DGCL will require us to adopt a plan that will provide for our payment,
based on facts known to us at such time, of (i) all existing claims, (ii) all pending claims and
(iii) all claims that may be potentially brought against us within the subsequent 10 years.
Accordingly, we would be required to provide for any claims of creditors known to us at that time
or those we believe could be potentially brought against us within the subsequent 10 years prior to
distributing the funds held in the trust to our public stockholders. We have not assumed that we
will have to provide for payment on any claims that may potentially be brought against us within
the subsequent 10 years due to the speculative nature of such an assumption. We cannot assure you
that we will properly assess all claims that may be potentially brought against us. As such, our
stockholders could potentially be liable for any claims of creditors to the extent of distributions
received by them (but no more).
Our
sponsor and its permitted transferees will have no right to
participate in any liquidation distribution occurring upon our failure to complete a business
combination and subsequent liquidation, with respect to the initial shares and the sponsor shares. In addition, the
underwriters have agreed to waive their rights to the $2,925,000 of the underwriters’ deferred
commissions and discounts deposited in the trust account in the event we liquidate prior to the
completion of a business combination.
We will pay the costs of liquidation from our remaining assets outside of the trust account,
including amounts available for release. If such funds are insufficient, we may request from the
account agent up to $15,000 of interest earned on the trust account to pay for liquidation costs and
expenses.
Other stockholder rights
Our stockholders are entitled to receive
ratable dividends when, as and if declared by the
board of directors out of funds legally available. In the event of a liquidation, dissolution or
winding up of the company after a business combination, our stockholders are entitled, subject to
the rights of holders of preferred stock, if any, to share ratably in all assets remaining
available for distribution to them after payment of liabilities and after provision is made for
each class of stock, if any, having preference over the common stock. Our stockholders have no
preemptive or other subscription rights. There are no sinking fund or redemption provisions
applicable to the common stock, except that public stockholders have the right to convert their
shares of common stock to cash equal to their pro rata share of the amount then held in the trust account if they vote
against the business combination or the extension of time within which we must complete a business
combination and the business combination is approved and completed or the extension is approved.
Preferred Stock
Our amended and restated certificate of incorporation authorizes the issuance of 500
shares of blank check preferred stock, in one or more series, with such designation, rights and
preferences as may be determined from time to time by our board of directors. No shares of
preferred stock are being issued or registered in this offering. Accordingly, our board of
directors is empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the voting power or
other rights of the holders of common stock. Our amended and restated certificate of incorporation
prohibits us, prior to an initial business combination, from issuing preferred stock which
participates in any manner in the proceeds of the trust account, or which votes as a class with the
common stock on a business combination. We may issue some or all of the preferred stock to effect
an initial business combination. We may issue some or all of the preferred stock to effect a
business combination. In addition, the preferred stock could be utilized as a method of
discouraging, delaying or preventing a change in control of us. Although we do not currently
intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the
future.
Warrants
On
or prior to the date of this prospectus, there will be 425,200 warrants outstanding
representing the warrants included in the sponsor units issued
immediately prior to the closing of this offering.
Public stockholders’ warrants
Each warrant offered to the public in this offering entitles the registered holder to purchase
one share of our common stock at a price of $6.50 per share, subject to adjustment as discussed
below, at any time commencing on the later of:
•
the completion of a business combination; and
•
, 2009.
The
warrants will expire at 5:00 p.m., New York time, on , 2012; or
earlier upon redemption.
We may redeem the outstanding warrants at any time after the warrants become exercisable:
•
in whole and not in part,
•
at a price of $0.01 per warrant,
•
upon a minimum of 30 days’ prior written notice of redemption, and
•
if, and only if, the last sale price of our common stock equals or exceeds $14.25
per share, subject to adjustment as discussed below, for any 20 trading days within a
30-trading day period ending three trading days before we send the notice of
redemption.
In addition, we may not redeem the warrants unless the shares of common stock issuable upon
exercise of those warrants are covered by an effective registration statement from the date of
notice of redemption through the date fixed for the redemption.
If the foregoing conditions are satisfied and we call the warrants for redemption, each
warrant holder will then be entitled to exercise his or her warrants prior to the date scheduled for
redemption. The redemption provisions for our warrants have been established at a price that is
intended to provide warrant holders with the ability to exercise their warrants prior to redemption
at a premium to the initial exercise price. There can be no assurance, however,
that the price of our common stock will exceed either the redemption trigger price of $14.25
per share or the warrant exercise price of $6.50 per share after we call the warrants for
redemption.
If we call the warrants for redemption as described above, our management will have the option
to require all holders that wish to exercise warrants to do so on a cashless basis. In such event,
each holder would pay the exercise price by surrendering the warrants for that number of shares of
common stock equal to the quotient obtained by dividing (x) the product of the number of shares of
common stock issuable upon exercise of the warrants, multiplied by the difference between the
market value (as defined below) of the warrants and the exercise price by (y) the market value.
For this purpose, the “market value” means the average reported last sale price of the common stock
on the American Stock Exchange, or other national securities exchange on which our common stock may
be traded for the 10 consecutive trading days ending on the third trading day prior to the date on which the
notice of redemption is sent to the holders of warrants. For example, if the market value of the
common stock were $14.50 per share, a holder of 100 warrants would pay the exercise price by
surrendering the 100 warrants in exchange for a number of shares calculated as follows: (100
shares x ($14.50 — $6.50)) ÷ $14.50 = 55 shares. We will not issue fractional shares upon
exercise of warrants. If a warrant holder would be entitled to receive a fractional interest in a
share, we will round up to the nearest whole number of shares. If our management chooses to
require holders to exercise their warrants on a cashless basis, the number of shares of common
stock received by a holder upon exercise will be fewer than it would have been had such holder
exercised his warrant for cash.
The
warrants included in the units will begin separate trading ten business days (or as soon
as practicable thereafter) following the earlier to occur of (1) the expiration or termination of
the underwriters’ over-allotment option and (2) its exercise, subject in either case to our
having filed a Current Report on Form 8-K with the SEC containing an audited balance sheet
reflecting our receipt of the gross proceeds of this offering and having issued a press release
announcing when such separate trading will begin.
The
warrants will be issued in registered form under a warrant agreement
between Mellon Investor Services LLC, as
warrant agent, and us. You should review a copy of the warrant agreement, which has been filed as
an exhibit to the registration statement of which this prospectus is a part, for a complete
description of the terms and conditions applicable to the warrants.
The exercise price and number of shares of common stock issuable on exercise of the warrants
may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary
dividend or our recapitalization, reorganization, merger or consolidation. However, the warrants
will not be adjusted for issuances of common stock at a price below their respective exercise
prices.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the
expiration date at the offices of the warrant agent, with the exercise form on the reverse side of
the warrant certificate completed and executed as indicated, accompanied by full payment of the
exercise price, by certified or official bank check payable to us, for the number of warrants being
exercised. The warrant holders do not have the rights or privileges of holders of common stock and
any voting rights until they exercise their warrants and receive shares of common stock. After the
issuance of shares of common stock upon exercise of the warrants, each holder will be entitled to
one vote for each share held of record on all matters to be voted on by stockholders.
No warrants will be exercisable unless at the time of exercise a prospectus relating to common
stock issuable upon exercise of the warrants is current and the issuance of such common stock has
been registered or qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of the warrants. Under the terms of the warrant agreement, we have agreed
to use commercially reasonable efforts to maintain a current registration statement relating to common stock
issuable upon exercise of the warrants until the expiration of the warrants. The warrants will not
be settled for cash or other forms of consideration, and therefore if we are unable to
maintain the effectiveness of such registration statement until the expiration of the warrants, and
therefore are unable to deliver registered shares of common stock, the warrants will expire
worthless.
Such expiration would result in each holder purchasing units in this offering paying the full unit
purchase price solely for the shares of common stock included in the unit. In addition, the market
for the warrants may be limited if the prospectus relating to the common stock issuable upon the
exercise of the warrants is not current or if the issuance of such shares of common stock is not
qualified or exempt from qualification in the jurisdictions in which the holders of the warrants
reside. In no event will the registered holder of a warrant be entitled to receive a net cash
settlement, stock, or other consideration in lieu of physical settlement in shares of our common
stock.
No fractional shares of common stock will be issued upon exercise of the warrants. If, upon
exercise of the warrants, a holder would be entitled to receive a fractional interest in a share,
we will, upon exercise, round up to the nearest whole number the number of shares of common stock
to be issued to the warrant holder.
Sponsor
units
Our
sponsor has agreed to purchase 425,200 units at a price of $10.00
per unit for a total of $4,252,000 immediately prior to the closing
of this offering. The
proceeds from the sale of the sponsor units will be added to the proceeds from this
offering to be held in the trust account pending the completion of a business combination. If we
do not complete a business combination within 24 months (or up
to 30 months if our stockholders
approve an extension) after the date of this prospectus, then the
$4,252,000 purchase price of the
sponsor units will become part of the amount payable to our public stockholders upon the
liquidation of our trust account and the units warrants and shares
that comprise the sponsor units will be worthless.
The
sponsor units are identical to the units, and the component
shares of common stock and warrants, sold in this offering
except that:
•
the sponsor units are immediately separable into sponsor shares and sponsor warrants;
•
our sponsor and its permitted transferees will not be able to exercise conversion rights, as described below, with respect to the sponsor shares;
•
our sponsor and its permitted transferees will have no right to participate
in any liquidation distribution with respect
to the sponsor shares if we fail to complete a business combination;
•
the sponsor warrants will not be redeemable by us as long as they are held by our sponsor or its
permitted transferees, and
•
our sponsor has agreed, and any permitted transferees will agree, subject to certain
exceptions described below, not to transfer, assign or sell, directly or indirectly,
any of the sponsor units (including the common stock issuable upon
exercise of the sponsor warrants) until we complete a business combination.
Our
sponsor will be permitted to transfer all or any portion of the
sponsor units
(including the common stock issuable upon exercise of the sponsor warrants) to certain permitted
transferees described under “Principal Stockholders—Transfers of Common Stock and Warrants by our
Existing Stockholders.”
Our Transfer Agent and Warrant Agent
The
transfer agent for our securities and the warrant agent for our
warrants is Mellon Investor Services LLC.
Our amended and restated certificate of incorporation to be filed with the State of Delaware
contains provisions designed to provide certain rights and protections to our stockholders prior to
the completion of a business combination, including requirements that:
•
upon completion of this offering, a certain amount of the offering proceeds will be
placed into the trust account, which proceeds may not be disbursed from the trust
account except (i) in connection with or following a business combination or
thereafter, (ii) for the payment to public stockholders exercising their conversion rights, (iii)
for the payment of taxes in respect of the company and the trust account, (iv) to the extent of
$2,400,000 of interest earned that may be disbursed to us for working capital purposes
or (v) upon our dissolution and liquidation and to the extent of $15,000 of interest
earned to pay our expenses of liquidation and dissolution, if necessary;
we will submit any proposed business combination to our stockholders for approval
prior to completing a business combination, even if the nature of the transaction is
such as would not ordinarily require stockholder approval under applicable state laws;
•
we will submit any proposed extension of the time period within which we must
complete a business combination to our stockholders for approval prior to giving
effect to any such extension;
•
our public stockholders will have the right to convert their shares of common stock
into cash in accordance with the conversion rights described above (subject to the
limitation on conversion rights of stockholders or “groups” holding more than 10% of
the shares included in the units being sold in this offering);
•
we will complete a business combination only if it has a fair market value equal to
at least 200% of our net assets held in trust (net of taxes and interest earned of up to
$2,400,000 on the trust account permitted to be disbursed to us for working capital
purposes and excluding the amount of the underwriters’ deferred commissions and
discounts held in trust) at the time of the execution of the
definitive agreement for our initial business combination;
•
we may not complete any business combination, merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar transaction prior to the
completion of a transaction that satisfies the conditions of a business combination;
•
we will complete a business combination only if (i) the business combination is
approved by a majority of the aggregate votes cast by our public stockholders and
holders of the sponsor shares at a duly held
stockholders meeting, (ii) an amendment to our amended and restated certificate of
incorporation to provide for our perpetual existence is approved by holders of a
majority of our outstanding shares of common stock, and (iii) conversion rights have
been exercised with respect to less than 35% of the shares of common stock issued in
this offering, on a cumulative basis (including the shares as to which conversion
rights were exercised in connection with a stockholder vote, if any, to approve an
extension of the time period within which we must complete a business combination and
the stockholder vote to approve a business combination); and
•
if we do not complete a business combination within
24 months (or up to 30 months if
our stockholders approve an extension) after the date of this prospectus, our corporate
purposes and powers will immediately thereupon be limited to acts and activities
related to liquidating and winding up our affairs, including liquidation, and we will
not be able to engage in any other business activities.
