Initial Public Offering (IPO): Pre-Effective Amendment to Registration Statement (General Form) — Form S-1 Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: S-1/A Amendment No. 1 to Form S-1 HTML 568K
11: CORRESP ¶ Comment-Response or Other Letter to the SEC HTML 47K
2: EX-1.1 Ex-1.1: Form of Underwriting Agreement HTML 204K
3: EX-10.1 Ex-10.1: Form of Letter Agreement HTML 24K
8: EX-10.10 Ex-10.10: Private Placement Purchase Agreement HTML 27K
4: EX-10.2 Ex-10.2: Form of Letter Agreement HTML 24K
5: EX-10.3 Ex-10.3: Form of Letter Agreement HTML 20K
6: EX-10.4 Ex-10.4: Form of Investment Management Trust HTML 58K
Agreement
7: EX-10.9 Ex-10.9: Private Placement Purchase Agreement HTML 26K
9: EX-14 Ex-14: Form of Code of Ethics HTML 25K
10: EX-23.1 Ex-23.1: Consent of Goldstein Golub Kessler LLP HTML 7K
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
TM ENTERTAINMENT AND MEDIA,
INC.
(Exact name of registrant as
specified in its charter)
C:
Delaware
6770
20-8951489
(State or other jurisdiction
of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
307 East 87th Street New York, NY10128
(212) 289-6942 (Address, including
zip code, and telephone number, including area code, of
registrant’s principal executive offices)
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. þ
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
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
Amount of
Title of Each Class of
Amount Being
Offering
Aggregate
Registration
Security Being Registered
Registered
Price per Security(1)
Offering Price(1)
Fee
Units, each consisting of one share
of Common Stock, $0.001 par value, and one Warrant(2)
10,350,000 Units
$8.00
$82,800,000
$2,541.96
Shares of Common Stock included as
part of the Units
10,350,000 Shares
—
—
—(3)
Warrants included as part of the
Units
10,350,000 Warrants
—
—
—(3)
Shares of Common Stock underlying
the Warrants included in the Units(4)
10,350,000 Shares
$5.50
$56,925,000
$1,747.60
Resale of Warrants issued to
insiders (“Insider Warrants”)
2,100,000 Warrants
$1.00
$2,100,000
$64.47
Issuance of Shares of Common Stock
underlying the Insider Warrants to the extent such Insider
Warrants are transferred prior to exercise(4)
2,100,000 Shares
$8.00
$16,800,000
$515.76
Resale of Shares of Common Stock
underlying the Insider Warrants to the extent such Insider
Warrants are exercised by the Insiders(4)
2,100,000 Shares
—
—
—(5)
Underwriters’ Unit Purchase
Option (“Underwriters’ Units”)
1 Unit
$100.00
$100
—(3)
Units underlying the
Underwriters’ Units
900,000 Units
$10.00
$9,000,000
$276.30
Shares of Common Stock included as
part of the Underwriters’ Units
900,000 Shares
—
—
—(3)
Warrants included as part of the
Underwriters’ Units
900,000 Warrants
—
—
—(3)
Shares of Common Stock underlying
the Warrants included in the Underwriters’ Units(4)
900,000 Shares
$5.50
$4,950,000
$151.97
Total
$172,575,100
$5,298.06(6)
(1)
Estimated solely for the purpose of
calculating the registration fee.
(2)
Includes 1,350,000 Units and
1,350,000 shares of Common Stock and 1,350,000 Warrants
underlying such Units which may be issued upon exercise of a
45-day
option granted to the Underwriters to cover over-allotments, if
any.
(3)
No fee required pursuant to
Rule 457(g).
(4)
Pursuant to Rule 416, there
are also being registered such additional securities as may be
issued to prevent dilution resulting from stock splits, stock
dividends or similar transactions as a result of the
anti-dilution provisions contained in the Warrants.
(5)
The filing fee is included in the
$515.76 filing fee for the shares of common stock underlying the
Insider Warrants above.
(6)
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 state where the offer or sale is not
permitted.
TM Entertainment and Media, Inc. is a newly formed blank check
company organized for the purpose of effecting a merger, capital
stock exchange, asset acquisition or other similar business
combination with a domestic or foreign operating business in the
entertainment, media, digital or communications industries. We
do not have any specific business combination under
consideration and we have not (nor has anyone on our behalf)
contacted any prospective target business or had any
discussions, formal or otherwise, with respect to such a
transaction.
This is an initial public offering of our securities. Each unit
that we are offering has a price of $8.00 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 $5.50. Each warrant will become exercisable on the later of
our completion of a business combination
and ,
2008 [one year from the date of this prospectus], and
will expire
on ,
2011 [four years from the date of this prospectus], or
earlier upon redemption.
We have granted Pali Capital, Inc., the representative of the
underwriters, a
45-day
option to purchase up to 1,350,000 units (over and above
the 9,000,000 units referred to above) solely to cover
over-allotments, if any. The over-allotment option will be used
only to cover the net syndicate short position resulting from
the initial distribution. We have also agreed to sell to Pali
Capital, Inc. for $100, as additional compensation, an option to
purchase up to a total of 900,000 units at $10.00 per unit.
The units issuable upon exercise of this option are identical to
those offered by this prospectus. The purchase option and its
underlying securities have been registered under the
registration statement of which this prospectus forms a part.
Our existing stockholders have committed to purchase from us an
aggregate of 2,100,000 warrants at a purchase price of $1.00 per
warrant (for a total purchase price of $2,100,000) in a private
placement that will occur simultaneously with the consummation
of this offering. All of the proceeds we receive from the
private placement will be placed in the trust account described
below. The “insider warrants” to be purchased by these
individuals will be identical to warrants underlying the units
being offered by this prospectus except that the insider
warrants will be exercisable on a cashless basis and will not be
redeemable by us so long as they are still held by the
purchasers or their affiliates. The insider warrants to be sold
to these purchasers have been registered for resale under the
registration statement of which this prospectus forms a part,
but the purchasers have agreed that they will not sell or
transfer the insider warrants (except in certain cases) until
the later
of ,
2008 [one year from the date of this prospectus] and
60 days after the consummation of our business combination.
There is presently no public market for our units, common stock
or warrants. We have applied to have the units listed on the
American Stock Exchange. Assuming that the units are listed on
the American Stock Exchange, the units will be listed under the
symbol TMI.U on or promptly after the date of this prospectus.
Assuming that the units are listed on the American Stock
Exchange, once the securities comprising the units begin
separate trading, the common stock and warrants will be listed
on the American Stock Exchange under the symbols TMI and TMI.WS,
respectively. We cannot assure you that our securities will be
listed or will continue to be listed on the American Stock
Exchange.
Investing in our securities involves a high degree of risk.
See “Risk Factors” beginning on page 14 of this
prospectus for a discussion of information that should be
considered in connection with an investment in our
securities.
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.
Underwriting
Public
Discount and
Proceeds, Before
Offering Price
Commissions(1)
Expenses, to Us
Per Unit
$
8.00
$
0.56
$
7.44
Total
$
72,000,000
$
5,040,000
$
66,960,000
(1)
Of the underwriting discount and commissions, $2,160,000 ($0.24
per unit) is being deferred by the underwriters and will not be
payable by us to the underwriters unless and until we consummate
a business combination.
$68,420,000 of the net proceeds of this offering (including
the $2,160,000, or $0.24 per unit, of underwriting discounts and
commissions payable to the underwriters in this offering which
are being deferred by them until we consummate a business
combination), plus the additional aggregate $2,100,000 we will
receive from the purchase of the insider warrants simultaneously
with the consummation of this offering, for an aggregate of
$70,520,000 (or approximately $7.84 per unit sold to the public
in this offering), will be deposited into a trust account at
HSBC Bank USA, N.A., maintained by Continental Stock
Transfer & Trust Company acting as trustee. These
funds will not be released to us until the earlier of the
completion of a business combination and our liquidation (which
may not occur
until ,
2009 [twenty four months from the date of this
prospectus]).
We are offering the units for sale on a firm-commitment basis.
Pali Capital, Inc., the representative of the underwriters,
expects to deliver our securities to investors in the offering
on or about
[ ],
2007.
This summary highlights certain information appearing
elsewhere in this prospectus. For a more complete understanding
of this offering, you should read the entire prospectus
carefully, including the risk factors and the financial
statements. Unless otherwise stated in this prospectus:
•
references to “we,”“us” or “our
company” refer to TM Entertainment and Media, Inc.;
•
“existing stockholders” refers to all of our
stockholders prior to this offering, including all of our
officers and directors;
•
“management stockholders” refers to Theodore S.
Green and Malcolm Bird;
•
“initial shares” refers to the
2,250,000 shares of common stock that our existing
stockholders originally purchased from us for $25,000 on May 1,2007;
•
“insider warrants” refers to the 2,100,000 warrants
we are selling privately to our management stockholders upon
consummation of this offering;
•
the term “public stockholders” means the holders of
the shares of common stock which are being sold as part of the
units in this public offering (whether they are purchased in the
public offering or in the aftermarket), including any of our
existing stockholders to the extent that they purchase such
shares; and
•
the information in this prospectus assumes that the
representative of the underwriters will not exercise its
over-allotment option.
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.
We are a blank check company organized under the laws of the
State of Delaware on May 1, 2007. We were formed with the
purpose of effecting a merger, capital stock exchange, asset
acquisition or other similar business combination with a
domestic or foreign operating business in the entertainment,
media, digital or communications industries. To date, our
efforts have been limited to organizational activities.
The entertainment, media, digital and communications industries
encompass those companies which create, produce, deliver, own,
distribute or market entertainment and information content,
products and services. These companies serve both domestic and
international audiences and, therefore, the operating businesses
with which the company will seek to do a business combination
are located throughout the world. Among the areas of particular
interest to the company are businesses engaged in:
•
broadcast television;
•
cable, satellite and terrestrial television content delivery;
•
motion picture, television, DVD and video content production and
distribution;
•
advanced communications networks and devices;
•
user-generated media;
•
newspaper, book, magazine, and specialty publishing;
voice, video and data transmission platforms and services;
•
content distribution systems, networks and services;
•
content production and aggregation services;
•
media portability products and services;
•
interactive television products and services;
•
advertising agencies and other advertising services;
•
direct marketing and promotional services;
•
media and marketing services;
•
advertising based directories;
•
recorded music and other audio content production and
distribution;
•
theme park attractions;
•
toy development and distribution;
•
trading cards;
•
intellectual property licensing, merchandising and
exploitation; and
•
live event entertainment and venue management.
Our management team has extensive experience in the
entertainment, media, digital and communications industries as
senior executives, business consultants or entrepreneurs. See
“Management”.
We intend to leverage the industry experience of our executive
officers by focusing our efforts on identifying a prospective
target business in the entertainment, media, digital or
communications industries. We believe that companies involved in
these industries represent attractive acquisition targets for a
number of reasons, including a favorable economic environment
for these industries, potentially attractive valuations and the
large number of middle market acquisition candidates.
We believe, based solely on our management’s collective
business experience, that there are numerous business
opportunities in the entertainment, media, digital and
communications industries. However, we cannot assure you that we
will be able to locate a target business in such industries or
that we will be able to engage in a business combination with a
target business on favorable terms.
We do not have any specific business combination under
consideration and we have not (nor has anyone on our behalf)
contacted any prospective target business 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 representative
of any candidates) with respect to a possible acquisition
transaction with our company. Additionally, we have not, nor has
anyone on our behalf, taken any measure, directly or indirectly,
to identify or locate any suitable acquisition candidate, nor
have we engaged or retained any agent or other representative to
identify or locate any such acquisition candidate.
We will have
until ,
2009 [twenty four months from the date of this prospectus]
to consummate a business combination. If we are unable to
consummate a business combination by such date, our corporate
existence will cease by operation of corporate law (except for
the purposes of winding up our affairs and liquidating). Our
initial business combination must be with a target business or
businesses whose collective fair market value is at least equal
to 80% of our net assets (all of our assets, including the funds
held in the trust account, less our liabilities) at the time of
such acquisition, although this may entail simultaneous
acquisitions of several operating businesses. The fair market
value of the target will be determined by our board of directors
based upon one or more standards generally accepted by the
financial community (which may include actual and potential
sales, earnings, cash flow or book value). We anticipate
structuring a business combination to acquire 100% of the equity
interests or assets of
the target business. We may, however, structure a business
combination to acquire less than 100% of such interests or
assets of the target business, but will not acquire less than a
controlling interest (which would be at least 50% of the voting
securities of the target business). If we acquire only a
controlling interest in a target business or businesses, the
portion of such business that we acquire must have a fair market
value equal to at least 80% of our net assets. If we determine
to simultaneously acquire several businesses and such businesses
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 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.
The target business or businesses that we acquire may have a
collective fair market value substantially in excess of 80% of
our net assets. In order to consummate such a business
combination, we may issue a significant amount of our debt or
equity securities to the sellers of such business or seek to
raise additional funds through a private offering of debt or
equity securities. There are no limitations on our ability to
incur debt or issue securities in order to consummate a business
combination. If we issue securities in order to consummate a
business combination, our stockholders could end up owning a
minority of the combined company as there is no requirement that
our stockholders own a certain percentage of our company after
our business combination. Since we have no specific business
combination under consideration, we have not entered into any
such arrangement to issue our debt or equity securities and have
no current intention of doing so. The fair market value of the
target business will be determined by our board of directors
based upon one or more standards generally accepted by the
financial community (such as actual and potential sales,
earnings and cash flow or book value). If our board is not able
to independently determine that the target business has a
sufficient fair market value, we will obtain an opinion from an
unaffiliated, independent investment banking firm with respect
to the satisfaction of such criteria.
Our executive offices are located at 307 East 87th Street,
New York, NY10128 and our telephone number is
(212) 289-6942.
The units will begin trading on or promptly after the date of
this prospectus. Each of the common stock and warrants may trade
separately on the 90th day after the date of this prospectus
unless Pali Capital, Inc., as representative of the
underwriters, determines that an earlier date is acceptable. In
no event will Pali Capital, Inc. allow separate trading of the
common stock and warrants until we file an audited balance sheet
reflecting our receipt of the gross proceeds of this offering.
We will file a Current Report on
Form 8-K
with the Securities and Exchange Commission, including an
audited balance sheet, promptly upon the consummation of this
offering, which is anticipated to take place three business days
from the date the units commence trading. The audited balance
sheet will reflect our receipt of the proceeds from the exercise
of the over-allotment option if the over-allotment option is
exercised prior to the filing of the
Form 8-K.
If the over-allotment option is exercised after our initial
filing of a
Form 8-K,
we will file an amendment to the
Form 8-K
to provide updated financial information to reflect the exercise
and consummation of the over-allotment option. We will also
include in this
Form 8-K,
or amendment thereto, or in a subsequent
Form 8-K,
information indicating if Pali Capital, Inc. has allowed
separate trading of the common stock and warrants prior to the
90th day after the date of this prospectus. The units will
continue to trade along with the common stock and warrants after
the units are separated. Holders will need to have their brokers
contact our transfer agent in order to separate the units into
common stock and warrants.
Private placement of warrants to besold to
insiders
We will sell 2,100,000 insider warrants at a purchase price of
$1.00 per warrant (for a total purchase price of $2,100,000) to
our existing stockholders pursuant to private placement purchase
agreements between us and such purchasers. The existing
stockholders have entered into these agreements prior to the
filing of the registration statement of which this prospectus
forms a part. These purchases will take place in a private
placement that will occur simultaneously with the consummation
of this offering. The insider warrants will be identical to the
warrants underlying the units being offered by this prospectus
except that the insider warrants will be exercisable on a
cashless basis and will not be redeemable by us so long as they
are still held by the purchasers or their affiliates. Each of
the purchasers have agreed, pursuant to the agreements, that he
will not sell or transfer the insider warrants (except to an
affiliate of such purchaser, to relatives and trusts for estate
planning purposes, or to our directors at the same cost per
warrant originally paid by them) until the later
of ,
2008 [one year from the date of this prospectus] and
60 days after the consummation of our business combination.
Pali Capital, Inc. has no intention of waiving these
restrictions. In the event of a liquidation
prior to our initial business combination, the insider warrants
will expire worthless.
Common stock:
Number outstanding before thisoffering
2,250,000 shares
Number to be outstanding afterthis
offering
11,250,000 shares
Warrants:
Number outstanding before thisoffering
0 warrants
Number to be sold to insiders
2,100,000 warrants
Number to be outstanding afterthis
offering andsale to insiders
11,100,000 warrants
Exercisability
Each warrant is exercisable for one share of common stock.
Exercise price
$5.50
Exercise period
The warrants will become exercisable on the later of:
• the completion of a business combination with a
target business, and
• ,
2008 [one year from the date of this prospectus].
However, the warrants held by public stockholders will only be
exercisable if a registration statement relating to the common
stock issuable upon exercise of the warrants is effective and
current. The warrants will expire at 6:00 p.m., New York
City time,
on ,
2011 [four years from the date of this prospectus] or
earlier upon redemption.
Redemption
We may redeem the outstanding warrants (including any warrants
held by the underwriters as a result of the exercise of their
option, but excluding any insider warrants held by the initial
purchasers or their affiliates) without the consent of Pali
Capital, Inc.:
• in whole and not in part,
• at a price of $0.01 per warrant at any time while
the warrants are exercisable,
• upon a minimum of 30 days’ prior written
notice of redemption, and
• if, and only if, the last sales price of our common
stock equals or exceeds $11.50 per share for any 20 trading days
within a 30 trading day period ending three business days before
we send the notice of redemption.
If the foregoing conditions are satisfied and we issue a notice
of redemption, each warrant holder can exercise his, her or its
warrant prior to the scheduled redemption date. However, the
price of the common stock may fall below the $11.50 trigger
price as well as the $5.50 warrant exercise price after the
redemption notice is issued.
In the event that the common stock issuable upon exercise of the
warrants has not been registered, qualified or deemed to be
exempt
under the securities laws of the state of residence of the
holder of the warrants, we will not have the right to redeem the
warrants owned by such holder. The redemption criteria for our
warrants have been established at a price which is intended to
provide warrant holders a reasonable premium to the initial
exercise price and provide a sufficient differential between the
then-prevailing common stock price and the warrant exercise
price so that if the stock price declines as a result of our
redemption call, the redemption will not cause the stock price
to drop below the exercise price of the warrants. The insider
warrants are non-redeemable so long as such warrants are held by
our existing stockholders.
Proposed American Stock Exchangesymbols for our:
Units
TMI.U
Common stock
TMI
Warrants
TMI.WS
Offering proceeds to be held in trust
$68,420,000 of the net proceeds of this offering plus the
$2,100,000 we will receive from the sale of the insider warrants
(for an aggregate of $70,520,000 or approximately $7.84 per unit
sold to the public in this offering) will be placed in a trust
account at HSBC Bank USA, N.A., maintained by Continental Stock
Transfer & Trust Company, acting as trustee
pursuant to an agreement to be signed on the date of this
prospectus. This amount includes $2,160,000 of underwriting
discounts and commissions payable to the underwriters in the
offering that is being deferred. The underwriters have agreed
that such amount will not be paid unless and until we consummate
a business combination. Upon the consummation of our initial
business combination, the deferred underwriting discounts and
commissions shall be released to the underwriters out of the
gross proceeds of this offering held in the trust account.
Except as set forth below, these proceeds will not be released
until the earlier of the completion of a business combination
and our liquidation. Therefore, unless and until a business
combination is consummated, the proceeds held in the trust
account will not be available for our use for any expenses
related to this offering or expenses which we may incur related
to the investigation and selection of a target business and the
negotiation of an agreement to acquire a target business.
Notwithstanding the foregoing, there can be released to us from
the trust account interest earned on the funds in the trust
account (i) up to an aggregate of $1,900,000 to fund
expenses related to investigating and selecting a target
business and our other working capital requirements and
(ii) any amounts we may need to pay our income or other tax
obligations. With these exceptions, expenses incurred by us may
be paid prior to a business combination only from the net
proceeds of this offering not held in the trust account
(initially $100,000).
None of the warrants may be exercised until after the
consummation of a business combination and, thus, after the
proceeds of the trust account have been disbursed. Accordingly,
the warrant exercise price will be paid directly to us and not
placed in the trust account.
There will be no fees, reimbursements, cash payments or any
other form of compensation paid to our existing stockholders,
officers, directors or their affiliates prior to, or for any
services they render in order to effectuate, the consummation of
a business combination (regardless of the type of transaction
that it is) other than:
• repayment of a $100,000 loan, plus interest at the
rate of 5% per annum, compounded semi-annually, made by Theodore
S. Green, our Chairman and Co-Chief Executive Officer, to us;
• payment of $7,500 per month to our management
stockholders, an affiliate of our management stockholders or
third parties, for certain administrative, technology and
secretarial services, as well as the use of certain limited
office space; and
• reimbursement of out-of-pocket expenses incurred by
our existing stockholders in connection with certain activities
on our behalf, such as identifying and investigating possible
business targets and business combinations, with no limit as to
such reimbursement.
Amended and RestatedCertificate ofIncorporation
As discussed below, there are specific provisions in our amended
and restated certificate of incorporation that may not be
amended prior to our consummation of a business combination,
including our requirements to seek stockholder approval of such
a business combination and to allow our stockholders to seek
conversion of their shares if they do not approve of such a
business combination. While we have been advised that such
provisions limiting our ability to amend our certificate of
incorporation may not be enforceable under Delaware law, we view
these provisions, which are contained in Article Seventh of
our amended and restated certificate of incorporation, as
obligations to our stockholders and will not take any action to
amend or waive these provisions.
Our amended and restated certificate of incorporation also
provides that we will continue in existence only
until ,
2009 [twenty four months from the date of this
prospectus]. If we have not completed a business combination
by such date, 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. 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 Delaware General Corporation
Law. Accordingly, limiting our corporate existence to a
specified date as permitted by Section 102(b)(5) of the
Delaware General Corporation Law removes the necessity to comply
with the formal procedures set forth in Section 275 (which
would have required our board of directors and stockholders to
formally vote to approve our dissolution and liquidation and to
have filed a certificate of dissolution with the Delaware
Secretary of State). In connection with any proposed business
combination we submit to our stockholders for approval, we will
also submit to stockholders a proposal to amend our amended and
restated certificate of incorporation to provide for our
perpetual existence, thereby removing this limitation on our
corporate life. We will only consummate a business combination
if stockholders vote both in favor
of such business combination and our amendment to provide for
our perpetual existence. The approval of the proposal to amend
our amended and restated certificate of incorporation to provide
for our perpetual existence would require the affirmative vote
of a majority of our outstanding shares of common stock. We view
this provision terminating our corporate life
by ,
2009 [twenty four months 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 consummation of a business combination.