Our amended and restated certificate of incorporation will provide that the above-referenced
requirements and restrictions may only be amended prior to completion of a business combination
with the affirmative vote of 95% of our outstanding shares of common stock. In light of the 95%
vote required for amendments to these provisions, we do not anticipate any changes to such
requirements and restrictions prior to the completion of a business combination, if any.
In addition, our amended and restated certificate of incorporation will also provide that the
doctrine of corporate opportunity, or any other analogous doctrine, will not apply against us or
any of our officers or directors or our sponsor in circumstances that would conflict with any
fiduciary duties or contractual obligations they may have currently or in the future or any other
fiduciary duties or contractual obligations they may have as of the date of this prospectus. See
“Risk Factors—Risks Related to Our Officers and Directors and Our Sponsor—In the course of their
other business activities, our officers and directors may become aware of investment and business
opportunities that may be appropriate for presentation to our company as well as the other entities
with which they are affiliated. Our officers and directors may have conflicts of interest in
determining to which entity a particular business opportunity should be presented.”
Listing
We
have applied to list our units, warrants and common stock on the American Stock Exchange
upon completion of this offering under the symbols “FIE.U,”“FIE.W” and “FIE,” respectively.
Although after giving effect to this offering we expect to meet on a pro forma basis the
minimum initial listing standards of the American Stock Exchange, we cannot assure you that our
securities will continue to be listed on the American Stock Exchange as we might not meet certain
continuing listing standards such as income from continuing operations.
Certain Anti-takeover Provisions of Delaware Law and our Amended and Restated Certificate of
Incorporation and By-Laws
Section 203 of the Delaware General Corporation Law
Pursuant to our amended and restated certificate of incorporation, we have opted out of the
provisions of Section 203 of the DGCL regulating corporate takeovers. This section prevents
certain Delaware corporations, under certain circumstances, from engaging in a “business
combination” with:
•
a stockholder who owns 15% or more of our outstanding voting stock, otherwise known
as an interested stockholder;
•
an affiliate of an interested stockholder; or
•
an associate of an interested stockholder, for three years following the date that
the stockholder became an interested stockholder.
A “business combination” includes a merger or sale of more than 10% of our assets. However,
the above provisions of Section 203 do not apply if:
•
our board of directors approves the transaction that made the stockholder an
“interested stockholder,” prior to the date of the transaction;
•
after the completion of the transaction that resulted in the stockholder becoming an
interested stockholder, that stockholder owned at least 85% of our voting stock
outstanding at the time the transaction commenced, other than statutorily excluded
shares of common stock; or
•
on or subsequent to the date of the transaction, the business combination is
approved by our board of directors and authorized at a meeting of our stockholders, and
not by written consent, by an affirmative vote of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Election and removal of directors
Our amended and restated certificate of incorporation provides that our board of directors
will be classified into three classes of directors of approximately equal size upon the completion
of this offering. Each class will generally serve for a term of three years with only one class of
directors being elected in each year. There is no cumulative voting with respect to the election
of directors, with the result that the holders of more than 50% of the shares of common stock
eligible to vote for the election of directors can elect all of the directors. As a result, in
most circumstances, a person can gain control of our board only by successfully engaging in a proxy
contest at two or more annual meetings.
Our
stockholders may only remove directors for cause and with the vote of
at least
662/3% of the
total voting power of our issued and outstanding capital stock entitled to vote in the election of
directors. Our board of directors may elect a director to fill a vacancy, including vacancies
created by the expansion of the board of directors. This system of electing and removing directors
may discourage a third party from making a tender offer or otherwise attempting to obtain control
of us, because it generally makes it more difficult for stockholders to replace a majority of our
directors.
Our amended and restated certificate of incorporation and amended and restated by-laws will
not provide for cumulative voting in the election of directors.
Stockholder action; special meeting of stockholders
Our amended and restated certificate of incorporation provides that our stockholders will not
be able to take any action by written consent subsequent to the completion of this offering, but
will only be able to take action at
duly called annual or special meetings of stockholders. Our
amended and restated bylaws further provide that special meetings of our stockholders may be only
called by our board of directors.
Advance notice requirements for stockholder proposals and director nominations
Our amended and restated bylaws provide that stockholders seeking to bring business before our
annual meeting of stockholders, or to nominate candidates for election as directors at our annual
meeting of stockholders, must provide timely notice of their intent in writing. To be timely, a
stockholder’s notice will need to be delivered to our principal executive offices not later than
the close of business on the 90th day nor earlier than the close of business on the 120th day prior
to the first anniversary of the preceding year’s annual meeting of stockholders. For
the first annual meeting of stockholders after the closing of this offering, a stockholder’s
notice shall be timely if delivered to our principal executive offices not later than the 90th day
prior to the scheduled date of the annual meeting of stockholders or the 10th day following the day
on which public announcement of the date of our annual meeting of stockholders is first made or
sent by us. Our amended and restated bylaws also specify certain requirements as to the form and
content of a stockholders’ meeting. These provisions may preclude our stockholders from bringing
matters before our annual meeting of stockholders or from making nominations for directors at our
annual meeting of stockholders.
Our amended and restated certificate of incorporation will provide that the affirmative vote
of the holders of at least 662/3% of the total voting power of our issued and outstanding capital
stock entitled to vote in the election of directors is required to amend the following provisions
of our certificate of incorporation:
•
the provisions relating to our classified board of directors;
•
the provisions relating to the number and election of directors, the appointment of
directors upon an increase in the number of directors or vacancy, and provisions
relating to the removal of directors;
•
the provisions requiring a 662/3% stockholder vote for the amendment of certain
provisions of our certificate of incorporation and for the adoption, amendment or
repeal of our by-laws; and
•
the provisions relating to the restrictions on stockholder actions by written
consent.
In addition, the board of directors will be permitted to alter our amended and restated
by-laws without obtaining stockholder approval.
Authorized but unissued shares
Our authorized but unissued shares of common stock and preferred stock are available for
future issuances without stockholder approval and could be utilized for a variety of corporate
purposes, including future offerings to raise additional capital, acquisitions and employee benefit
plans. The existence of authorized but unissued and unreserved common stock and preferred stock
could render more difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
Shares Eligible for Future Sale
Immediately
after this offering, we will have 11,675,200 shares of common stock outstanding,
or 13,362,700 shares if the underwriter’s over-allotment option is exercised in full. Of these
shares, the 9,000,000 shares included in the units being sold in this
offering, or 10,350,000
shares of common stock if the underwriter’s over-allotment option is exercised, will be freely
tradable without restriction or further registration under the Securities Act, except for any
shares of common stock purchased by one of our affiliates within the meaning of Rule 144 under the
Securities Act (“Rule 144”).
All
of the remaining 2,675,200 shares of common stock, or 3,012,700 shares if the
underwriters’ over-allotment option is exercised in full, are restricted securities under Rule 144,
in that they were issued in private transactions not involving a public offering. However, as
described below, the SEC has taken the position that these securities would not be eligible for
transfer under Rule 144. In addition, those shares of common stock will not be transferable,
except to certain permitted transferees, until 12 months after completion of a business combination
in the case of the initial shares, and not until completion of a
business combination in the case of the sponsor shares, and
will only be released prior to that date subject to certain limited exceptions, such as the
completion of a liquidation, merger, stock exchange, asset or stock acquisition, exchangeable share
transaction or other similar transaction that results in all of our stockholders having the right
to exchange their shares of common stock for cash, securities or other property subsequent to our
completing a business combination with a target business.
In
addition,
after this offering there will be 9,425,200 warrants outstanding, or
10,775,200 warrants if the underwriters’ over-allotment option is exercised, that
upon full exercise will result in the issuance of 9,425,200 shares of common stock to the holders
of such warrants, or 10,775,200 shares if the underwriters’
over-allotment option is exercised. Such warrants and the underlying shares of common stock are subject to
registration as described below under “—Registration Rights.”
Rule 144
The SEC adopted amendments to Rule 144 which became effective on February 15,2008 and will apply to securities acquired both before and after that date. Under these amendments,
a person who has beneficially owned restricted shares of our common stock or warrants for at least
six months would be entitled to sell their securities provided that (i) such person is not deemed
to have been one of our affiliates at the time of, or at any time during the three months
preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for
at least three months before the sale. Persons who have beneficially owned restricted shares for at
least six months but who are our affiliates at the time of, or any time during the three months
preceding, a sale, would be subject to additional restrictions. Such persons would be entitled to
sell within any three-month period only a number of securities that does not exceed the greater of
either of the following:
•
1% of the total number of securities of the same class then outstanding, which will
equal 116,752 shares immediately after this offering (or 134,363 shares if the
underwriters exercise the over-allotment option in full); or
•
the average weekly trading volume of such securities during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to the sale,
provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for
at least three months before the sale. Such sales both by affiliates and by non-affiliates must
also comply with the manner of sale, current public information and notice provisions of Rule 144.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Historically, the SEC staff has taken the position that Rule 144 is not available for the
resale of securities initially issued by companies that are, or previously were, blank check
companies, like us. The SEC has codified and expanded this position in the amendments discussed
above by prohibiting the use of Rule 144 for the resale of securities issued by any shell companies
(other than business combination related shell companies) or any issuer that has been at any time
previously a shell company.
The SEC has provided an exception to this prohibition, however, if the following conditions
are met:
•
the issuer of the securities that was formerly a shell company has ceased to be a
shell company;
•
the issuer of the securities is subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act;
•
the issuer of the securities has filed all Exchange Act reports and material
required to be filed, as applicable, during the preceding 12 months (or such shorter
period that the issuer was required to file such reports and materials), other than
Form 8-K reports; and
•
at least one year has elapsed from the time that the issuer filed current Form 10
type information with the SEC reflecting its status as an entity that is not a shell
company.
As a
result, it is possible that pursuant to Rule 144 our initial stockholders will be able to
sell the initial shares, sponsor units, sponsor shares and sponsor warrants (and underlying shares) freely without registration
one year after we have completed a business combination.
Registration rights
Pursuant to a registration rights agreement between us and our sponsor and our officers and
directors, the holders of the initial shares, the sponsor shares and the sponsor warrants (and the common stock
issuable upon exercise of such
warrants) will be entitled to demand registration rights,
“piggy-back” registration rights and short-form resale
registration rights commencing 12 months
after the completion of a business combination, in the case of the
initial shares,
and after the completion of a business combination in the case of
the sponsor shares and the sponsor
warrants. We will bear the expenses incurred in connection with the filing of any such
registration statements pursuant to such rights.