Stockholders must approve businesscombination
Pursuant to our amended and restated certificate of
incorporation, we will seek stockholder approval before we
effect any business combination, even if the nature of the
acquisition would not ordinarily require stockholder approval
under applicable state law. We view this requirement 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. In connection with the vote
required for any business combination, all of our existing
stockholders, including all of our officers and directors, have
agreed to vote the shares of common stock owned by them
immediately before this offering in accordance with the majority
of the shares of common stock voted by the public stockholders.
We will proceed with a business combination only if (i) a
majority of the shares of common stock voted by the public
stockholders are voted in favor of the business combination,
(ii) a majority of the outstanding shares of common stock
vote in favor of an amendment to our certificate of
incorporation to provide for our perpetual existence and
(iii) public stockholders owning less than 30% of the
shares sold in this offering exercise their conversion rights
described below. Accordingly, it is our understanding and
intention in every case to structure and consummate a business
combination in which 29.99% of the public stockholders may
exercise their conversion rights and the business combination
will still go forward.
Conversion rights of stockholdersvoting to reject
abusinesscombination
Pursuant to our amended and restated certificate of
incorporation, public stockholders voting against a business
combination will be entitled to convert their stock into a pro
rata share of the trust account (initially approximately $7.84
per share, or approximately $7.82 per share if the
over-allotment option is exercised), plus any interest earned on
their portion of the trust account but less any interest that
has been released to us as described above to fund our working
capital requirements and pay any of our tax obligations, if the
business combination is approved and completed. We view this
requirement 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. Our existing
stockholders will not have such conversion rights with respect
to the initial shares, but will have such conversion rights with
respect to any shares they purchase in this offering or in the
aftermarket. 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.
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 at a meeting held for that purpose, but the request
will not be granted unless the stockholder votes against the
business combination and the business combination is approved
and completed. Additionally, we may require public stockholders,
whether they are a record holder or hold their shares in
“street name,” to either tender their certificates to
our transfer agent at any time through the vote on the business
combination or to deliver their shares to the transfer agent
electronically using Depository Trust Company’s DWAC
(Deposit/Withdrawal At Custodian) System, at the holder’s
option. 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 up to the broker
whether or not to pass this cost on to the converting holder.
The proxy solicitation materials that we will furnish to
stockholders in connection with the vote for any proposed
business combination will indicate whether we are requiring
stockholders to satisfy such certification and delivery
requirements. Accordingly, a stockholder would have from the
time we send out our proxy statement through the vote on the
business combination to deliver his shares if he wishes to seek
to exercise his conversion rights. This time period varies
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 a vote on our initial business combination is held and the
business combination is not approved, we may continue to try to
consummate a business combination with a different target until
twenty four months from the date of this prospectus. If the
initial business combination is not approved or completed for
any reason, then public stockholders voting against our initial
business combination 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
stockholder.
Investors in this offering who do not sell, or who receive less
than an aggregate of approximately $0.16 of net sales proceeds
for, the warrants included in the units, and persons who
purchase common stock in the aftermarket at a price in excess of
$7.84 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. Because converting stockholders will
receive their proportionate share of the deferred underwriting
discounts and commissions and the underwriters will be paid the
full amount of their deferred underwriting compensation at the
time of the consummation of our initial business combination,
the company (and, therefore, the non-converting stockholders)
will bear the financial effect of such payments to both the
converting stockholders and the underwriters.
Liquidation if no business combination
As described above, if we have not consummated a business
combination
by ,
2009 [twenty four months from the date of this
prospectus], our corporate existence will cease by operation
of law and we will promptly distribute only to our public
stockholders (including our existing stockholders to the extent
they have purchased shares in this offering or in the
aftermarket) the amount in our trust account (including any
accrued interest then remaining in the trust account) plus any
remaining net assets.
We cannot assure you that the per-share distribution from the
trust account, if we liquidate, will not be less than $7.84,
plus interest then held in the trust account, for the following
reasons:
• prior to liquidation, pursuant to Section 281
of the Delaware General Corporation Law, we will 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 creditors
known to us at that time as well as provide for any claims that
we believe could potentially be brought against us within the
subsequent 10 years prior to distributing the funds held in
the trust to our public 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 of creditors to the extent of
distributions received by them (but no more); and
• while we will seek to have all vendors and 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) and prospective target businesses 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,
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. To date, we do not have
waiver agreements in place with respect to any party that is
currently providing services to us; however, prior to the
consummation of the offering, we expect to receive the written
waiver of our outside legal counsel, auditors, the
representative and the representative’s outside legal
counsel. Our management stockholders have agreed that they will
be personally liable to ensure that the proceeds in the trust
account are not reduced by the claims of target businesses or
claims of vendors or other entities that are owed money by us
for services rendered or contracted for or products sold to us.
Although we have
a fiduciary obligation to pursue our management stockholders to
enforce their indemnification obligations, and intend to pursue
such actions as and when we deem appropriate, there can be no
assurance they will be able to satisfy those obligations, if
required to do so. The only obligations not covered by such
indemnity are with respect to claims of creditors, vendors,
service providers and target businesses that have executed a
valid and binding waiver of their right to seek payment of
amounts due to them out of the trust account. Furthermore, our
management stockholders will not have any personal liability as
to any claimed amounts owed to a third party who executed a
valid and enforceable waiver (including a prospective target
business). Additionally, in the case of a prospective target
business that did not execute a waiver, such liability will only
be in an amount necessary to ensure that public stockholders
receive no less than $7.84 per share upon liquidation.
We anticipate the distribution of the funds in the trust account
to our public stockholders will occur
by ,
2009 [10 business days from the date our corporate existence
ceases]. Our existing stockholders have waived their rights
to participate in any liquidation distribution with respect to
their initial shares. We will pay the costs of liquidation from
our remaining assets outside of the trust account. If such funds
are insufficient, our existing stockholders have agreed to
advance us the funds necessary to complete such liquidation
(currently anticipated to be no more than approximately $15,000)
and have agreed not to seek repayment for such expenses.
Escrow of existing stockholders’securities
On the date of this prospectus, all of our existing
stockholders, including all of our officers and directors, will
place their initial shares into an escrow account maintained by
Continental Stock Transfer & Trust Company,
acting as escrow agent. Subject to certain limited exceptions
(such as transfers (i) to an entity’s members upon its
liquidation, (ii) to relatives and trusts for estate
planning purposes or (iii) by private sales made at or
prior to the consummation of a business combination at prices no
greater than the price at which the shares were originally
purchased, in each case where the transferee agrees to the terms
of the escrow agreement), these shares will not be transferable
during the escrow period and will not be released from escrow
until one year after the consummation of our initial business
combination or earlier if, following a business combination,
(a) the last sales price of our common stock equals or
exceeds $11.50 per share for any 20 trading days within any
30-trading day period or (b) we consummate a subsequent
liquidation, merger, stock exchange or other similar transaction
which results in all of our stockholders having the right to
exchange their shares of common stock for cash, securities or
other property. Private sales will be permitted in order to
allow our existing stockholders to transfer shares of our common
stock to officers and directors who may be hired or appointed
after the date of this prospectus. These transfers were
contemplated prior to the sale of the initial shares to our
existing stockholders.
Additionally, on the date of this prospectus, the insider
warrants will be placed into the escrow account maintained with
Continental Stock
Transfer & Trust Company, acting as escrow agent.
Subject to certain limited exceptions, the insider warrants will
not be transferable during the escrow period and will not be
released from escrow until the later
of ,
2008 [one year from the date of this prospectus] and
60 days after the consummation of our business combination.
Risks
In making your decision on whether to invest in our securities,
you should take into account not only the backgrounds of our
management team, but also the special risks we face as a blank
check company, as well as the fact that this offering is not
being conducted in compliance with Rule 419 promulgated
under the Securities Act of 1933, as amended, and, therefore,
you will not be entitled to protections normally afforded to
investors in Rule 419 blank check offerings. You should
carefully consider these and the other risks set forth in the
section entitled “Risk Factors” beginning on
page 14 of this prospectus.
The following table summarizes the relevant financial data for
our business and should be read with our financial statements,
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 which may be
converted to cash
—
21,148,948
Stockholders’ equity
15,961
47,327,013
(1)
Includes the $2,100,000 we will receive from the sale of the
insider warrants.
(2)
Includes the $2,160,000 deferred underwriters’ discounts
and commissions payable to the underwriters upon completion of
the business combination.
The “as adjusted” information gives effect to the sale
of the units we are offering, 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 required to be repaid.
The working capital deficiency excludes $93,634 of costs related
to this offering which were paid or accrued prior to
May 31, 2007. These deferred offering costs have been
recorded as a long-term asset and are reclassified against
stockholders’ equity in the “as adjusted”
information.
The “as adjusted” total assets amounts include the
$70,520,000 to be held in the trust account, which will be
available to us only upon the consummation of a business
combination within the time period described in this prospectus.
This trust amount includes $2,160,000 (or approximately $0.24
per share) of deferred underwriting discounts and commissions
payable to the underwriters in the offering only if we
consummate a business combination. If a business combination is
not so consummated, the trust account totaling $70,520,000 of
net proceeds from the offering, including $2,100,000 of proceeds
from the private placement of the insider warrants, and all
accrued interest earned thereon less (i) up to $1,900,000
that may be released to us to fund our expenses and other
working capital requirements and (ii) any amounts released
to us to pay our income or other tax obligations, will be
distributed solely to our public stockholders (subject to our
obligations under Delaware law to provide for claims of
creditors).
We will not proceed with a business combination if public
stockholders owning 30% or more of the shares sold in this
offering vote against the business combination and exercise
their conversion rights. Accordingly, we may effect a business
combination if public stockholders owning up to 29.99% of the
shares sold in this offering exercise their conversion rights.
If this occurred, we would be required to convert to cash up to
29.99% of the 9,000,000 shares sold in this offering, or
2,699,100 shares of common stock, for an initial per-share
conversion price of approximately $7.84 (for an aggregate
maximum conversion price of approximately $21 million),
without taking into account interest earned on the trust
account. The actual per-share conversion price will be equal to:
•
the amount in the trust account, including all accrued interest
after distribution of interest income on the trust account
balance to us as described above, as of two business days prior
to the proposed consummation of the business combination,
•
divided by the number of shares of common stock sold in the
offering.
Because converting stockholders will receive their proportionate
share of the deferred underwriting discounts and commissions and
the underwriters will be paid the full amount of their deferred
underwriting compensation at the time of the consummation of our
initial business combination, we (and, therefore, the
non-converting stockholders) will bear the financial effect of
such payments to both the converting stockholders and the
underwriters.
An investment in our securities involves a high degree of
risk. You should consider carefully the material risks described
below, which we believe represent all the material risks related
to the offering, together with the other information contained
in this prospectus, before making a decision to invest in our
units.
Risks
associated with our business
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. Therefore, our ability to commence
operations is dependent upon obtaining financing through the
public offering of our securities. Since we do not have an
operating history, you will have no basis upon which to evaluate
our ability to achieve our business objective, which is to
acquire an operating business. We have not conducted any
discussions and we have no plans, arrangements or understandings
with any prospective acquisition candidates. We will not
generate any revenues until, at the earliest, after the
consummation of a business combination.
If we
are forced to liquidate before a business combination and
distribute the trust account, our public stockholders may
receive less than $8.00 per share and our warrants will expire
worthless.
If we are unable to complete a business combination within the
prescribed time frames and are forced to liquidate our assets,
the per-share liquidation distribution may be less than $8.00
because of the expenses of this offering, our general and
administrative expenses and the anticipated costs of seeking a
business combination. Furthermore, there will be no distribution
with respect to our outstanding warrants which will expire
worthless if we liquidate before the completion of a business
combination.
If we
are unable to consummate a business combination, our public
stockholders will be forced to wait the full 24 months
before receiving liquidation distributions.
We have 24 months in which to complete a business
combination. We have no obligation to return funds to investors
prior to such date unless we consummate a business combination
prior thereto and only then in cases where investors have sought
conversion of their shares. Only after the expiration of this
full time period will public stockholders be entitled to
liquidation distributions if we are unable to complete a
business combination. Accordingly, investors’ funds may be
unavailable to them until such date.
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 a target business that
has not been identified, we may be deemed to be a “blank
check” company under the United States securities laws.
However, since our securities will be listed on the American
Stock Exchange, a national securities exchange, and we will have
net tangible assets in excess of $5,000,000 upon the successful
consummation of this offering and will file a Current Report on
Form 8-K,
including an audited balance sheet demonstrating this fact, we
are exempt from rules promulgated by the SEC to protect
investors of blank check companies such as Rule 419.
Accordingly, investors will not be afforded the benefits or
protections of those rules. Because we are not subject to
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.
Unlike
many other blank check offerings, we allow up to 29.99% of our
public stockholders to exercise their conversion rights. This
higher threshold will make it easier for us to consummate 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.
When we seek stockholder approval of a business combination, we
will offer each public stockholder (other than our existing
stockholders) the right to have his, her or its shares of common
stock converted to cash if the stockholder votes against the
business combination and the business combination is approved
and consummated.
We will consummate the initial business combination only if the
following two conditions are met: (i) a majority of the
shares of common stock voted by the public stockholders are
voted in favor of the business combination and (ii) public
stockholders owning 30% or more of the shares sold in this
offering do not vote against the business combination and
exercise their conversion rights. We believe that most other
blank check companies have a conversion threshold of 20%, which
makes it more difficult for such companies to consummate their
initial business combination. Thus, because we permit a larger
number of stockholders to exercise their conversion rights, it
will be easier for us to consummate an initial business
combination with a target business which 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.
Because
there are numerous companies with a business plan similar to
ours seeking to effectuate a business combination, it may be
more difficult for us to do so.
Since 2003, based upon publicly available information,
approximately 114 similarly structured blank check companies
have completed initial public offerings in the United States. Of
these companies, only 29 companies have consummated a
business combination, while 24 other companies have announced
they have entered into a definitive agreement for a business
combination, but have not consummated such business combination,
and 5 companies have failed to complete business
combinations and have either dissolved or announced their
intention to dissolve and return trust proceeds to their
stockholders. Accordingly, there are approximately 56 blank
check companies with more than $5.6 billion in trust that
are seeking to carry out a business plan similar to our business
plan. Of these, there are 8 blank check companies with more
than $600 million in trust that are focused on the
entertainment, media, digital and communications industries.
Furthermore, there are a number of additional offerings for
blank check companies that are still in the registration process
but have not completed initial public offerings and there are
likely to be more blank check companies filing registration
statements for initial public offerings after the date of this
prospectus and prior to our completion of a business
combination. While some of those companies must complete a
business combination in specific industries, a number of them
may consummate a business combination in any industry they
choose. Therefore, we may be subject to competition from these
and other companies seeking to consummate a business plan
similar to ours. Because of this competition, we cannot assure
you that we will be able to effectuate a business combination
within the required time periods.
If the
net proceeds of this offering not being held in trust are
insufficient to allow us to operate for at least the next
24 months, we may be unable to complete a business
combination.
We believe that, upon consummation of this offering, the funds
available to us outside of the trust account, plus the interest
earned on the funds held in the trust account that may be
available to us, will be sufficient to allow us to operate for
at least the next 24 months, assuming that a business
combination is not consummated during that time. However, we
cannot assure you that our estimates will be accurate. We could
use a portion of the funds available to us to pay fees to
consultants to assist us with our search for a target business.
We could also use a portion of the funds as a down payment or to
fund a “no-shop” provision (a provision in letters of
intent designed to keep target businesses from
“shopping” around for transactions with other
companies on terms more favorable to such target businesses)
with respect to a particular proposed business combination,
although we do not have any current intention to do so. If we
entered into a letter of intent where we paid for the right to
receive exclusivity from a target business and were subsequently
required to forfeit such funds (whether as a result of our
breach or otherwise), we might not have sufficient funds to
continue searching for, or conduct due diligence with respect
to, a target business.
A
decline in interest rates could limit the amount available to
fund our search for a target business or businesses and complete
a business combination since we will depend on interest earned
on the trust account to fund our search, to pay our tax
obligations and to complete our initial business
combination.
Of the net proceeds of this offering, only $100,000 will be
available to us initially 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 additional working capital we will need to
identify one or more target businesses and to complete our
initial business combination, as well as to pay any tax
obligations that we may owe. While we are entitled to have
released to us for such purposes up to $1.9 million of
interest earned on the funds in the trust
account, a substantial decline in interest rates may result in
our having insufficient funds available with which to structure,
negotiate or close an initial business combination. In such
event, we would need to borrow funds from our existing
stockholders to operate or may be forced to liquidate. Our
existing stockholders are under no obligation to advance funds
in such circumstances.
If
third parties bring claims against us, the proceeds held in
trust could be reduced and the per-share liquidation price
received by stockholders will be less than approximately $7.84
per share.
Our placing of funds in trust may not protect those funds from
third party claims against us. Although we will seek to have all
vendors and service providers we engage and prospective target
businesses we negotiate with, 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. Furthermore, there is no guarantee that, even if
such entities execute such agreements with us, they will not
seek recourse against the trust account. Nor is there any
guarantee that a court would uphold the validity of such
agreements. Accordingly, the proceeds held in trust could be
subject to claims which could take priority over those of our
public stockholders. If we liquidate before the completion of a
business combination and distribute the proceeds held in trust
to our public stockholders, our management stockholders have
agreed that they will be personally liable to ensure that the
proceeds in the trust account are not reduced by the claims of
target businesses or vendors or other entities that are owed
money by us for services rendered or contracted for or products
sold to us. Based on representations made to us by our
management stockholders, we currently believe that they are
capable of funding a shortfall in our trust account to satisfy
their foreseeable indemnification obligations. However, we have
not asked them to reserve for such an eventuality. Although we
have a fiduciary obligation to pursue our management
stockholders to enforce their indemnification obligations, and
intend to pursue such actions as and when we deem appropriate,
there can be no assurance they will be able to satisfy those
obligations, if required to do so or that the proceeds in the
trust account will not be reduced by such claims. Furthermore,
our management stockholders will not have any personal liability
as to any claimed amounts owed to a third party who executed a
valid and enforceable waiver (including a prospective target
business). Additionally, in the case of a prospective target
business that did not execute a waiver, such liability will only
be in an amount necessary to ensure that public stockholders
receive no less than $7.84 per share upon liquidation.
Additionally, 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 $7.84 per share.
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 until 24 months
from the date of this prospectus. If we have not completed a
business combination by such date and amended this provision in
connection thereto, pursuant to the Delaware General Corporation
Law, our corporate existence will cease except for the purposes
of winding up our affairs and liquidating. Under
Sections 280 through 282 of the Delaware General
Corporation Law, 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 Delaware General Corporation Law
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 the expiration of the twenty four month period 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 Delaware General
Corporation Law, 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 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 (but no more) and any liability of our stockholders may
extend well beyond the third anniversary of the date of
distribution. Accordingly, we cannot assure you that third
parties will not seek to recover from our stockholders amounts
owed to them by us.
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 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 promptly
after ,
2009 [twenty four months from the date of this
prospectus], 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 may be viewed as having breached
their fiduciary duties to our creditors or may have acted in bad
faith, thereby exposing itself and our company to claims of
punitive damages, by paying public stockholders from the trust
account prior to addressing the claims of creditors. We cannot
assure you that claims will not be brought against us for these
reasons.
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 his, her or its warrants
and causing such warrants to be practically
worthless.
No warrant held by public stockholders will be exercisable and
we will not be obligated to issue shares of common stock unless
at the time such holder seeks to exercise such warrant, a
registration statement relating to the common stock issuable
upon exercise of the warrant is effective and current and the
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 our best efforts to meet these
conditions and to maintain a current prospectus relating to the
common stock issuable upon exercise of the warrants until the
expiration of the warrants. However, we cannot assure you that
we will be able to do so, and if we do not maintain a current
prospectus related to the common stock issuable upon exercise of
the warrants, holders will be unable to exercise their warrants
and we will not be required to settle any such warrant exercise.
In no event will we be required to net cash settle any warrant
exercise. If the prospectus relating to the common stock
issuable upon the exercise of the warrants is not current, the
warrants held by public stockholders may have no value, the
market for such warrants may be limited and such warrants may
expire worthless. As a result, a purchaser of a unit may pay the
full unit purchase price solely for the shares underlying the
unit. Notwithstanding the foregoing, the insider warrants may be
exercisable for unregistered shares of common stock even if no
registration relating to the common stock issuable upon exercise
of the warrants is effective and current.
An
investor will only be able to exercise a warrant if the issuance
of common stock upon such exercise has been registered or
qualified or is deemed exempt under the securities laws of the
state of residence of the holder of the warrants.
No warrants will be exercisable and we will not be obligated to
issue shares of common stock unless the common stock issuable
upon such exercise 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. Because the exemptions from
qualification in certain states for resales of warrants and for
issuances of common stock by the issuer upon exercise of a
warrant may be different, a warrant may be held by a holder in a
state where an exemption is not available for issuance of common
stock upon an exercise and the holder will be precluded from
exercise of the warrant. At the time that the warrants become
exercisable (following our completion of a business
combination), we expect to either continue to be listed on the
American Stock Exchange, which would provide an exemption from
registration in every state, or we would register the warrants
in every state (or seek another exemption from registration in
such states).
Accordingly, we believe holders in every state will be able to
exercise their warrants as long as our prospectus relating to
the common stock issuable upon exercise of the warrants is
current. However, we cannot assure you of this fact. As a
result, the warrants may be deprived of any value, the market
for the warrants may be limited and the holders of warrants may
not be able to exercise their warrants if the common stock
issuable upon such exercise is not qualified or exempt from
qualification in the jurisdictions in which the holders of the
warrants reside.