The following is a general discussion of the material U.S. federal income tax consequences of
the acquisition, ownership and disposition of our units, common stock and warrants, which we refer
to collectively as our securities, by beneficial owners of our securities that acquire our
securities pursuant to this offering and that hold such securities as capital assets (generally,
for investment). This discussion is not a complete analysis or listing of all of the possible tax
consequences of such transactions and does not address all tax considerations that might be
relevant to particular holders in light of their particular circumstances or to holders that are
subject to special tax rules. In addition, this discussion of the material U.S. federal income tax
consequences does not address the tax treatment of special classes of holders, such as:
•
financial institutions
•
regulated investment companies
•
real estate investment trusts
•
tax-exempt entities
•
insurance companies
•
persons holding our securities as part of a hedging, integrated or conversion
transaction, constructive sale or “straddle”
•
persons who acquired our securities through the exercise or cancellation of employee
stock options or otherwise as compensation for their services
•
U.S. expatriates or former long-term residents
•
persons subject to the alternative minimum tax
•
dealers or traders in securities or currencies
•
taxpayers who have elected mark-to-market accounting
•
U.S. holders (as defined below) whose functional currency is not the U.S. dollar.
This discussion does not address estate and gift tax consequences or tax consequences under
any state, local or non-U.S. tax laws.
As used in this section, the term “U.S. person” means: (1) an individual citizen or resident
of the U.S.; (2) a corporation (or other entity treated as a corporation for U.S. federal income
tax purposes) created or organized under the laws of the U.S. or any state thereof or the District
of Columbia; (3) an estate the income of which is subject to U.S. federal income taxation
regardless of its source; and (4) a trust if (A) a court within the U.S. is able to exercise
primary supervision over its administration and one or more U.S. persons have authority to control
all substantial decisions of the trust or (B) it has in effect a valid election to be treated as a
U.S. person for U.S. federal income tax purposes.
As used in this section, the term “U.S. holder” means a beneficial owner of our securities
that is a U.S. person.
If you are an individual, you may be treated as a resident alien of the U.S., as opposed to a
non-resident alien, for U.S. federal income tax purposes if you are present in the U.S. for at
least 31 days in a calendar year and for an aggregate of at least 183 days during a three-year
period ending in such calendar year. For purposes of this calculation, you would count all of the
days that you were present in the then-current year, one-third of the days that you were present in
the immediately preceding year and one-sixth of the days that you were present in the second
preceding year. Resident aliens are subject to U.S. federal income tax as if they were U.S.
citizens, and thus would constitute “U.S. holders” for purposes of the discussion below.
The term “non-U.S. holder” means a beneficial owner of our securities that is neither a U.S.
person nor a partnership (including for this purpose any entity that is treated as a partnership
for U.S. federal income tax purposes).
If a partnership is a beneficial owner of our securities, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the partnership. If you are
a partner of a partnership that acquires our securities, you should consult your tax advisor
regarding the tax consequences of acquiring, holding and disposing of our securities.
The following discussion is based upon the Internal Revenue Code of 1986, as amended (the
“Code”), U.S. judicial decisions, administrative pronouncements and existing and proposed Treasury
regulations, all as in effect as of the date hereof. All of the preceding authorities are subject
to change, possibly with retroactive effect, so as to result in U.S. federal income tax
consequences different from those discussed below. We have not requested, and will not request, a
ruling from the U.S. Internal Revenue Service (which we refer to as the IRS) with respect to any of
the U.S. federal income tax consequences described below, and as a result there can be no assurance
that the IRS will not disagree with or challenge any of the conclusions we have reached and
describe herein.
The following discussion is for general information only and is not intended to be, nor should
it be construed to be, legal or tax advice to any holder or prospective holder of our securities
and no opinion or representation with respect to the U.S. federal income tax consequences to any
such holder or prospective holder is made. Prospective purchasers are urged to consult their tax
advisors as to the particular consequences to them under U.S. federal, state and local, and
applicable non-U.S. tax laws of the acquisition, ownership and disposition of our securities.
General
There is no authority addressing the treatment, for U.S. federal income tax purposes, of
securities with terms substantially the same as the units, and, therefore, such treatment is not
entirely clear. Each unit should be treated for U.S. federal income tax purposes as an investment
unit consisting of one share of our common stock and a warrant to acquire one share of our common
stock. Each holder of a unit must allocate the purchase price paid by such holder for such unit
between the share of common stock and the warrant based on their respective relative fair market
values. A holder’s initial tax basis in the common stock and the warrant included in each unit
should equal the portion of the purchase price of the unit allocated thereto.
Our view of the characterization of the units described above and a holder’s purchase price
allocation are not, however, binding on the IRS or the courts. Because there are no authorities
that directly address instruments that are similar to the units, no assurance can be given that the
IRS or the courts will agree with the characterization described above or the discussion below.
Accordingly, prospective investors are urged to consult their own tax advisors regarding the U.S.
federal tax consequences of an investment in a unit (including alternative characterizations of a
unit) and with respect to any tax consequences arising under the laws of any state, local or
non-U.S. taxing jurisdiction. Unless otherwise stated, the following discussion is based on the
assumption that the characterization of the units and the allocation described above are accepted
for U.S. federal tax purposes.
Tax Consequences of an Investment in our Common Stock
Dividends and distributions
If we pay cash distributions to holders of shares of our common stock, such distributions
generally will constitute dividends for U.S. federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined under U.S. federal income tax
principles. Distributions in excess of current and accumulated earnings and profits will
constitute a return of capital that will be applied against and reduce (but not below zero) the
holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as gain
realized on the sale or other disposition of the common stock and will be treated as described
under “—Gain or loss on sale, exchange or other taxable disposition of common stock” below.
Any dividends we pay to a U.S. holder that is a taxable corporation generally will qualify for
the dividends-received deduction if the requisite holding period is satisfied.
With certain exceptions (including but not limited to dividends treated as investment income
for purposes of investment interest deduction limitations), and provided certain holding period
requirements are met, dividends received by a non-corporate U.S. holder generally will be treated
as qualified dividends that are subject to tax at the maximum tax rate accorded to capital gains
for taxable years beginning on or before December 31, 2010, after which the rate applicable to
dividends is scheduled to return to the tax rate generally applicable to ordinary income.
There is
substantial uncertainty, however, whether the conversion rights with respect to the common stock
that are described above may suspend the running of the applicable holding period for purposes of
the dividends-received deduction or the capital gains tax rate, as the case may be.
Dividends (including any constructive distributions treated as dividends on the common stock
or warrants as described below) paid to a non-U.S. holder that are not effectively connected with
the non-U.S. holder’s conduct of a trade or business in the U.S. generally will be subject to
withholding of U.S. federal income tax at the rate of 30% or such lower rate as may be specified by
an applicable income tax treaty. A non-U.S. holder who wishes to claim the benefit of an
applicable income tax treaty withholding rate and avoid backup withholding, as discussed
below, for dividends will be required to (a) complete IRS Form W-8BEN (or other applicable
form) and certify under penalties of perjury that such holder is not a U.S. person as defined under
the Code and is eligible for the benefits of the applicable income tax treaty or (b) if our common
stock is held through certain foreign intermediaries, satisfy the relevant certification
requirements of applicable Treasury Regulations. These forms must be periodically updated.
Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under an
applicable income tax treaty and the manner of claiming the benefits of such treaty (including,
without limitation, the need to obtain a U.S. taxpayer identification number).
Dividends that are effectively connected with a non-U.S. holder’s conduct of a trade or
business in the U.S. and, if provided in an applicable income tax treaty, that are attributable to
a permanent establishment or fixed base maintained by the non-U.S. holder in the U.S., are subject
to U.S. federal income tax on a net income basis at generally applicable U.S. federal income tax
rates and are not subject to the U.S. withholding tax, provided that the non-U.S. holder
establishes an exemption from such withholding by complying with certain certification and
disclosure requirements. Any effectively connected dividends or dividends attributable to a
permanent establishment received by a non-U.S. holder that is treated as a foreign corporation for
U.S. federal income tax purposes may be subject to an additional “branch profits tax” at a 30%
rate, or such lower rate as may be specified by an applicable income tax treaty.
A non-U.S. holder eligible for a reduced rate of U.S. withholding tax pursuant to an income
tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim
for refund with the IRS.
Gain or loss on sale, exchange or other taxable disposition of common stock
In general, a U.S. holder must treat any gain or loss recognized upon a sale, exchange, or
other taxable disposition of a share of our common stock (which would include a liquidation in the
event we do not complete a business combination within the required time period) as capital gain or
loss. Any such capital gain or loss will be long-term capital gain or loss if the U.S. holder’s
holding period for the disposed of common stock exceeds one year. There is substantial
uncertainty, however, whether the conversion rights with respect to the common stock that are
described above may suspend the running of the applicable holding period for this purpose. In
general, a U.S. holder will recognize gain or loss in an amount equal to the difference between the
sum of the amount of cash and the fair market value of any property received in such disposition
(or, if the common stock is held as part of a unit at the time of disposition of the unit, the
portion of the amount realized on such disposition that is allocated to the common stock based upon
the then fair market value of such common stock) and the U.S. holder’s adjusted tax basis in the
share of common stock. A U.S. holder’s adjusted tax basis in the common stock generally will equal
the U.S. holder’s acquisition cost (that is, as discussed above, the portion of the purchase price
of a unit allocated to that common stock) less any prior return of capital. Long-term capital gain
realized by a non-corporate U.S. holder generally will be subject to a maximum tax rate of 15
percent for tax years beginning on or before December 31, 2010, after which the maximum long-term
capital gains tax rate is scheduled to increase to 20 percent. The deduction of capital losses is
subject to certain limitations, and the deduction for losses realized upon a taxable disposition by
a U.S. holder of our common stock (whether or not held as part of a unit) may be disallowed if,
within a period beginning 30 days before the date of such disposition and ending 30 days after such
date, such U.S. holder has acquired (by purchase or by an exchange on which the entire amount of
gain or loss was recognized by law), or has entered into a contract or option so to acquire,
substantially identical stock or securities.
Any gain realized by a non-U.S. holder upon the taxable disposition of our common stock
generally will not be subject to U.S. federal income tax unless: (i) the gain is effectively
connected with a trade or business of the non-U.S. holder in the U.S. (and, if required by an
applicable income tax treaty, is attributable to a U.S. permanent establishment or fixed base of
the non-U.S. holder), (ii) the non-U.S. holder is an individual who is present in the U.S. for 183
days or more in the taxable year of that disposition, and certain other conditions are met, or
(iii) we are
or have been a “U.S. real property holding corporation” for U.S. federal income tax
purposes at any time during the shorter of the five-year period ending on the date of disposition
or the period that the non-U.S. holder held the common stock, and, in the case where the shares of
our common stock are regularly traded on an established securities market, the non-U.S. holder
owns, or is treated as owning, more than five percent of our common stock at any time within the
shorter of the five-year period ending on the date of disposition or such non-U.S. holder’s holding
period for the common stock disposed of. Net gain realized by a non-U.S. holder described in
clause (i) of the preceding sentence will be subject to tax at generally applicable U.S. federal
income tax rates. Any gains of a foreign corporation non-U.S. holder described in clause (i) of
the preceding sentence may also be subject to an additional “branch profits tax” at a 30% rate, or
such lower rate as may be specified by an applicable income tax treaty. Gain realized by an
individual non-U.S. holder described in clause (ii) of such sentence will be subject to a flat 30
percent tax, which may be offset by U.S. source capital losses, even though the individual is not
considered a resident of the U.S.
We currently are not a “U.S. real property holding corporation.” However, we cannot yet
determine whether we will be a “U.S. real property holding corporation” for U.S. federal income tax
purposes, and will be unable to do so until we effect a business combination. A corporation is a
“U.S. real property holding corporation” if the fair market value of its U.S. real property
interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in a trade or business.
Conversion of common stock
In the event that a holder converts common stock into a right to receive cash pursuant to the
exercise of a conversion right, the transaction will be treated for U.S. federal income tax
purposes as a redemption of the common stock. If the conversion qualifies as a sale of common
stock by a holder under Section 302 of the Code, the holder will be treated as described under
"—Gain or loss on sale, exchange or other taxable disposition of common stock” above. If the
conversion does not qualify as a sale of common stock under Section 302 of the Code, a holder will
be treated as receiving a corporate distribution with the tax consequences described under
"—Dividends and distributions” above. Whether the conversion qualifies for sale treatment will
depend largely on the total number of shares of our common stock treated as held by the holder
(including any common stock constructively owned by the holder as a result of, among other things,
owning warrants). The conversion of common stock generally will be treated as a sale or exchange
of the common stock (rather than as a corporate distribution) if the receipt of cash upon the
conversion (1) is “substantially disproportionate” with respect to the holder, (2) results in a
“complete termination” of the holder’s interest in us or (3) is “not essentially equivalent to a
dividend” with respect to the holder. These tests are explained more fully below.
In determining whether any of the foregoing tests are satisfied, a holder takes into account
not only stock actually owned by the holder, but also shares of our stock that are constructively
owned by it. A holder may constructively own, in addition to stock owned directly, stock owned by
certain related individuals and entities in which the holder has an interest or that have an
interest in such holder, as well as any stock the holder has a right to acquire by exercise of an
option, which would generally include common stock which could be acquired pursuant to the exercise
of the warrants. In order to meet the substantially disproportionate test, the percentage of our
outstanding stock actually and constructively owned by the holder immediately following the
conversion of common stock must, among other requirements, be less than 80 percent of the
percentage of our outstanding stock actually and constructively owned by the holder immediately
before the conversion. There will be a complete termination of a holder’s interest if either (1)
all of the shares of our stock actually and constructively owned by the holder are converted or (2)
all of the shares of our stock actually owned by the holder are converted and the holder is
eligible to waive, and effectively waives in accordance with specific rules, the attribution of
stock owned by certain family members and the holder does not constructively own any other stock.
The conversion of the common stock will be “not essentially equivalent to a dividend” if a holder’s
conversion results in a “meaningful reduction” of the holder’s proportionate interest in us.
Whether the conversion will result in a meaningful reduction in a holder’s proportionate interest
will depend on the particular facts and circumstances. However, the IRS has indicated in a
published ruling that even a small reduction in the proportionate interest of a small minority
stockholder in a publicly held corporation who exercises no control over corporate affairs may
constitute such a “meaningful reduction.” A holder should consult with its own tax advisors in
order to determine the appropriate tax treatment to it of exercising a conversion right.
If none of the foregoing tests is satisfied, then the conversion will be treated as a
corporate distribution and the tax effects will be as described above under “—Dividends and
distributions.” After the application of those
rules, any remaining tax basis of the holder in the
converted common stock will be added to the holder’s adjusted tax basis in his remaining common
stock, or, if it has none, to the holder’s adjusted tax basis in its warrants or possibly to the
adjusted basis of stock held by related persons whose stock is constructively owned by the holder.
Persons who actually or constructively own 5% or more of our stock (by vote or value) may be
subject to special reporting requirements with respect to a conversion of common stock, and such
persons should consult their own tax advisors in that regard.
Tax Consequences of an Investment in the Warrants
Exercise of a warrant
Except as discussed below with respect to the tax consequences of a cashless exercise of a
warrant, a holder will not be required to recognize gain or loss for U.S. federal income tax
purposes upon exercise of a warrant if the holder pays the exercise price in cash. The holder’s
tax basis in the share of our common stock received upon exercise of a warrant and payment of the
exercise price in cash will be an amount equal to the sum of the holder’s initial investment in the
warrant (i.e., the portion of the holder’s purchase price for a unit that is allocated to the
warrant, as described above under “—General”) and the cash exercise price (i.e., initially,
$6.50 per share of our common stock, subject to adjustment). The holder’s holding period for the
share of our common stock received upon exercise of a warrant and payment of the exercise price in
cash should begin on the date of exercise (or possibly on the date following the date of exercise)
of the warrant and will not include the period during which the holder held the warrant.
The U.S. federal income tax consequences of a cashless exercise of a warrant are not clear
under current law. It is possible that a cashless exercise of a warrant is a tax-free transaction,
either because the exercise is not a realization event for U.S. federal income tax purposes, or
because the exercise is treated as a recapitalization that qualifies as a reorganization for U.S.
federal income tax purposes. Although not free from doubt, if a cashless exercise of a warrant is
a tax-free transaction, a U.S. holder’s basis in the common stock received as a result of the
cashless exercise of a warrant should be equal to the holder’s basis in the warrant or warrants
exchanged, or deemed exchanged, for shares of our common stock. If a cashless exercise of a
warrant is a tax-free transaction because it is not a gain realization event for U.S. federal
income tax purposes, a U.S. holder’s holding period in the common stock received as a result of the
cashless exercise of a warrant should begin on the date of exercise (or possibly on the date
following the date of exercise) of the warrant and will not include the period during which the
holder held the warrant. If a cashless exercise of a warrant is a tax-free transaction because it
is treated as a recapitalization that qualifies as a reorganization for U.S. federal income tax
purposes, a U.S. holder’s holding period in the common stock received as a result of the cashless
exercise of a warrant should include the U.S. holder’s holding period of the warrant.
It is also possible that a cashless exercise of a warrant could be treated, for U.S. federal
income tax purposes, as a taxable exchange in which a U.S. holder would recognize gain or loss. In
such event, although not free from doubt, a U.S. holder should recognize capital gain or loss in an
amount equal to the difference between the total exercise price deemed paid and the U.S. holder’s
tax basis in the warrants deemed surrendered. In this case, a U.S. holder’s tax basis in the
common stock received would equal the sum of the total exercise price deemed paid and the U.S.
holder’s tax basis in the warrants exercised. A U.S. holder’s holding period for the common stock
would commence on the date following the date of exercise (or possibly on the date of exercise) of
the warrant.
The U.S. federal income tax treatment of a non-U.S. holder’s exercise of a warrant treated as
such a taxable exchange will generally correspond to the federal income tax treatment of a non-U.S.
holder’s gains recognized on a taxable disposition of our common stock, as described under “—Gain
or loss on sale, exchange or other taxable disposition of common stock” above. Each non-U.S.
holder should consult its own tax advisors as to whether the warrants will be treated as “U.S. real
property interests” and the tax consequences resulting from such treatment.
Due to the absence of any direct authority addressing the treatment, for U.S. federal income
tax purposes, of a cashless exercise of a warrant, there can be no assurance which, if any, of the
alternative tax consequences described above would be accepted or approved by the IRS or a court.
Accordingly, holders should consult their tax advisors regarding the potential tax consequences of
a cashless exercise of a warrant.
Sale, exchange, redemption, or expiration of a warrant
Upon a sale, exchange (other than by exercise), redemption, expiration, or other taxable
disposition of a warrant, a U.S. holder will be required to recognize taxable gain or loss in an
amount equal to the difference between (i) the amount, if any, realized upon such disposition (or,
if the warrant is held as part of a unit at the time of the disposition of the unit, the portion of
the amount realized on such disposition that is allocated to the warrant based on the then fair
market value of the warrant) and (ii) the U.S. holder’s tax basis in the warrant (that is, as
discussed above, the portion of the U.S. holder’s purchase price for a unit that is allocated to
the warrant, as described above under “—General”). Such gain or loss will generally be treated as
long-term capital gain or loss if the warrant was held by the U.S. holder for more than one year at
the time of such disposition. As discussed above, the deductibility of capital losses is subject
to certain limitations, and the deduction for losses upon a taxable disposition by a U.S. holder of
a warrant (whether or not held as part of a unit) may be disallowed if, within a period beginning
30 days before the date of such disposition and ending 30 days after such date, such U.S. holder
has acquired (by purchase or by an exchange on which the entire amount of gain or loss was
recognized by law), or has entered into a contract or option so to acquire, substantially identical
stock or securities.
The federal income tax treatment of a non-U.S. holder’s gains recognized on a sale, exchange,
redemption or expiration of a warrant will generally correspond to the federal income tax treatment
of a non-U.S. holder’s gains recognized on a taxable disposition of our common stock, as described
under “¯Gain or loss on sale, exchange or other taxable disposition of common stock” above.
Possible Constructive Dividends
If an adjustment is made to the number of shares of common stock for which a warrant may be
exercised or to the exercise price of a warrant, the adjustment may, under certain circumstances,
result in a constructive distribution that could be taxable as a dividend to the holder of the
warrant. Conversely, the absence of an appropriate anti-dilution adjustment may result in a
constructive distribution that could be taxable as a dividend to the holders of shares of our
common stock.
Information Reporting and Backup Withholding
Under U.S. Treasury Regulations, we must report annually to the IRS and to each holder the
amount of dividends paid to such holder on our common stock and the tax withheld with respect to
those dividends, regardless of whether withholding was required. In the case of a non-U.S. holder,
copies of the information returns reporting those dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder is a resident under
the provisions of an applicable income tax treaty or agreement.
The gross amount of dividends paid to a holder that fails to provide the appropriate
certification in accordance with applicable U.S. Treasury Regulations generally will be reduced by
backup withholding at the applicable rate (currently 28%).
A non-U.S. holder is required to certify its foreign status under penalties of perjury or
otherwise establish an exemption in order to avoid information reporting and backup withholding on
disposition proceeds where the transaction is effected by or through a U.S. office of a broker.
U.S. information reporting and backup withholding generally will not apply to a payment of proceeds
from a disposition of common stock where the transaction is effected outside the U.S. through a
foreign office of a foreign broker. However, information reporting requirements, but not backup
withholding, generally will apply to such a payment if the broker is (i) a U.S. person, (ii) a
foreign person that derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the U.S., (iii) a controlled foreign corporation as defined in the Code or
(iv) a foreign partnership with certain U.S. connections, unless the broker has documentary
evidence in its records that the holder is a non-U.S. holder and certain conditions are met or the
holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Amounts that we withhold under the backup
withholding rules may be refunded or credited against the holder’s U.S. federal income tax
liability, if any, provided that certain required information is furnished to the IRS in a timely
manner. Holders should consult their own tax advisors regarding application of backup withholding
in their particular circumstances and the availability of and procedure for obtaining an exemption
from backup withholding under current U.S. Treasury Regulations.
We
intend to offer our units through the underwriters. Subject to the terms and conditions in
an underwriting agreement between us and Maxim Group LLC, as
representative of the several underwriters, we have agreed to sell to the
underwriters, and the underwriters have severally agreed to purchase from us the number of units listed opposite
their respective names below.
Underwriter
Number of Units
Maxim Group LLC
EarlyBirdCapital, Inc.
Griffin
Financial Group LLC
Total
9,000,000
The
underwriters have agreed to purchase all of the units sold under the underwriting agreement
if any of these units are purchased. If an underwriter defaults, the underwriting agreement
provides that the purchase commitments of the non-defaulting
underwriters may be increased or the
underwriting agreement may be terminated. Griffin Financial has been
named as one of the underwriters in this offering of our units,
however, it (i) will not be allocated any units and (ii) will not be
permitted to sell, for its own account or for the account of others,
any units.