Since
we have not yet selected a target business with which to
complete a business combination, we are unable to currently
ascertain the particular merits or risks of the business in
which we may ultimately operate.
Although we intend to focus our efforts on the entertainment,
media, digital and communications industries, there is no
current basis for you to evaluate the possible merits or risks
of the particular target business which we may ultimately
acquire. To the extent we complete a 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. Although our management
will endeavor to evaluate the risks inherent in our industry or
a particular target business, we cannot assure you that we will
properly ascertain or assess all of the significant risk
factors. We also cannot assure you that an investment in our
units will not ultimately prove to be less favorable to
investors in this offering than a direct investment, if an
opportunity were available, in a target business. For a more
complete discussion of our selection of a target business, see
the section appearing elsewhere in this prospectus entitled
“Proposed Business — Effecting a business
combination — We have not identified a target
business.”
We may
not obtain an opinion from an unaffiliated third party as to the
fair market value of the target acquisition or that the price we
are paying for the business is fair to our
stockholders.
We are not required to obtain an opinion from an unaffiliated
third party that either the target acquisition we select has a
fair market value in excess of 80% of our net assets held in the
trust account (net of taxes and amounts disbursed for working
capital purposes and excluding the amount held in the trust
account representing a portion of the underwriters’
discount) or that the price we are paying is fair to
stockholders unless (i) our board is not able to
independently determine that a target acquisition has a
sufficient market value or (ii) there is a conflict of
interest with respect to the transaction. If no opinion is
obtained, our stockholders will be relying on the judgment or
our board of directors.
We may
issue shares of our capital stock or debt securities to complete
a business combination, which would reduce the equity interest
of our stockholders and likely cause a change in control of our
ownership.
Our certificate of incorporation authorizes the issuance of up
to 40,000,000 shares of common stock, par value $0.001 per
share, and 1,000,000 shares of preferred stock, par value
$0.001 per share. Immediately after this offering and the
purchase of the insider warrants (assuming no exercise of the
underwriters’ over-allotment option), there will be
15,850,000 authorized but unissued shares of our common stock
available for issuance (after appropriate reservation for the
issuance of the shares upon full exercise of our outstanding
warrants and the purchase option granted to the underwriters)
and all of the 1,000,000 shares of preferred stock
available for issuance. Although we have no commitment as of the
date of this offering, 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 investors in
this offering;
•
may subordinate the rights of holders of common stock if we
issue preferred stock with rights senior to those afforded to
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
•
may adversely affect prevailing market prices for our common
stock.
Similarly, if we issue debt securities, 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 security contains covenants restricting our ability to
obtain such financing while the debt security is outstanding.
Our
ability to successfully effect a business combination and to be
successful thereafter will be totally dependent upon the efforts
of our key personnel, some of whom may join us following a
business combination.
Our ability to successfully effect a business combination is
dependent upon the efforts of our key personnel. The role of our
key personnel in the target business, however, cannot presently
be ascertained. Although some of our key personnel may remain
with the target business in senior management or advisory
positions following a business combination, it is likely that
some or all of the management of the target business will remain
in place. While we intend to closely scrutinize any individuals
we engage after 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 regulatory issues which
may adversely affect our operations.
Our
key personnel may negotiate employment or consulting agreements
with a target business in connection with a particular business
combination. These agreements may provide for them to receive
compensation following a business combination and as a result,
may cause them to have conflicts of interest in determining
whether a particular business combination is the most
advantageous.
Our key personnel will be able to remain with the company after
the consummation of a business combination only if they are able
to negotiate employment or consulting agreements in connection
with the business combination. Such negotiations would take
place simultaneously with the negotiation of the business
combination and could provide for such individuals to receive
compensation in the form of cash payments or our securities for
services they would render to the company after the consummation
of the business combination. The personal and financial
interests of such individuals may influence their motivation in
identifying and selecting a target business. However, we believe
the ability of such individuals to remain with the company after
the consummation 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.
Our
officers and directors will allocate their time to other
businesses thereby causing conflicts of interest in their
determination as to how much time to devote to our affairs. This
conflict of interest could have a negative impact on our ability
to consummate a business combination.
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 consummation of a business combination.
All of our executive officers are engaged in several other
business endeavors and are not obligated to devote any specific
number of hours to our affairs. If our officers’ and
directors’ other business affairs require them to devote
more substantial amounts of time to such affairs, it could limit
their ability to devote time to our affairs and could have a
negative impact on our ability to consummate a business
combination. We cannot assure you that these conflicts will be
resolved in our favor. As a result, a potential target business
may be presented to another entity prior to its presentation to
us and we may miss out on a potential transaction.
Our
officers, directors and their affiliates may in the future
become affiliated with entities engaged in business activities
similar to those intended to be conducted by us and accordingly,
may have conflicts of interest in determining to which entity a
particular business opportunity should be
presented.
Our officers and directors may be, or may in the future become,
affiliated with entities, including other “blank
check” companies, engaged in business activities similar to
those intended to be conducted by us. Additionally, our officers
and directors may become aware of business opportunities which
may be appropriate for presentation to us and the other entities
to which they owe fiduciary duties. Accordingly, they may have
conflicts of interest in determining to which entity a
particular business opportunity should be presented. We cannot
assure you that these conflicts will be resolved in our favor.
As a result, a potential target business may be presented to
another entity prior to its presentation to us and we may miss
out on a potential transaction.
All of
our officers and directors own shares of our common stock issued
prior to the offering and some of them will own warrants
following this offering. These shares and warrants will not
participate in liquidation distributions and, therefore, our
officers and directors may have a conflict of interest in
determining whether a particular target business is appropriate
for a business combination.
All of our officers and directors own shares of our common stock
that were issued prior to this offering. Additionally, certain
of our officers and directors are purchasing insider warrants
upon consummation of this offering. Such individuals have waived
their right to receive distributions with respect to their
initial shares upon our liquidation if we are unable to
consummate a business combination. Accordingly, the shares
acquired prior to this offering, as well as the insider
warrants, and any warrants purchased by our officers or
directors in this offering or in the aftermarket will be
worthless if we do not consummate a business combination. The
personal and financial interests of our directors and officers
may influence their motivation in timely identifying and
selecting a target business and completing a business
combination. Consequently, our directors’ and
officers’ discretion 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.
The
American Stock Exchange may delist 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 anticipate that our securities will be listed on the American
Stock Exchange, a national securities exchange, upon
consummation of this offering. We cannot assure you that our
securities will continue to be listed on the American Stock
Exchange in the future prior to a business combination.
Additionally, in connection with our business combination, it is
likely that the American Stock Exchange will require us to file
a new initial 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 delists 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 will require brokers trading in our common
stock to adhere to more stringent rules, possibly resulting in a
reduced level of trading activity in the secondary trading
market for our common stock;
•
a limited amount of news and analyst coverage for our
company; and
•
a decreased ability to issue additional securities or obtain
additional financing in the future.
We may
only be able to complete one business combination with the
proceeds of this offering, which will cause us to be solely
dependent on a single business which may have a limited number
of products or services.
Our business combination must be with a business with a fair
market value of at least 80% of our net assets at the time of
such acquisition, although this may entail the simultaneous
acquisitions of several operating businesses
at the same time. By consummating a business combination with
only a single entity, our lack of diversification may subject us
to numerous economic, competitive and regulatory developments.
Further, we would not be able to diversify our operations or
benefit from the possible spreading of risks or offsetting of
losses, unlike other entities which may have the resources to
complete several business combinations in different industries
or different areas of a single industry. Accordingly, the
prospects for our success may be:
•
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.
This lack of diversification may subject us to numerous
economic, competitive and regulatory developments, any or all of
which may have a substantial adverse impact upon the particular
industry in which we may operate subsequent to a business
combination.
Alternatively, if we determine to simultaneously acquire several
businesses and such businesses 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
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.
The
ability of our stockholders to exercise their conversion rights
may not allow us to effectuate the most desirable business
combination or optimize our capital structure.
When we seek stockholder approval of any business combination,
we will offer each public stockholder (but not our existing
stockholders) the right to have his, her or its shares of common
stock converted to cash if the stockholder votes against the
business combination and the business combination is approved
and completed. Such holder must both vote against such business
combination and then exercise his, her or its conversion rights
to receive a pro rata portion of the trust account. Accordingly,
if our 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 our business combination in
case a larger percentage of stockholders exercise their
conversion rights than we expect. Since we have no specific
business combination under consideration, we have not taken any
steps to secure third party financing. Therefore, we may not be
able to consummate 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 our business combination. This may limit our
ability to effectuate the most attractive business combination
available to us.
Because
of our limited resources and structure, we may not be able to
consummate an attractive business combination.
We expect to encounter intense competition from entities other
than blank check companies having a business objective similar
to ours, including venture capital funds, leveraged buyout funds
and operating businesses competing for acquisitions. Many of
these entities are well established and have extensive
experience in identifying and effecting business combinations
directly or through affiliates. Many of these competitors
possess greater technical, human and other resources 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 potential target businesses that
we could acquire with the net proceeds of this offering, our
ability to compete in acquiring certain sizable target
businesses 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 we have to seek stockholder approval
of a business combination may delay the consummation 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 only
53 of the 114 blank check companies that have gone public in the
United States since 2003 have either consummated a business
combination or entered into a definitive agreement for a
business combination, 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
consummate a business combination with a target business within
the prescribed time periods, we will be forced to liquidate.
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 or abandon a particular business
combination.
Although we believe that the net proceeds of this offering will
be sufficient to allow us to consummate 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
prove to be insufficient, either because of the size of the
business combination, the depletion of the available net
proceeds in search of a target business, or the obligation to
convert into cash a significant number of shares from dissenting
stockholders, we will be required to seek additional financing.
We cannot assure you that such financing will be available on
acceptable terms, if at all. To the extent that additional
financing proves to be unavailable when needed to consummate 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.
In addition, if we consummate a business combination, we may
require additional financing to fund the operations or growth of
the target business. The failure to secure additional financing
could have a material adverse effect on the continued
development or growth of the target business. None of our
officers, directors or stockholders is required to provide any
financing to us in connection with or after a business
combination.
Our
existing stockholders, including our officers and directors,
control a substantial interest in us and thus may influence
certain actions requiring a stockholder vote.
Upon consummation of our offering, our existing stockholders
(including all of our officers and directors) will collectively
own 20% of our issued and outstanding shares of common stock
(assuming they do not purchase any units in this offering). 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 consummation of a business
combination, in which case all of the current directors will
continue in office until at least the consummation 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 existing stockholders, because of their
ownership position, will have considerable influence regarding
the outcome. Accordingly, our existing stockholders will
continue to exert control at least until the consummation of a
business combination.
Our
existing stockholders paid an aggregate of $25,000, or
approximately $0.01 per share, for their shares and,
accordingly, you will experience immediate and substantial
dilution from the purchase of our common stock.
The difference between the public offering price per share 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 existing stockholders acquired
their initial shares of common stock at a nominal price,
significantly contributing to this dilution. Upon consummation
of this offering, you and the other new investors will incur an
immediate and substantial dilution of approximately 30.9% or
$2.47 per share (the difference between the pro forma net
tangible book value per share of $5.53, and the initial offering
price of $8.00 per unit).
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.
We will be issuing warrants to purchase 9,000,000 shares of
common stock as part of the units offered by this prospectus and
the insider warrants to purchase 2,100,000 shares of common
stock. We will also issue an option to purchase
900,000 units to Pali Capital, Inc., which, if exercised,
will result in the issuance of an additional
900,000 shares of common stock and 900,000 warrants. 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 upon exercise of these warrants and
option 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 any shares issued to
complete the business combination. Accordingly, our warrants may
make it more difficult to effectuate a business combination or
increase the cost of acquiring the target business.
Additionally, the sale, or even the possibility of sale, of the
shares underlying 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 our
existing stockholders or the purchasers of the insider warrants
exercise their registration rights with respect to their initial
shares or insider warrants and underlying securities, it may
have an adverse effect on the market price of our common stock
and the existence of these rights may make it more difficult to
effect a business combination.
Our existing stockholders are entitled to make a demand that we
register the resale of their initial shares at any time
commencing on the date on which their shares are released from
escrow. Additionally, the purchasers of the insider warrants are
entitled to demand that we register the resale of their insider
warrants and underlying shares of common stock at any time after
we consummate a business combination. If such individuals
exercise their registration rights with respect to all of their
securities, then there will be an additional
2,250,000 shares of common stock and 2,100,000 warrants (as
well as 2,100,000 shares of common stock underlying the
warrants) eligible for trading in the public market. The
presence of these additional shares of common stock trading in
the public market may have an adverse effect on the market price
of our common stock. In addition, the existence of these rights
may make it more difficult to effectuate a business combination
or increase the cost of acquiring the target business, as the
stockholders of the target business may be discouraged from
entering into a business combination with us or may request a
higher price for their securities because of the potential
effect the exercise of such rights may have on the trading
market for our common stock.
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.
A company that, among other things, is or holds itself out as
being engaged primarily, or proposes to engage primarily, in the
business of investing, reinvesting, owning, trading or holding
certain types of securities would be deemed an investment
company under the Investment Company Act of 1940. Since we will
invest the proceeds held in the trust account, it is possible
that we could be deemed an investment company. Notwithstanding
the foregoing, we do not believe that our anticipated principal
activities will subject us to the Investment Company Act of
1940. To this end, the proceeds held in trust may be invested by
the trustee only in United States “government
securities” within the meaning of Section 2(a)(16) of
the Investment Company Act of 1940 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. By
restricting the investment of the proceeds to these instruments,
we intend to meet the requirements for the exemption provided in
Rule 3a-1
promulgated under the Investment Company Act of 1940.
If we are nevertheless 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; and
•
restrictions on the issuance of securities.
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.
Compliance with these additional regulatory burdens would
require additional expense for which we have not allotted funds.
The
determination of the offering price of our units and insider
warrants is more arbitrary compared with 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, as well as the price of the insider
warrants, were negotiated between us and the representative of
the underwriters. Factors considered in determining the prices
and terms of the units, including the common stock and warrants
underlying the units, and the insider warrants 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;
•
our belief that the aggregate gross proceeds raised in this
offering will be sufficient to complete a desirable acquisition;
•
general conditions of the securities markets at the time of the
offering; and
•
other factors as were deemed relevant.
In consultation with our underwriters, we determined the size of
this offering based on our beliefs concerning the capital that
could be successfully raised given market conditions, our
company’s business, our management team and other factors.
With an equity base equivalent to the net proceeds of this
offering and the private placement, we believe we will have the
ability to consider a broad range of potential target businesses
possessing the scale of operations and developed infrastructure
that will allow us to execute a business plan which will
leverage our skills and resources. The determination of the
offering price of our units and the valuation accorded to our
company is more arbitrary than the pricing of securities for, or
valuation of, operating companies in general.
If we
effect a business combination with a company located outside of
the United States, we would be subject to a variety of
additional risks that may negatively impact our
operations.
We may effect a business combination with a company located
outside of the United States. If we did, we would be subject to
any special considerations or risks associated with companies
operating in the target business’ home jurisdiction,
including any of the following:
•
tariffs and trade barriers;
•
regulations related to customs and import/export matters;
•
longer payment cycles;
•
tax issues, such as tax law changes and variations in tax laws
as compared to the United States;
We cannot assure you that we would be able to adequately address
these additional risks. If we were unable to do so, our
operations might suffer.
If we
effect a business combination with a company located outside of
the United States, the laws applicable to such company will
likely govern all of our material agreements and we may not be
able to enforce our legal rights.
If we effect a business combination with a company located
outside of the United States, the laws of the country in which
such company operates will govern almost all of the material
agreements relating to its operations. We cannot assure you that
the target business will be able to enforce any of its material
agreements or that remedies will be available in this new
jurisdiction. The system of laws and the enforcement of existing
laws in such jurisdiction may not be as certain in
implementation and interpretation as in the United States.
The inability to enforce or obtain a remedy under any of our
future agreements could result in a significant loss of
business, business opportunities or capital. Additionally, if we
acquire a company located outside of the United States, it
is likely that substantially all of our assets would be located
outside of the United States and some of our officers and
directors might reside outside of the United States. As a
result, it may not be possible for investors in the United
States to enforce their legal rights, to effect service of
process upon our directors or officers or to enforce judgments
of United States courts predicated upon civil liabilities and
criminal penalties against our directors and officers under
Federal securities laws.
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 operating 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.
Risks
Associated with the Entertainment, Media, Digital and
Communications Industries
We will focus our search on target businesses in the
entertainment, media, digital or communications industries. We
believe that the following risks will apply to us following the
completion of a business combination with a target business in
the entertainment, media, digital or communications industries.
The
speculative nature of the entertainment, media, digital and
communications industries may negatively impact our results of
operations.
Certain segments of the entertainment, media, digital and
communications industries are highly speculative and
historically have involved a substantial degree of risk. For
example, the success of a particular video game, program or
series or recreational attraction depends upon unpredictable and
changing factors, including the success of promotional efforts,
the availability of alternative forms of entertainment and
leisure time activities, general economic conditions, public
acceptance and other tangible and intangible factors, many of
which are beyond our control. If we complete a business
combination with a target business in such a segment, our
operations may be adversely affected.
If we
are unable to protect our patents, trademarks, copyrights and
other intellectual property rights following a business
combination, competitors may be able to use our technology or
intellectual property rights, which could weaken our competitive
position.
If we are successful in acquiring a target business and the
target business is the owner of patents, trademarks, copyrights
and other intellectual property, our success will depend in part
on our ability to obtain and enforce intellectual property
rights for those assets, both in the United States and in other
countries. In those circumstances, we may file applications for
patents, copyrights and trademarks as our management deems
appropriate. We cannot assure you that these applications, if
filed, will be approved, or that we will have the financial and
other resources
necessary to enforce our proprietary rights against infringement
by others. Additionally, we cannot assure you that any patent,
trademark or copyright obtained by us will not be challenged,
invalidated or circumvented.
If we
are alleged to have infringed on the intellectual property or
other rights of third parties, it could subject us to
significant liability for damages and may invalidate our
proprietary rights.
If, following a business combination, third parties allege that
we have infringed on their intellectual property rights, privacy
rights or publicity rights or have defamed them, we could become
a party to litigation. These claims and any resulting lawsuits
could subject us to significant liability for damages and could
invalidate our proprietary rights or restrict our ability to
publish and distribute the infringing or defaming content.
We may
not be able to comply with government regulations that may be
adopted with respect to the entertainment, media, digital and
communications industries.
Certain segments of the entertainment, media, digital and
communications industries, including broadcast networks, cable
networks and radio stations, have historically been subject to
substantial regulation at the Federal, state and local levels.
In the past, the regulatory environment, particularly with
respect to the television and radio industry, has been fairly
rigid. We cannot assure you that regulations currently in effect
or adopted in the future will not cause us to modify or cease
any of the operations then being conducted by a target business
that we acquire.
We estimate that the net proceeds of this offering, in addition
to the funds we will receive from the sale of the insider
warrants (all 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
From offering
$
72,000,000
$
82,800,000
From private placement
2,100,000
2,100,000
Total gross proceeds
$
74,100,000
$
84,900,000
Offering expenses(1)
Underwriting discount (7% of gross
proceeds from offering, 4% of which is payable at closing and 3%
of which is payable upon consummation of a business
combination)(2)
$
2,880,000
$
3,312,000
Legal fees and expenses
250,000
250,000
Miscellaneous expenses
131,942
131,942
Printing and engraving expenses
50,000
50,000
American Stock Exchange filing and
listing fee
80,000
80,000
Accounting fees and expenses
65,000
65,000
SEC registration fee
5,300
5,300
NASD filing fee
17,758
17,758
Total offering expenses
$
3,480,000
$
3,912,000
Net proceeds(3)
Held in trust
$
70,520,000
$
80,888,000
Not held in trust
100,000
100,000
Total net proceeds
$
70,620,000
$
80,988,000
Use of net proceeds not held in
trust and up to $1,900,000 available from interest income earned
on the trust account(4)(5)
Legal, accounting and other third
party expenses attendant to the search for target businesses and
to the due diligence investigation, structuring and negotiation
of a business combination
$
620,000
$
620,000
Due diligence of prospective
target businesses by officers, directors and existing
stockholders
150,000
150,000
Legal and accounting fees relating
to SEC reporting obligations
200,000
200,000
Payment of administrative fee
($7,500 per month for two years)
180,000
180,000
Working capital to cover
miscellaneous expenses, D&O insurance, general corporate
purposes, liquidation obligations and reserves
850,000
850,000
Total
$
2,000,000
$
2,000,000
(1)
Approximately $100,000 of the offering expenses have been or
will be paid from loans we have received or will receive from
Mr. Green. These loans will be repaid out of the proceeds
of this offering available to us.
No discounts or commissions will be paid with respect to the
purchase of the insider warrants. For purposes of presentation,
the underwriting discounts are reflected as the amount payable
to the underwriters upon consummation of the offering. An
additional $2,160,000, all of which will be deposited in trust
following the consummation of the offering, is payable to the
underwriters only if and when we consummate a business
combination.
(3)
Includes $2,160,000 held in trust for the benefit of the
underwriters in the event we consummate a business combination.
(4)
The amount of proceeds not held in trust will remain constant at
$100,000 even if the over-allotment option is exercised. In
addition, $1,900,000 of interest income earned on the amounts
held in the trust account will be available to us to pay for our
working capital requirements. 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.
(5)
These are estimates only. Our actual expenditures for some or
all of these items may differ from the estimates set forth
herein. For example, we may incur greater legal and accounting
expenses than our current estimates in connection with
negotiating and structuring a business combination based upon
the level of complexity of that business combination. We do not
anticipate any change in our intended use of proceeds, other
than fluctuations among the current categories of allocated
expenses, which fluctuations, to the extent they exceed current
estimates for any specific category of expenses, would be
deducted from our excess working capital.
In addition to the offering of units by this prospectus, our
existing stockholders have committed to purchase the insider
warrants (for an aggregate purchase price of $2,100,000) from
us. These purchases will take place in a private placement that
will occur simultaneously with the consummation of this
offering. We will not pay any discounts or commissions with
respect to the purchase of the insider warrants. All of the
proceeds we receive from this purchase will be placed in the
trust account described below.