We
have agreed to indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the
underwriters may be required to make in
respect of those liabilities.
The
underwriters are offering the units, subject to prior sale, when, as and if issued to and
accepted by them, subject to approval of legal matters by their counsel, including the validity of the
units, and other conditions contained in the underwriting agreement, such as the receipt by the
underwriters of officer’s certificates and legal opinions. The
underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The
underwriters have advised us that they propose initially to offer the units to the public at
the public offering price on the cover page of this prospectus and to dealers at that price less a
concession not in excess of $[•] per unit. The underwriters may allow, and the dealers may reallow,
a discount not in excess of $[•] per unit to other dealers. After the public offering, the public
offering price, concession and discount may be changed.
No change in those terms will change the amount of proceeds to be
received by us as set forth on the cover of this prospectus.
The following table shows the public
offering price, underwriting discount and proceeds before expenses to us. The information assumes
either no exercise or full exercise by the underwriters of their over-allotment option.
Without
With
Per Unit
Option
Option
Public offering price
$
10.00
$
90,000,000
$
103,500,000
Underwriting
discounts and commissions (1)
$
0.65
$
5,850,000
$
6,727,500
Corporate
finance fee (2)
$
0.05
$
450,000
$
517,500
Proceeds,
before expenses (1) (3)
$
9.30
$
83,700,000
$
96,255,000
(1)
Includes the underwriters’ deferred discounts and commissions of 3.25% of the gross proceeds of the units being offered
to the public. The underwriters have agreed to defer $2,925,000, or
$3,363,750 if the underwriters’ over-allotment option is exercised in full, of the underwriting discounts and commissions,
equal to 3.25% of the gross proceeds of the units being offered to the public, until the
completion of a business combination. Upon the completion of a business combination, deferred
underwriting discounts and commissions, reduced ratably by the exercise of stockholder
conversion rights, shall be released to the underwriters out of the gross proceeds of this
offering held in a trust account maintained by Mellon Bank, N.A.,
acting as account agent. The underwriters will not be entitled to any interest accrued on
the deferred underwriting discounts and commissions.
(2)
As indicated in the table above, we have agreed to pay a
corporate finance fee of 0.5% of the gross proceeds of the offering
to the representative.
(3)
Additional expenses attributable to this offering are
estimated to be approximately $707,780. These expenses include but
are not limited to SEC and FINRA filing fees, American Stock Exchange
listing fees, accounting and legal fess and expenses and printing and
engraving expenses.
If we are unable to enter into a letter of intent or a definitive agreement regarding a prospective
business combination within 12 months after the completion of this offering but are successful in
completing a business combination within the time periods described
in this prospectus, $443,182 (or $509,659 if the underwriters
exercise their overallotment option in full) of the underwriters’ deferred underwriting commission and
discount will be paid to the underwriters in 44,318 shares (or 50,966
shares if the underwriters exercise their overallotment option in
full) of our common stock in lieu of cash.
Upon
the completion of a business combination, the underwriters will be entitled to receive the
proceeds attributable to deferred underwriting discounts and commissions held in the trust account,
subject to a reduction of $0.325 for each share the holder of which elects to vote against the
business combination and exercise its conversion rights described in the section of this prospectus
entitled “Proposed Business—Effecting Our Business
Combination”. If we are unable to complete a
business combination and the account agent is forced to liquidate the trust
account, the underwriters have
agreed that the proceeds attributable to deferred underwriting discounts and commissions will be
distributed on a pro rata basis among the public stockholders along with any interest accrued
thereon.
Griffin
Financial Group, LLC, an entity affiliated with one of our directors,
is a co-manager for this offering and will be entitled to receive a portion of the
underwriters’ discounts and commissions. Griffin Financial will receive such payment only upon
completion of our initial business combination, and such payment will be made solely out of the
underwriters’ deferred commission and discount that will be deposited in the trust account upon
completion of the offering. Like each underwriter, Griffin Financial’s proportionate share of the
underwriters’ commission and discount is subject to reduction as a result of public stockholders
electing to convert any of their shares into a pro rata share of the amount then held in the trust
account. In addition, Griffin Financial will be required to accept payment of a portion of its
underwriting commission and discount in shares of our common stock in the event that we fail to
enter into a letter of intent or definitive agreement in connection with a business combination on
or before 12 months from the date of this prospectus.
Over-Allotment Option
We
have granted the underwriters an option exercisable for 45 days from the date of this
prospectus to purchase a total of up to 1,350,000 additional units at the public offering price
less the underwriting discount. The underwriters may exercise this option solely to cover any
over-allotments, if any, made in connection with this offering. To
the extent the underwriters
exercise this option in whole or in part, each underwriter will be obligated, subject to conditions contained in
the underwriting agreement, to purchase a number of additional units
approximately proportionate to
that underwriter’s initial commitment amount reflected in the above table.
If
the underwriters sell more units than could be covered by the over-allotment option, a
naked short position would be created that can only be closed out by buying units in the open
market. A naked short position is more likely to be created if the
underwriters are concerned that
there could be downward pressure on the price of the units in the open market after pricing that
could adversely affect investors who purchase in the offering.
No Sales of Similar Securities
Subject to certain limited exceptions (such as transfers to relatives and trusts for estate
planning purposes, while remaining in escrow), the initial shares will not be
transferable until 12 months after the completion of our initial
business combination and the sponsor shares and sponsor warrants
cannot be transferred until we have completed our initial business
combination, at which time
such securities will be released from escrow. However, if we engage in a transaction after the
completion of the initial business combination that results in all of the stockholders of the
combined entity having the right to exchange their shares of common stock for cash, securities or
other property, then any transfer restrictions on the initial shares
and the sponsor shares and sponsor warrants will no longer apply.
We have also agreed that, prior to the completion of a business combination, we will not issue
any shares of common stock, warrants or any other securities convertible into common stock or that
vote as a class with our common stock in respect of any proposed extension or business combination,
except for securities issued in connection with a financing in which the net proceeds received by
us will be used solely to fund the purchase price in connection with the completion of a business
combination.
Offering Price Determination
Before this offering, there was no public market for our securities. The public offering
price of the units, the terms of the warrants, the aggregate proceeds we are raising and the amount
to be placed in the trust account were the results of a negotiation
between the representative and us
and will not necessarily reflect the market price of our securities following the offering. The
principal factors that were considered in determining the initial public offering price were:
•
the information presented in this prospectus and otherwise available to the underwriters;
•
the history of and prospects of companies whose principal business is the acquisition
of other companies and the size and terms of prior offerings by those companies;
•
our ability to acquire a controlling interest in a company in the financial services
industry with assets of between $500 million and $3 billion;
•
the ability of our management and their experience in identifying operating companies;
•
our prospects for acquiring an operating business at attractive values;
•
the recent market prices of, and the demand for, publicly traded common stock of
generally comparable companies;
•
general conditions of the securities markets at the time of the offering; and
•
our judgment that, based on the foregoing factors and our experience that an offering
of this size, together with the proceeds of the sponsor units, would provide us with
sufficient funds to consummate a business combination with a company in the financial
services industry with assets of between $500 million and $3 billion.
The factors described above were not assigned any particular weight. However, although these
factors, together with market valuations and the financial performance of other publicly traded
companies in our industry, were considered as a totality in our negotiation with the underwriters,
the determination of our per-unit offering price and aggregate proceeds was more
arbitrary than would typically be the case if we were an operating company. We cannot assure you
that the prices at which the units will sell in the public market after this offering will not be
lower than the initial public offering price or that an active trading market in our common stock,
units or warrants will develop and continue after this offering.
Stabilization, Short Positions and Penalty Bids
The
underwriters may engage in over-allotment, stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of
1934.
•
Over-allotment involves syndicate sales in excess of the offering size, which creates a
syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum.
•
Syndicate covering transactions involve purchases of the units in the open market after
the distribution has been completed in order to cover syndicate short positions.
•
Penalty bids permit the representative to reclaim a selling concession from a syndicate
member when the units originally sold by the syndicate member is purchased in a syndicate
covering transaction to cover syndicate short positions.
Stabilizing transactions, syndicate covering transactions and penalty bids may cause the price
of our units to be higher than it would otherwise be in the absence of these transactions. These
transactions may be effected on the American Stock Exchange or otherwise and, if commenced, may be
discontinued at any time. Neither we nor the underwriters make any
representations or predictions as to the effect that the transactions
described above may have on the price of our units.
American Stock Exchange Listing
We have applied to have the units listed on the American Stock Exchange
under the symbol “FIE.U” and, once the common stock and warrants begin separate trading, to have our common stock and
warrants listed on the American Stock Exchange under the symbols “FIE” and “FIE.W”
respectively.
Discretionary Units
The underwriters do not expect to confirm sales of our units to any
accounts over which they have discretionary authority.
Electronic
Offer, Sale and Distribution of Shares
A
prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters or selling group
members, if any, participating in this offering and one or more of
the underwriters participating in this offering may distribute
prospectuses electronically. The representative may agree to allocate
a number of shares to underwriters and selling group members for sale
to their online brokerage account holders. Internet distributions
will be allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations. Other than the prospectus in electronic format, the
information on these websites is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not
been approved or endorsed by us or any underwriter in its capacity as
underwiter, and should not be relied upon by investors.
Other Relationships
Certain of
the underwriters and their affiliates may provide various investment
banking, commercial banking and other financial services for our
affiliates for which they received, and may in the future receive,
customary fees.
Sales in Other Jurisdictions
The underwriters may arrange to sell the units in certain jurisdictions outside the United
States through affiliates, either directly where they are permitted to do so or through affiliates.
Notice to Prospective Investors in the United Kingdom
This
document and any other material in relation to the units described
herein is only being distributed to, and is only directed at, persons
in the United Kingdom that are qualified investors within the meaning
of Article 2(1)(e) of the Prospectus Directive (“qualified
investors”), or fewer than 100 natural or legal persons in the
United Kingdom other than qualified investors which, in both cases,
are also (i) investment professionals falling within Article I9(5) of
the Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005 (the “Order”); or (ii) high net worth entities
or other persons falling within Article 49(2)(a) to (d) of the Order
(all such persons together being referred to as “relevant persons”). Any person in the United Kingdom that
is not a relevant person should not act or rely on this document or
any of its contents.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area which has implemented the
Prospectus Directive (each, a Relevant Member State), each purchaser
of the units acknowledges that with effect from and including the
date on which the Prospectus Directive is implemented in that Relevant Member State (the
Relevant Implementation Date), no offer of units may be made to the
public in that Relevant Member State prior to the publication of a prospectus in relation
to the units which has been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in accordance with the Prospectus
Directive, except that it may, with effect from and including the Relevant Implementation
Date, make an offer of units to the public in that Relevant Member State at any time:
•
to legal entities which are authorized or regulated to operate in the
financial markets or, if not so authorized or regulated, whose corporate
purpose is solely to invest in securities;
•
to any legal entity which has two or more of (1) an average of at
least 250 employees during the last financial year; (2) a total balance
sheet of more than €43,000,000 and (3) an annual net turnover of more
than €50,000,000, as shown in its last annual or consolidated accounts; or
•
in any other circumstances which do not require the publication by the
issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of units to the public” in
relation to any units in any Relevant Member State means the communication in any form and by any
means of sufficient information on the terms of the offer and the units to be offered so as to
enable an investor to decide to purchase or subscribe the units, as the same may be varied in that
Member State by any measure implementing the Prospectus Directive in that Member State and the
expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
Other Terms
Although
we are not under any contractual obligation to engage any of the
underwriters to provide any
services for us after this offering, and have no present intent to do
so, the underwriters may,
among other things, introduce us to potential target businesses or assist us in raising additional
capital, as needs may arise in the future. If any of the underwriters provides services to us after this
offering, we may pay such underwriter fair and reasonable fees that would be determined at that
time in an arm’s length negotiation; provided that no agreement will be entered into with the
underwriter and no fees for such services will be paid to the underwriter prior to the date which
is 90 days after the effective date of the registration statement, unless the FINRA determines that
such payment would not be deemed underwriter’s compensation in connection with this offering.
Stevens & Lee, New York, New York and Reading, Pennsylvania is acting as counsel in connection
with the registration of our securities under the Securities Act of 1933, as amended, and as such,
will pass upon the validity of the securities offered in this prospectus. One of our directors,
Joseph M. Harenza, is the Non-Executive Chairman of Stevens & Lee and Chairman of Griffin Financial. Each of Mr. Harenza and Stevens & Lee, through a subsidiary of an affiliate, hold minority non-voting interests of, and are passive investors in, our sponsor.
See “Management” and “Certain
Relationships and Related Transactions.” In connection with this
offering, Ellenoff, Grossman & Schole LLP is acting as counsel to the underwriters.
EXPERTS
The financial statements of Sidhu Special Purpose Capital Corp. as of December 31, 2007 and
for the period from October 10, 2007 (date of inception) to December 31, 2007 included in this
prospectus have been so included in reliance on the report of Beard Miller Company LLP, an independent registered public
accounting firm, appearing elsewhere herein given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with
respect to the securities we are offering by this prospectus. This prospectus does not contain all
of the information included in the registration statement. For further information about us and
our securities, you should refer to the registration statement and the exhibits and schedules filed
with the registration statement. Whenever we make reference in this prospectus to any of our
contracts, agreements or other documents, the references are materially complete but may not
include a description of all aspects of such contracts, agreements or other documents, and you
should refer to the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document.
Upon completion of this offering, we will be subject to the information requirements of the
Exchange Act and will file annual, quarterly and current event reports, proxy statements and other
information with the SEC. You can read our SEC filings, including the registration statement, over
the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file
with the SEC at its public reference facility at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference facilities.
139
INDEX TO FINANCIAL STATEMENTS
Page
Audited Financial Statements of Sidhu Special Purpose Capital Corp.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholder of
Sidhu Special Purpose Capital Corp.
We have audited the accompanying
balance sheet of Sidhu Special Purpose Capital Corp. (a corporation in the development stage)
(the “Company”) as of December 31, 2007, and the related statements of operations, stockholder’s
equity and cash flows for the period from October 10, 2007 (date of inception) to
December 31, 2007. The Company’s management is responsible for these financial statements.
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial
statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2007, and the results of its operations
and its cash flows for the period from October 10, 2007 (date of inception) to
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial
statements have been prepared assuming the Company will continue as a going concern.
As discussed in Note A to the financial statements, the Company has no present revenue,
its business plan is dependent upon completion of adequate financing through a Proposed
Public Offering and it has an accumulated deficit. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans
concerning these matters are discussed in Note A to the financial statements. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Current
Assets, Stock Subscription Demand Note Receivable
—
25,000
Other
Assets, Deferred Offering Costs
266,455
19,928
Total Assets
$
266,905
$
44,928
Liabilities
Current Liabilities
Accrued
Expenses — Affiliate
$
4,072
$
4,072
Accrued
Offering Costs — Affiliate
241,905
19,928
Total Liabilities
245,978
24,000
Stockholder’s Equity
Preferred Stock, $0.0001 par value, 500
shares authorized none issued
—
—
Common
Stock, $0.0001 par value, 24,199,500 shares
authorized, 2,587,500 shares issued and
outstanding
259
259
Additional Paid-In Capital
24,741
24,741
Deficit Accumulated During Developmental Stage
(4,072
)
(4,072
)
Total
Stockholder’s Equity
20,928
20,928
Total
Liabilities & Stockholder’s Equity
$
266,905
$
44,928
All
common share and per common share amounts have been adjusted
retroactively for the 28,750:1 common stock split effected on
February 27, 2008 and for the 0.6:1 reverse common stock
split effected on July 11, 2008.
The accompanying notes are an integral part of this statement.
Weighted Average number of common shares
outstanding, basic and diluted
2,587,500
2,587,500
2,587,500
Net Loss
Per Common Share (basic and diluted)
$
0.00
$
0.00
$
0.00
All
common share and per common share amounts have been adjusted
retroactively for the 28,750:1 common stock split effected on
February 27, 2008 and for the 0.6:1 reverse common stock
split effected on July 11, 2008.
The accompanying notes are an integral part of this statement.
All
common share and per common share amounts have been adjusted
retroactively for the 28,750:1 common stock split effected on
February 27, 2008 and for the 0.6:1 reverse common stock
split effected on July 11, 2008.
The accompanying notes are an integral part of this statement.
Adjustments to reconcile net
loss to net cash used in
operating activities:
Increase in
accrued expenses
—
4,072
4,072
Net Cash Used in Operating Activities
—
—
$
—
Cash
Flows Used in Investing Activities:
—
—
$
—
Cash
Flows From Financing Activities:
Proceeds
from Issuance of Common Stock
25,000
—
25,000
Payment of
Deferred Offering Costs
(24,550
)
(24,550
)
Net Cash
Provided by Financing Activities
450
—
$
450
Net
Increase in Cash:
—
—
$
—
Cash at Beginning of Period
450
—
$
450
Cash at End of Period
$
450
$
—
$
450
Supplemental
disclosure of non-cash financing activity:
Note Payable (Financing of Issuance of Stock for Affiliate)
$
—
$
(25,000
)
—
Accrual of
Deferred Offering Expenses - Affiliate
$
221,977
$
19,928
$
241,905
All
common share and per common share amounts have been adjusted
retroactively for the 28,750:1 common stock split effected on
February 27, 2008 and for the 0.6:1 reverse common stock
split effected on July 11, 2008.
The accompanying notes are an integral part of this statement.
NOTE A — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Sidhu Special Purpose Capital Corp. (a corporation in the development stage) (the “Company”) was
formed under the laws of the State of Delaware on October 10, 2007. The Company was formed to
acquire an operating business through a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or other similar business combination. The Company has neither engaged in
any operations nor generated revenues to date. The Company is considered to be in the development
stage as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and
Reporting By Development Stage Enterprises,” and is subject to the risks associated with activities
of development stage companies. The Company is substantially owned by WNH Holdings, LLC, a
Pennsylvania limited liability company. WNH Holdings, LLC is the sole equity holder of the Company.
At
June 30, 2008, the Company had not commenced any operations. All activity through December31, 2007 relates to the Company’s formation and its proposed initial public offering described
below. The Company has selected December 31 as its fiscal year end.
The Company’s ability to commence operations is contingent upon obtaining adequate financial
resources through a proposed initial public offering (“Proposed Offering”) which is discussed in
Note C. The Company’s management has broad discretion with respect to the specific application of
the net proceeds of the Proposed Offering, although substantially all of the net proceeds are
intended to be generally applied toward consummating a business combination with (or acquisition
of) an operating business. As used herein, an “Initial Business Combination” shall mean the
acquisition of one or more businesses that at the time of the execution of the definitive agreement for our initial
business acquisition has a fair market value of at
least 200.0% of the balance held in the trust account, excluding the deferred underwriting discounts
and commissions from the Proposed Offering. Furthermore, there is no assurance that the Company
will be able to successfully effect an Initial Business Combination. Upon the closing of the
Proposed Offering, the Company expects that approximately 99.0% of the gross proceeds, after
payment of certain amounts to the underwriters, will be held in a trust account (“Trust Account”)
and invested in treasury bills issued by the U.S. government having a maturity of 180 days or less
or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act of 1940, until the earlier of (i) the consummation of the Company’s Initial
Business Combination or (ii) the distribution of the Trust Account as described below. The
remaining proceeds may be used to cover the Company’s working capital requirements, including
paying for business, legal and accounting due diligence on prospective acquisitions and continuing
general and administrative expenses. The Company, after signing a definitive agreement for the
acquisition of a target business, will submit such transaction for stockholder approval. In the
event that 35% (less one share) or more of the outstanding stock (excluding, for this purpose,
those shares of common stock issued prior to the Proposed Offering) vote against the Initial
Business Combination and exercise their conversion rights described below, the Initial Business
Combination will not be consummated. However, voting against the Initial Business Combination alone
will not result in an election to exercise a stockholder’s conversion rights. A stockholder must
also affirmatively exercise such conversion rights at or prior to the time the Initial Business
Combination is voted upon by the stockholders. All of the Company’s stockholders prior to the
Proposed Offering (the “Initial Stockholders”) have agreed, in connection with the stockholder vote
required to approve the Initial Business Combination, to vote the founders’ shares in accordance
with the majority of the shares of common stock voted by the public stockholders. The Company’s
founding stockholder, WNH Holdings, LLC and each of the Company’s officers and directors have also
agreed that if it, he or she acquires shares of common stock in or following the Proposed Offering,
it, he or she will vote all such acquired shares in favor of the Company’s Initial Business
Combination and in favor of an amendment to the Company’s amended and restated certificate of
incorporation to provide for the Company’s perpetual existence.
If an Initial Business Combination is approved and completed, public stockholders voting against an
Initial Business Combination will be entitled to convert their stock into a pro rata share of the
total amount then on deposit in the Trust Account, including the deferred underwriting discounts and
commissions, and any interest earned on their portion of the Trust Account, net of taxes
payable with respect to the Company and the Trust Account and net of interest income of up to $2,400,000 of the after tax interest
earned on the Trust Account which may be released to the Company to cover a portion of the
Company’s operating expenses. Public stockholders who convert their stock into their share of the
Trust Account will continue to have the right to exercise any warrants they may hold.
In the
event that the Company does not consummate an Initial Business
Combination within 24 months
from the date of the consummation of the Proposed Offering (30 months if such extension is approved by stockholders), the proceeds held in the Trust Account
will be distributed to the Company’s public stockholders, excluding the Initial Stockholders to the
extent of their initial stock holdings and the sponsor shares. In the event of such distribution, the
per share value of the residual assets remaining available for distribution (including Trust
Account assets) may be less than the initial public offering price per unit in the Proposed
Offering (assuming no value is attributed to the warrants contained in the units to be offered in
the Proposed Offering discussed in Note C).