$68,420,000, or $78,788,000 if the over-allotment option is
exercised in full, of net proceeds of this offering, plus the
$2,100,000 we will receive from the sale of the insider
warrants, will be placed in a trust account at HSBC Bank USA,
N.A., maintained by Continental Stock Transfer &
Trust Company, New York, New York, as trustee. This amount
includes a portion of the underwriting discounts and commissions
payable to the underwriters in this offering. The underwriters
have agreed that such amount will not be paid unless and until
we consummate a business combination and have waived their right
to receive such payment upon our liquidation if we are unable to
complete a business combination. The funds held in trust will be
invested only in United States “government securities”
within the meaning of Section 2(a)(16) of the Investment
Company Act of 1940 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, so that we
are not deemed to be an investment company under the Investment
Company Act. Except with respect to interest income that may be
released to us of (i) up to $1,900,000 to fund expenses
related to investigating and selecting a target business and our
other working capital requirements and (ii) any additional
amounts we may need to pay our income or other tax obligations,
the proceeds will not be released from the trust account until
the earlier of the completion of a business combination or our
liquidation. 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. Any amounts not paid
as consideration to the sellers of the target business may be
used to finance operations of the target business.
The payment to our management stockholders, an affiliate of our
management stockholders or third parties of a monthly fee of
$7,500 is for certain administrative, technology and secretarial
services, as well as the use of certain limited office space.
This arrangement is being agreed to for our benefit and is not
intended to provide our management stockholders compensation in
lieu of a salary. We believe, based on rents and fees for
similar services in the New York City metropolitan area
identified by our management stockholders, that the fee charged
is at least as favorable as we could have obtained from an
unaffiliated person. Although we have not yet identified office
space, we may rent office space in a facility shared with other
companies. This arrangement will terminate upon completion of a
business combination or the distribution of the trust account to
our public stockholders. Other than the $7,500 per month fee, no
compensation of any kind (including finder’s, consulting or
other similar fees) will be paid to any of our existing
officers, directors, stockholders, or any of their affiliates,
prior to, or for any services they render in order to
effectuate, the consummation of the business combination
(regardless of the type of transaction that it is). However,
such individuals will receive reimbursement for any
out-of-pocket expenses incurred by them in
connection with activities on our behalf, such as searching for
and identifying potential target businesses, performing business
due diligence on suitable target businesses and business
combinations as well as traveling to and from the offices,
plants or similar locations of prospective target businesses to
examine their operations or meet with their representatives or
owners. Reimbursement for such expenses will be paid by us out
of the funds not held in trust and currently allocated to
“Legal, accounting and other third-party expenses attendant
to the search for target businesses and to the due diligence
investigation, structuring and negotiation of a business
combination,”“Due diligence of prospective target
businesses by our officers, directors and existing
stockholders” and “Working capital to cover
miscellaneous expenses, D&O insurance, general corporate
purposes, liquidation obligations and reserves.” Since the
role of present management after a business combination is
uncertain, we have no ability to determine what remuneration, if
any, will be paid to those persons after a business combination.
Regardless of whether the over-allotment option is exercised in
full, the net proceeds from this offering available to us out of
trust for our search for a business combination will be
$100,000. In addition, interest earned on the funds held in the
trust account, up to $1,900,000, may be released to us to fund
our working capital requirements. We will also be entitled to
have interest earned on the funds held in the trust account
released to us to pay any tax obligations that we may owe. We
intend to use the excess working capital (approximately
$850,000) for director and officer liability insurance premiums
(approximately $127,500), with the balance of $722,500 being
held in reserve in the event due diligence, legal, accounting
and other expenses of structuring and negotiating business
combinations exceed our estimates, as well as for reimbursement
of any out-of-pocket expenses incurred by our existing
stockholders in connection with activities on our behalf. We
believe these funds will be sufficient to cover the foregoing
expenses and reimbursement costs. We could use a portion of the
funds not being placed in trust to pay fees to consultants to
assist us with our search for a target business or as a down
payment or to fund a “no-shop” provision (a provision
in letters of intent designed to keep target businesses from
“shopping” around for transactions with other
companies on terms more favorable to such target businesses)
with respect to a particular proposed business combination,
although we do not have any current intention to do so. If we
entered into a letter of intent where we paid for the right to
receive exclusivity from a target business, 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 otherwise) could result in our not having
sufficient funds to continue searching for, or conducting due
diligence with respect to, potential target businesses.
The allocation of the net proceeds available to us outside of
the trust account, along with the available interest earned on
the funds held in the trust account, represents our best
estimate of the intended uses of these funds. In the event that
our assumptions prove to be inaccurate, we may reallocate some
of such proceeds within the above described categories.
We will likely use substantially all of the net proceeds of this
offering, including the funds held in the trust account, to
acquire a target business and to pay our expenses relating
thereto. To the extent that our capital stock is used in whole
or in part as consideration to effect a business combination,
the proceeds held in the trust account which are not used to
consummate 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 the operations
of the target business. Such working capital funds could be used
in a variety of ways including continuing or expanding the
target business’ operations, for strategic acquisitions and
for marketing, research and development of existing or new
products. Such funds could also be used to repay any operating
expenses or finders’ fees which we had incurred prior to
the completion of our business combination if the funds
available to us outside of the trust account were insufficient
to cover such expenses. Further, we may seek to acquire a target
business with a fair market value significantly in excess of 80%
of our net assets held in the trust account. In order to do so,
we may seek to raise additional funds through a private offering
of debt or equity securities, and we may effect a business
combination using the proceeds of such offering rather than
using the amounts held in the trust account. There are no
prohibitions on our ability to raise funds privately or through
loans that would allow us to acquire a company with a fair
market value in an amount greater than 80% of the net assets
held in the trust account at the time of the acquisition. At
this time, we are not a party to any arrangement or
understanding with any third party with respect to raising any
additional funds through the sale of securities or otherwise.
To the extent we are unable to consummate a business
combination, we will pay the costs of liquidation from our
remaining assets outside of the trust account. If such funds are
insufficient, our existing stockholders have agreed to advance
us the funds necessary to complete such liquidation (currently
anticipated to be no more than approximately $15,000) and have
agreed not to seek repayment of such expenses.
Theodore S. Green, our Chairman and Co-Chief Executive Officer,
has advanced to us $100,000, which was used to pay a portion of
the expenses of this offering referenced in the line items above
for SEC registration fee, NASD filing fee, the non-refundable
portion of the American Stock Exchange listing fee, and a
portion of the legal and audit fees and expenses. The loan bears
interest at the rate of 5% per annum, compounded semi-annually,
and will be payable on the earlier of May 21, 2008 or the
consummation of this offering. The loan will be repaid out of
the proceeds of this offering available to us for payment of
offering expenses.
We believe that, upon consummation of this offering, we will
have sufficient available funds (which includes amounts that may
be released to us from the trust account) to operate for the
next 24 months, assuming that a business combination is not
consummated during that time.
A public stockholder will be entitled to receive funds from the
trust account (including interest earned on his, her or its
portion of the trust account) only in the event of our
liquidation or if that public stockholder converts such shares
into cash in connection with a business combination which the
public stockholder voted against and which we consummate. In no
other circumstances will a public stockholder have any right or
interest of any kind to or in the trust account.
Upon the consummation of our initial business combination, the
underwriters will be entitled to receive the portion of the
proceeds held in the trust account attributable to the
underwriters’ discounts and commissions held in the trust
account.
The difference between the public offering price per share of
common stock, assuming no value is attributed to the warrants
included in the units we are offering by this prospectus and the
insider warrants, 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 insider 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
(including the value of common stock which may be converted into
cash), by the number of outstanding shares of our common stock.
At May 31, 2007, our net tangible book value was a
deficiency of $(77,673), or approximately $(0.03) per share of
common stock. After giving effect to the sale of
9,000,000 shares of common stock included in the units we
are offering by this prospectus, and the deduction of
underwriting discounts and estimated expenses of this offering,
and the sale of the insider warrants, our pro forma net tangible
book value at May 31, 2007 would have been $47,327,013 or
$5.53 per share, representing an immediate increase in net
tangible book value of $5.56 per share to the existing
stockholders and an immediate dilution of $2.47 per share to new
investors not exercising their conversion rights. For purposes
of presentation, our pro forma net tangible book value after
this offering is approximately $21,148,948 less than it
otherwise would have been because if we effect a business
combination, the conversion rights of the public stockholders
(but not our existing stockholders) may result in the conversion
into cash of up to 29.99% of the aggregate number of the shares
sold in this offering at a per-share conversion price equal to
the amount in the trust account (a portion of which is made up
of $2,160,000 in deferred underwriting discounts and
commissions) as of two business days prior to the consummation
of the proposed business combination, inclusive of any interest,
divided by the number of shares sold in this offering.
The following table illustrates the dilution to the new
investors on a per-share basis, assuming no value is attributed
to the warrants included in the units and the insider warrants
(actual dilution to investors may be significantly higher as a
result of the exercise of the warrants):
Public offering price
$
8.00
Net tangible book value before
this offering
$
(0.03
)
Increase attributable to new
investors and private sales
5.56
Pro forma net tangible book value
after this offering
5.53
Dilution to new investors
$
2.47
The following table sets forth information with respect to our
existing stockholders and the new investors:
The following table sets forth our capitalization at
May 31, 2007 and as adjusted to give effect to the sale of
our units and the insider warrants and the application of the
estimated net proceeds derived from the sale of such securities:
Common stock, $0.001 par
value, -0- and 2,699,100 shares which are subject to
possible conversion, shares at conversion value
$
—
$
21,148,948
Stockholders’ equity:
Preferred stock, $0.001 par
value, 1,000,000 shares authorized; none issued or
outstanding
—
—
Common stock,$0.001 par
value, 40,000,000 shares authorized; 2,250,000 shares
issued and outstanding, actual; 8,550,900 shares issued and
outstanding (excluding 2,699,100 shares subject to possible
conversion), as adjusted
$
2,250
$
8,551
Additional paid-in capital
22,750
47,327,501
Deficit accumulated during the
development stage
(9,039
)
(9,039
)
Total stockholders’ equity
15,961
47,327,013
Total capitalization
$
115,961
$
70,635,961
(1)
Represents the $2,160,000 deferred underwriters’ discounts
and commissions payable to the underwriters upon completion of
the business combination.
If we consummate a business combination, the conversion rights
afforded to our public stockholders (but not our existing
stockholders) may result in the conversion into cash of up to
29.99% of the aggregate number of shares sold in this offering
at a per-share conversion price equal to the amount in the trust
account (a portion of which is made up of $2,160,000 in deferred
underwriting discounts and commissions), inclusive of any
interest thereon not previously released to us for working
capital requirements and tax obligations, as of two business
days prior to the proposed consummation of a business
combination, divided by the number of shares sold in this
offering. Because converting stockholders will receive their
proportionate share of the deferred underwriting discounts and
commissions and the underwriters will be paid the full amount of
their deferred underwriting compensation at the time of the
consummation of our initial business combination, the Company
(and, therefore, the non-converting stockholders) will bear the
financial effect of such payments to both the converting
stockholders and the underwriters.