The placing of funds in the Trust Account may not protect those funds from third-party claims
against the Company. Although prior to
completion of the Initial Business Combination, the Company will seek to have all third parties
(including any vendors and any other entities with which it enters into a contractual relationship
following consummation of this offering) or any prospective target businesses enter into valid and
enforceable agreements with the Company waiving any right, title, interest or claim of any kind in
or to any assets held in the Trust Account, there is no guarantee that they will execute such
agreements. It is also possible that such waiver agreements would be held unenforceable and there
is no guarantee that the third parties would not otherwise challenge the agreements and later bring
claims against the Trust Account for amounts owed them. In addition, there is no guarantee that
these third parties will agree to waive any claims they may have in the future as a result of, or
arising out of, any negotiations, contracts or agreements with the Company and will not seek
recourse against the Trust Account for any reason. Further, the Company could be subject to claims
from parties not in contract with it who have not executed a waiver, such as a third party claiming
tortious interference as a result of the Initial Business Combination. Under Delaware law, absent a
valid and enforceable waiver or other special circumstances, creditors of a corporation have a
superior right in the distribution of assets upon liquidation. Accordingly, the proceeds held in
trust could be subject to claims that would take priority over the claims of the Company’s public
stockholders and, as a result, the per-share liquidation price could
be less than $10.00. Jay S. Sidhu, the Company’s Chairman,
President and Chief Executive Officer is expected to agree that he will be liable to the Company if and to the extent
claims by third parties reduce the amounts in the Trust Account available for payment to the
Company’s stockholders in the event of a liquidation and the claims are made by a vendor for
services rendered or products sold to the Company, by a third party with which the Company entered
into a contractual relationship following consummation of this offering or by a prospective target
business. However, the agreement to be entered into by Mr. Sidhu is expected to
specifically provide for two exceptions to the indemnity given: there will be no liability
(1) as
to any claimed amounts owed to a third party who executed a waiver,
even if it is determined to be unenforceable, and
(2) as to any claims under the Company’s indemnity of the underwriters of this offering against
certain liabilities, including liabilities under the Securities Act. Furthermore, there could be
claims from parties other than vendors, third parties with which the Company entered into a
contractual relationship or target businesses that would not be
covered by the indemnity from Mr. Sidhu, such as stockholders and other claimants who are not parties in contract with the
Company who file a claim for damages against the Company.
NOTE B —
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.
Going concern considerations
The Company expects to incur significant costs in pursuit of its financing and acquisition plans.
Management’s plans to address this uncertainty through a Proposed Offering are discussed in Note
C. There is no assurance that the Company’s plans to raise capital or to consummate a Business
Combination will be successful or successful within the target business acquisition period. These
factors, among others, raise substantial doubt about the Company’s ability to continue as a going
concern.
2.
Development Stage Company
The Company complies with the reporting requirements of SFAS No. 7, “Accounting and Reporting by
Development Stage Enterprises.”
Unaudited Interim Financial Information:
The unaudited financial information as of June 30, 2008 and
for the six months then ended as well as for the period October 10,2007 (inception) through June 30, 2008 has been prepared on the same basis
as the audited financial statements and, in the opinion of management,
reflects all adjustments, which include only normal recurring adjustments, necessary
to present fairly the Company’s financial position
and its results of operations and cash flows for the
period presented. The other information disclosed in these
notes to the financial statements related to such interim periods is also unaudited.
3.
Common Stock
On October 10, 2007the Company issued 150 shares of common stock to WNH Holdings, LLC in
exchange for a demand note in the amount of $25,000. On
February 27, 2008, the Company effected
a 28,750:1 stock split. After giving effect to the stock split, the Company had 4,312,500 shares
outstanding, all of which are owned by WNH Holdings, LLC. On
July 11, 2008, the Company effected a
0.6 for 1.0 reverse stock split, which resulted in the
number of shares outstanding being reduced to 2,587,500. All common
share and per common share amounts have been adjusted retroactively
for the stock splits. If the over-allotment option is not
exercised in full, WNH Holdings, LLC and any permitted transferees
will forfeit the number of shares necessary to cause WNH Holdings, LLC and any permitted transferees to maintain a 20%
ownership of the common shares after the Proposed Offering (excluding the shares of common stock
underlying the warrants included in the units purchased by WNH
Holdings, LLC simultaneously with
the completion of the Proposed Offering and the warrants to be sold as part of the units in the
Proposed Offering). WNH Holdings, LLC and any permitted transferees will forfeit an aggregate of
up to 337,500 shares to the extent that the underwriters’ over-allotment is not exercised in
full. See Note C for terms of warrants.
The Company will be authorized to issue shares of preferred stock with such designations, voting
and other rights and preferences as may be determined from time to time by the board of
directors. There is no preferred stock outstanding as of
June 30, 2008.
Loss per common share is based on the weighted average number of common shares outstanding. The
Company complies with SFAS No. 128, “Earnings Per Share,” which requires dual presentation of
basic and diluted earnings per share on the face of the statements of operations, which the
Company has adopted. Basic loss per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average common shares outstanding for the
period.
5.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk
consist of cash accounts in a financial institution, which
potentially may in the future, exceed the Federal
depository insurance coverage of $100,000. The Company has not experienced losses on these
accounts and management believes the Company is not exposed to significant risks on such
accounts.
6.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
7.
Deferred Offering Costs
The Company complies with the requirements of the SEC Staff Accounting Bulletin (SAB) Topic 5A
“Expenses of Offering.” Deferred offering costs consist principally of legal costs incurred
through the balance sheet date that are related to the Proposed Offering and that will be charged
to capital upon the completion of the Proposed Offering or charged to expense if the Proposed
Offering is not completed.
8.
Income Taxes
Deferred income taxes are provided for the differences between bases of assets and liabilities for financial
reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be
realized. The Company recorded a deferred income tax asset for the tax effect of temporary differences, aggregating approximately $1,300.
In recognition of the uncertainly regarding the ultimate amount of income tax benefits to be derived, the Company has recorded a full
valuation allowance at June 30, 2008.
9.
Recently Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141
(revised 2007), “Business Combinations” (“SFAS 141(R)”). This statement replaces SFAS No. 141,
“Business Combinations” (“SFAS 141”). This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be
used for all business combinations and for an acquirer to be identified for each business
combination. This statement defines the acquirer as the entity that obtains control of one or
more businesses in the business combination and establishes the acquisition date as the date that
the acquirer achieves control. This statement requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited exceptions
specified in the statement. This statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008 (for the Company, its fiscal year beginning January 1,2009). The Company is currently evaluating the expected effect, if any, SFAS 141(R) will have on
its financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements” (“SFAS 160”), which is an amendment of Accounting Research Bulletin No. 51.
This statement clarifies that a noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in the consolidated financial
statements. This statement changes the way the consolidated income statement is presented, thus
requiring consolidated net income to be reported at amounts that include the amounts attributable
to both parent and the noncontrolling interest. Adoption is required for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008 (for the
Company, its fiscal year beginning January 1, 2009). The Company is currently evaluating the
expected effect, if any, SFAS 160 will have on its financial statements. In February 2007, the
FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial
Liabilities—Including an Amendment of SFAS 115,” (“SFAS 159”) which permits entities to choose to
measure many financial instruments and certain other items at fair value. The fair value option
established by SFAS 159 permits all entities to choose to measure eligible items at fair value at
specified election dates. Entities choosing the fair value option would be required to report
unrealized gains and losses on items for which the fair value option has been elected in earnings
at each subsequent reporting date. Adoption is for fiscal years beginning
after November 15, 2007 (for the Company, its fiscal year
beginning January 1, 2008). The Company adopted SFAS 160
effective January 1, 2008, and it did not have a material effect on
its financial condition, results of operations or cash flows.
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” (“SFAS 157”) which
provides guidance on measuring the fair value of assets and liabilities. SFAS 157 will apply to
other accounting pronouncements that require or permit assets or liabilities to be measured at
fair value but does not expand the use of fair value to any new circumstances. This standard
will also require additional disclosures in both annual and quarterly reports. SFAS 157 will be
effective for financial statements issued for fiscal years beginning after November 15, 2007 (for
the Company, its fiscal year beginning January 1, 2008). In November 2007, the FASB announced
that it would defer the effective date of SFAS 157 for one year for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company adopted SFAS 157
effective January 1, 2008, and it did not have a material effect on
its financial condition, results of operations or cash flows.
NOTE C — PROPOSED OFFERING
The Proposed Offering calls for the Company to offer for public sale up to 9,000,000 units (or
10,350,000 units if the over-allotment option is exercised in full). Each unit consists of one
share of the Company’s common stock, $0.0001 par value, and one redeemable common stock purchase
warrant. The expected public offering price will be $10.00 per unit. Each warrant will entitle the
holder to purchase from the Company one share of common stock at an exercise price of $6.50
commencing on the later of (a) one year from the date of the Proposed Offering or (b) the
completion of an Initial Business Combination with a target business, and will expire on the fourth
anniversary of the Proposed Offering or earlier upon the redemption of the units by the Company or
the Company’s liquidation. The warrants will be redeemable at a price of $0.01 per warrant upon 30
days prior notice after the warrants become exercisable, only if the last sale price of the
Company’s common stock equals or exceeds $14.25 per share for any 20 trading days within a
30-trading day period ending three business days before the Company sends the notice of redemption;
provided that a registration statement under the Securities Act of 1933 relating to the shares of
common stock issuable upon exercise of the warrants is effective and a prospectus relating to the
shares of common stock issuable upon exercise of the warrants is available for use by the public
warrant holders and remains available for use from the date on which the Company sends a redemption
notice to and including the redemption date.
Under the warrant agreement that the Company expects to enter into in connection with the related
warrants to be sold and issued in the Proposed Offering, the Company is only required to use commercially reasonable efforts to maintain the effectiveness of the registration statement covering the warrants. The
Company will not be obligated to deliver securities, and there are no contractual penalties for
failure to deliver securities, if a registration statement is not effective at the time of
exercise. Additionally, in the event that a registration statement is not effective at the time of
exercise, the holder of such warrant will not be entitled to exercise such warrant and in no event
(whether in the case of a registration statement not being effective or otherwise) will the Company
be required to net cash settle the warrant exercise.
Consequently, the warrants may expire unexercised and unredeemed.
The Company expects to pay underwriting commissions of 3.25% of the public
unit offering price and a corporate finance fee of 0.5% of the public unit offering price to the underwriters at the closing of the Proposed Offering, with an additional
3.25% fee of the gross offering proceeds, to be placed in the Trust Account, payable upon the
Company’s consummation of an Initial Business Combination.
NOTE D
— STOCK SUBSCRIPTION DEMAND NOTE RECEIVABLE, AFFILIATE
On October 10, 2007, the Company issued 150 shares of its common stock to WNH Holdings, LLC in
exchange for a $25,000 demand note. The note is payable upon the demand of the Company, and (i) if
the note is paid prior to March 31, 2008, the note will not bear any interest, and (ii) if the note
is not paid prior to March 31, 2008, the note will bear interest, retroactively to October 10,2007, at a rate equal to 7.0% per annum. The note was paid in full on
February 28, 2008 (see Note
G—Subsequent Events).
NOTE E — COMMITMENTS AND CONTINGENCIES
In connection with the Proposed Public Offering (see Note C), the Company expects to have a
commitment to pay a total underwriting commissions of 7% of the public offering price; 3.25% of
the 7% underwriting discount is expected to be deferred until the Company consummates its Initial
Business Combination.
The Company expects that, pursuant to a stock purchase agreement with the Company, the Initial
Stockholders will waive their right to receive distributions with respect to the Founders’ Shares
upon the Company’s liquidation.
NOTE F — RELATED PARTY TRANSACTIONS
WNH
Holdings, LLC has agreed to purchase from the Company 425,000 units at a price of $10.00 per unit for
$4,252,000 in a private placement (the “Sponsor Units”). The Company expects that the purchase and issuance
of the Sponsor Units will occur immediately prior to the closing of
the Proposed
Public Offering. The proceeds from the sale of the Sponsor Units will be placed in the
Trust Account. The Company expects that the warrants included in the Sponsor Units (the “Sponsor Warrants”) will be identical to the
Warrants included in the Units, except that (i) they will be exercisable by payment of cash or on a
cashless basis so long as they are held by WNH Holdings, LLC or its
permitted transferees, (ii) they will not be subject to redemption by the Company, and (iii) will
be held in escrow until
consummation of an Initial Business Combination. The Sponsor Warrants will not be
exercisable by WNH Holdings, LLC at any time when a registration
statement is not effective or a prospectus is not available for use
by the holders of the warrants
issued in connection with the Proposed Public Offering. The Initial Stockholders and holders of the
Sponsor Units will be entitled to registration rights with respect to the Founders’
Shares, the Sponsor Units, the Sponsor Warrants, shares of common
stock comprising part of the Sponsor Units and shares of common stock underlying the Sponsor Warrants pursuant to an
agreement that the Company expects will be entered into prior to or on the consummation of the
Proposed Public Offering. Management has estimated, as of the subscription date, that the purchase
price of the Sponsor Warrants will be the fair value of such warrants at the time of
purchase and issuance. However, if, at the time of the purchase and issuance, the Company
determines that the fair value of a Sponsor Warrant exceeds the purchase price,
then the Company may need to recognize compensation expense for the excess of the fair value of the
Sponsor Warrant on the day of purchase over the purchase price in accordance with
SFAS 123(R), “Share Based Payment.”
The Company has agreed to pay Griffin Holdings, LLC or its assignee a monthly fee of $7,500 for
general and administrative services, including office space and secretarial support. Services will
commence on the effective date of the Proposed Offering and will terminate upon the earlier of
(i) the completion of the Initial Business Combination, or (ii) the Company’s liquidation.
One of the Company’s directors is the Non-Executive Chairman of
the law firm of Stevens & Lee. The Company has incurred $24,000
of legal fees and expenses in connection with the Company’s
formation and the Proposed Offering, which are accrued at December31, 2007.
On
February 28, 2008, WNH Holdings, LLC paid in full the $25,000 demand note to the Company described
above in Note D.
On
February 29, 2008, the Company by action of its stockholder and
directors, authorized the issuance of a $200,000 unsecured promissory note to WNH Holdings, LLC, the
sole equity holder of Sidhu Special Purpose Capital Corp. The note
is non-interest bearing and payable on the earlier of 60 days
after the completion of the Proposed Offering by the Company
or March 2, 2009. On July 11, 2008, the Company amended this note
which now provides for a line of credit note for up to $200,000 which
is non-interest bearing and payable on the earlier of 60 days after
the completion of the Proposed offering by the Company or March 2,2009.
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses payable by us in connection with the offering described in this
registration statement (other than the underwriting discount and commissions and the
representatives’ non-accountable expense allowance) will be as follows:
Legal fees and expenses
$
400,000
Accounting fees and expenses
$
42,000
Printing and engraving expenses
$
60,000
Securities and Exchange Commission registration fee
$
6,780
FINRA filing fee
$
17,750
American Stock Exchange listing fee
$
75,000
Miscellaneous(1)(2)
$
106,250
Total
$
707,780
(1)
This amount includes the approximate amount of director and officer liability insurance
premiums the registrant anticipates paying following the completion of its initial public
offering and until it completes a business combination but no longer than 18 months with the
right to extend the coverage for another six month period at an additional pro rata premium.
(2)
This amount represents additional expenses that may be incurred by the Company in connection
with the offering over and above those specifically listed above, including distribution and
mailing costs.
Item 14. Indemnification of Directors and Officers.
Our amended and restated certificate of incorporation provides that all of our directors,
officers, employees and agents of the registrant shall be entitled to be indemnified by us to the
fullest extent permitted by Section 145 of the DGCL.
Section 145 of the DGCL concerning indemnification of officers, directors, employees and
agents is set forth below.
“Section 145. Indemnification of officers, directors, employees and agents; insurance.
(a) A corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that the person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with such action, suit or
proceeding if the person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person’s conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the fact that the person
is or was a director, officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against expenses (including
attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the
person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a corporation has been
successful on the merits or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably
incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the present or former director, officer, employee or agent is
proper in the circumstances because the person has met the applicable standard of conduct set forth
in subsections (a) and (b) of this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even though less than a
quorum, or (2) by a committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys’ fees) incurred by an officer or director in defending any
civil, criminal, administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys’ fees) incurred by former directors
and officers or other employees and agents may be so paid upon such terms and conditions, if any,
as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, the
other subsections of this section shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in such person’s
official capacity and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such person’s status as
such, whether or not the corporation would have the power to indemnify such person against such
liability under this section.
(h) For purposes of this section, references to “the corporation” shall include, in addition
to the resulting corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and employees or agents,
so that any person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect to the resulting or
surviving corporation as such person would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to “other enterprises” shall include employee
benefit plans; references to “fines” shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to “serving at the request of the corporation”
shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be
deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred
to in this section.
(j) The indemnification and advancement of expenses provided by, or granted pursuant to, this
section shall, unless otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine
all actions for advancement of expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation’s obligation to advance expenses (including
attorneys’ fees).”
Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to directors, officers or persons controlling us under the foregoing provisions, we have been
informed that in the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Reference is made to Item 17 for our undertakings with respect to indemnification for
liabilities arising under the Securities Act.
In accordance with Section 102(b)(7) of the DGCL, our amended and restated certificate of
incorporation, which we intend to adopt prior to the closing of this offering, will provide that
that no director shall be personally liable to us or any of our stockholders for monetary damages
resulting from breaches of their fiduciary duty as directors, except to the extent such limitation
on or exemption from liability is not permitted under the DGCL. The effect of this provision of
our amended and restated certificate of incorporation is to eliminate our rights and those of our
stockholders (through stockholders’ derivative suits on our behalf) to recover monetary damages
against a director for breach of the fiduciary duty of care as a director, including breaches
resulting from negligent or grossly negligent behavior, except, as restricted by Section 102(b)(7)
of the DGCL. However, this provision does not limit or eliminate our rights or the rights of any
stockholder to seek non-monetary relief, such as an injunction or rescission, in the event of a
breach of a director’s duty of care.
If the DGCL is amended to authorize corporate action further eliminating or limiting the
liability of directors, then, in accordance with our amended and restated certificate of
incorporation, the liability of our directors to us or our stockholders will be eliminated or
limited to the fullest extent authorized by the DGCL, as so amended. Any repeal or amendment of
provisions of our amended and restated certificate of incorporation limiting or eliminating the
liability of directors, whether by our stockholders or by changes in law, or the adoption of any
other provisions inconsistent therewith, will (unless otherwise required by law) be prospective
only, except to the extent such amendment or change in law permits us to further limit or eliminate
the liability of directors on a retroactive basis.
Our amended and restated certificate of incorporation will also provide that we will, to the
fullest extent authorized or permitted by applicable law, indemnify our current and former
directors and officers, as well as those persons who, while directors or officers of our
corporation, are or were serving as directors, officers, employees or agents of another entity,
trust or other enterprise, including service with respect to an employee benefit plan, in
connection with any threatened, pending or completed proceeding, whether civil, criminal,
administrative or investigative, against all expense, liability and loss (including, without
limitation, attorney’s fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in
settlement) reasonably incurred or suffered by any such person in connection with any such
proceeding. Notwithstanding the foregoing, a person eligible for indemnification pursuant to our
amended and restated certificate of incorporation will be indemnified by us in connection with a
proceeding initiated by such person only if such proceeding was authorized by our board of
directors, except for proceedings to enforce rights to indemnification.
The right to indemnification conferred by our amended and restated certificate of
incorporation is a contract right that includes the right to be paid by us the expenses incurred in
defending or otherwise participating in any proceeding referenced above in advance of its final
disposition, provided, however, that if the DGCL requires, an
advancement of expenses incurred by our officer or director (solely in the capacity as an
officer or director of our corporation) will be made only upon delivery to us of an undertaking, by
or on behalf of such officer or director, to repay all amounts so advanced if it is ultimately
determined that such person is not entitled to be indemnified for such expenses under our amended
and restated certificate of incorporation or otherwise.
The rights to indemnification and advancement of expenses will not be deemed exclusive of any
other rights which any person covered by our amended and restated certificate of incorporation may
have or hereafter acquire under law, our amended and restated certificate of incorporation, our
amended and restated bylaws, an agreement, vote of stockholders or disinterested directors, or
otherwise.
Any repeal or amendment of provisions of our amended and restated certificate of incorporation
affecting indemnification rights, whether by our stockholders or by changes in law, or the adoption
of any other provisions inconsistent therewith, will (unless otherwise required by law) be
prospective only, except to the extent such amendment or change in law permits us to provide
broader indemnification rights on a retroactive basis, and will not in any way diminish or
adversely affect any right or protection existing at the time of such repeal or amendment or
adoption of such inconsistent provision with respect to any act or omission occurring prior to such
repeal or amendment or adoption of such inconsistent provision. Our amended and restated
certificate of incorporation will also permit us, to the extent and in the manner authorized or
permitted by law, to indemnify and to advance expenses to persons other that those specifically
covered by our amended and restated certificate of incorporation.
We will enter into indemnification agreements with each of our officers and directors. These
agreements will require us to indemnify these individuals to the fullest extent permitted under
Delaware law against liabilities that may arise by reason of their service to us, and to advance
expenses incurred as a result of any proceeding against them as to which they could be indemnified.
We have filed the form of this indemnification agreement as Exhibit 10.5 to this registration
statement.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this registration statement, we
have agreed to indemnify the underwriter and the underwriter has agreed to indemnify us against
certain civil liabilities that may be incurred in connection with this offering, including certain
liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities.
In October 2007, we sold 150 shares of our common stock to our sponsor without registration
under the Securities Act. Such securities were issued in connection with our organization pursuant
to the exemption from registration contained in Section 4(2) of the Securities Act. The securities
were sold for an aggregate offering price of $25,000 at an average purchase price of approximately
$166.67 per share. On February 27, 2008, the Company effected a
28,750:1 stock split. On July 11, 2008, the company effected a 0.6 for 1
reverse stock split.
In
addition, our sponsor has agreed to purchase from us 425,200
units at $10.00 per
unit (for an aggregate purchase price of $4,252,000). This purchase
will take place in a private placement that will occur immediately
prior to the closing of our initial public offering. The
issuance of the sponsor units will be made pursuant to the exemption from registration contained
in Section 4(2) of the Securities Act. Our sponsor’s
obligation to purchase the sponsor units
was made pursuant to a Sponsor Unit Purchase Agreement, dated as
of July 11, 2008. Such
obligation was made prior to the effective date of the registration statement, and the only conditions to
the obligation undertaken by our sponsor are conditions outside of its control. Consequently, the
investment decision relating to the purchase of the units was made
prior to the effective date of the
registration statement relating to the public offering and therefore constitutes a “completed
private placement.”
No underwriting discounts or commissions were paid or will be paid with respect to the
foregoing sales.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this registration statement:
Form of Charter of Nominating and
Corporate Governance Committee.**
99.3
Agreement, dated as of March 1, 1997, between Sovereign Bancorp,
Inc., Sovereign Bank and Jay S. Sidhu.**
99.4
Retirement – Resignation and Transition Agreement, dated as of
October 10, 2006, by and between Sovereign Bancorp, Inc.,
Sovereign Bank and Jay S. Sidhu.**
(a) The undersigned hereby undertakes to provide to the underwriter at the closing specified
in the underwriting agreements, certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has
duly caused this Amendment No. 3 to the registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in City of Reading, Commonwealth of Pennsylvania, on
the 28th day
of August, 2008.
Pursuant
to the requirements of the Securities Act of 1933, this Amendment No.
3 to the registration
statement has been signed by the following persons in the capacities and on the dates indicated.
Form of Charter of Nominating and
Corporate Governance Committee.**
99.3
Agreement, dated as of March 1, 1997, between Sovereign Bancorp,
Inc., Sovereign Bank and Jay S. Sidhu.**
99.4
Retirement – Resignation and Transition Agreement, dated as of
October 10, 2006, by and between Sovereign Bancorp, Inc.,
Sovereign Bank and Jay S. Sidhu.**