We were formed on May 1, 2007 to serve as a vehicle to
effect an acquisition of a domestic or foreign operating
business in the entertainment, media, digital and communications
industries. We intend to utilize cash derived from the proceeds
of this offering, our capital stock, debt or a combination of
cash, capital stock and debt, in effecting a business
combination. The issuance of additional shares of our capital
stock:
•
may significantly reduce the equity interest of our stockholders;
•
may subordinate the rights of holders of common stock if we
issue preferred stock with rights senior to those afforded to
our common stock;
•
will likely 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 most likely will also result in the
resignation or removal of our present officers and
directors; and
•
may adversely affect prevailing market prices for our common
stock.
Similarly, if we issue debt, it could result in:
•
default and foreclosure on our assets if our operating revenues
after a business combination are 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 contains covenants that require the maintenance of
certain financial ratios or reserves and we breach any such
covenant without a waiver or renegotiation of that covenant;
•
our immediate payment of all principal and accrued interest, if
any, if the debt is payable on demand; and
•
our inability to obtain additional financing, if necessary, if
the debt contains covenants restricting our ability to obtain
additional financing while such debt is outstanding.
We have neither engaged in any operations nor generated any
revenues to date. Our entire activity since inception has been
to prepare for our proposed fundraising through an offering of
our equity securities.
We estimate that the net proceeds from the sale of the units,
after deducting offering expenses of approximately $600,000 and
underwriting discounts of approximately $5,040,000, or
$5,796,000 if the over-allotment option is exercised in full,
will be approximately $66,360,000, or $76,404,000 if the
underwriters’ over-allotment option is exercised in full.
However, the underwriters have agreed that $0.24 per unit of the
underwriting discounts and commissions will be deferred and will
not be payable unless and until we consummate a business
combination. Accordingly, $68,420,000, or $78,788,000 if the
over-allotment option is exercised in full, plus the $2,100,000
we will receive from the sale of the insider warrants, will be
held in trust and the remaining $100,000 in either event, will
not be held in trust. We intend to use substantially all of the
net proceeds of this offering, including the funds held in the
trust account (excluding deferred underwriting discounts and
commissions), to acquire a target business and to pay our
expenses relating thereto. To the extent that our capital stock
is used in whole or in part as consideration to effect a
business combination, the remaining proceeds held in the trust
account as well as any other net proceeds not expended will be
used as working capital to finance the operations of the target
business. Such working capital funds could be used in a variety
of ways including continuing or expanding the target
business’ operations, for strategic acquisitions and for
marketing, research and development of existing or new products.
Such funds could also be used to repay any operating expenses or
finders’ fees which we had incurred prior to the completion
of our business combination if the funds available to us outside
of the trust account were insufficient to cover such expenses.
We believe that, upon consummation of this offering, the
$100,000 of net proceeds not held in the trust account, plus the
up to $1,900,000 of interest earned on the trust account balance
that may be released to us as well as amounts necessary for our
tax obligations, will be sufficient to allow us to operate for
at least the next 24 months, assuming that a business
combination is not consummated during that time. Over this time
period, we will be using these funds for identifying and
evaluating prospective acquisition candidates, performing
business due diligence on
prospective target businesses, traveling to and from the
offices, plants or similar locations of prospective target
businesses or their representatives or owners, reviewing
corporate documents and material agreements of prospective
target businesses, selecting the target business to acquire and
structuring, negotiating and consummating the business
combination. We anticipate that we will incur approximately:
•
$620,000 of expenses for the search for target businesses and
for the legal, accounting and other third-party expenses
attendant to the due diligence investigations, structuring and
negotiating of a business combination;
•
$150,000 of expenses for the due diligence and investigation of
a target business by our officers, directors and existing
stockholders;
•
$200,000 of expenses in legal and accounting fees relating to
our SEC reporting obligations;
•
$180,000 for the administrative fee ($7,500 per month for twenty
four months);
•
$850,000 for general working capital that will be used for
miscellaneous expenses, taxes and reserves, including
approximately $127,500 for director and officer liability
insurance premiums.
We have agreed to sell to Pali Capital, Inc., as representative
of the underwriters, for $100, an option to purchase up to a
total of 900,000 units at $10.00 per unit. The units
issuable upon exercise of this option are identical to those
offered by this prospectus. This option is exercisable at $10.00
per unit, and may be exercised on a cashless basis, commencing
on the later of the consummation of a business combination and
one year from the date of this prospectus and expiring five
years from the date of this prospectus. We estimate that the
fair value of this option is approximately $2,835,000 ($3.15 per
unit underlying such option) using a Black-Scholes
option-pricing model. The fair value of the option granted to
the representative of the underwriters is estimated as of the
date of grant using the following assumptions: (1) expected
volatility of 45.2%, (2) risk-free discount rate of 4.95%
(3) expected life of five years and (4) dividend rate
of zero. For a more complete description of the purchase option,
see the section appearing elsewhere in this prospectus entitled
“Underwriting — Purchase Option.”
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. However, we may need to
raise additional funds through a private offering of debt or
equity securities if such funds are required to consummate a
business combination that is presented to us, although we have
not entered into any such arrangement and have no current
intention of doing so.
We are obligated, commencing on the date of this prospectus, to
pay to our management stockholders, an affiliate of our
management stockholders or third parties a monthly fee of $7,500
for general and administrative services.
On May 21, 2007, Theodore S. Green, our Chairman and
Co-Chief Executive Officer, advanced $100,000 to us for payment
of offering expenses on our behalf. The loan bears interest at
the rate of 5% per annum, compounded semi-annually, and will be
payable on the earlier of May 21, 2008 or the consummation
of this offering. The loan will be repaid out of the proceeds of
this offering not being placed in trust.
Our existing stockholders have committed to purchase an
aggregate of 2,100,000 warrants at a purchase price of $1.00 per
warrant (for a total purchase price of $2,100,000) from us.
These purchases will take place in a private placement that will
occur simultaneously with the consummation of this offering.
We are a Delaware blank check company incorporated on
May 1, 2007 in order to serve as a vehicle for the
acquisition of an operating business in the entertainment,
media, digital and communications industries and to seek out
opportunities both domestically and internationally to take
advantage of our management team’s experience in these
markets. The entertainment, media, digital and communications
industries encompass those companies which create, produce,
deliver, own, distribute or market entertainment and information
content, products and services and include among others:
•
broadcast television;
•
cable, satellite and terrestrial television content delivery;
•
motion picture, television, DVD and video content production and
distribution;
•
advanced communications networks and devices;
•
user-generated media;
•
newspaper, book, magazine, and specialty publishing;
•
motion picture exhibition and related services;
•
radio services via broadcast and satellite;
•
video game production and distribution;
•
broadband network operations;
•
Internet service providers;
•
Internet media production and distribution;
•
interactive commerce and
e-commerce;
•
voice, video and data transmission platforms and services;
•
content distribution systems, networks and services;
•
content production and aggregation services;
•
media portability products and services;
•
interactive television products and services;
•
advertising agencies and other advertising services;
•
direct marketing and promotional services;
•
media and marketing services;
•
advertising based directories;
•
recorded music and other audio content production and
distribution;
•
theme park attractions;
•
toy development and distribution;
•
trading cards;
•
intellectual property licensing, merchandising and
exploitation; and
Our management team has extensive experience in the
entertainment, media, digital and communications industries as
senior executives, business consultants or entrepreneurs. See
“Management”.
We intend to leverage the industry experience of our executive
officers by focusing our efforts on identifying a prospective
target business in the entertainment, media, digital and
communications industries. We believe that companies involved in
these industries represent attractive acquisition targets for a
number of reasons, including a favorable economic environment
for these industries, potentially attractive valuations and the
large number of middle market acquisition candidates.
We believe, based solely on our management’s collective
business experience, that there are numerous business
opportunities in the entertainment, media, digital and
communications industries. However, we cannot assure you that we
will be able to locate a target business in such industries or
that we will be able to engage in a business combination with a
target business on favorable terms.
Growth in this industry has historically been driven by the
introduction of new technologies and the expansion of domestic
and international markets. The latter part of the
20th century witnessed the introduction and consumer
acceptance of cable television, home video, video games and
compact discs. The 1990s witnessed the emergence of additional
products and improved delivery systems such as interactive
multimedia entertainment software, simulator and virtual reality
attractions and fiber optic cable. The beginning of the
21st century has witnessed even greater expansion as the
emergence of next-generation technologies has significantly
strengthened growth opportunities for television distribution
through direct broadcast satellite and digital cable, video
games, Internet access and home video. The emergence of the DVD
and CD-ROM formats has further increased this expansion.
Effecting
a business combination
General
We are not presently engaged in, and we will not engage in, any
substantive commercial business for an indefinite period of time
following this offering. We intend to utilize cash derived from
the proceeds of this offering, our capital stock, debt or a
combination of these in effecting a business combination.
Although substantially all of the net proceeds of this offering
are intended to be applied generally toward effecting a business
combination as described in this prospectus, the proceeds are
not otherwise being designated for any more specific purposes.
Accordingly, investors in this offering are investing without
first having an opportunity to evaluate the specific merits or
risks of any one or more business combinations. A business
combination may involve the acquisition of, or merger with, a
company which does not need substantial additional capital but
which desires to establish a public trading market for its
shares, while avoiding what it may deem to be adverse
consequences of undertaking a public offering itself. These
include time delays, significant expense, loss of voting control
and compliance with various Federal and state securities laws.
In the alternative, we may seek to consummate a business
combination with a company that may be financially unstable or
in its early stages of development or growth. While we may seek
to effect simultaneous business combinations with more than one
target business, we will probably have the ability, as a result
of our limited resources, to effect only a single business
combination.
We
have not identified a target business
We do not have any specific merger, capital stock exchange,
asset acquisition or other business combination under
consideration, and we have not, nor has anyone on our behalf,
either directly or indirectly, contacted any potential target
businesses or their representatives or had any discussions,
formal or otherwise, with respect to such a transaction. We have
not (nor have any of our agents, representatives or affiliates)
been approached by any candidates (or representatives of any
candidates) with respect to a possible transaction with our
company. Moreover, we have not engaged or retained any agent or
other representative to identify or locate any acquisition
candidate for us. Neither we nor any of our agents,
representatives or affiliates have taken any measures, directly
or indirectly, to contact a target business. We have not
established any other specific attributes or criteria (financial
or otherwise) for prospective target businesses. Finally, we
note that there has been no due diligence, evaluations,
discussions (formal or informal), negotiations or other similar
activities undertaken, directly or indirectly, by us, our
affiliates or representatives, or by any unrelated third party,
with respect to a business combination transaction involving our
company.
Subject to the limitation that a target business has a fair
market value of at least 80% of our net assets at the time of
the acquisition, as described below in more detail, we will have
virtually unrestricted flexibility in identifying and selecting
a prospective acquisition candidate. Accordingly, there is no
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 endeavor to evaluate the risks inherent in a
particular target business, we cannot assure you that we will
properly ascertain or assess all significant risk factors.
Sources
of target businesses
We anticipate that our officers and directors as well as their
affiliates will bring to our attention target business
candidates. While our officers and directors make no commitment
as to the amount of time they will spend trying to identify or
investigate potential target businesses, they believe that the
various relationships they have developed over their careers,
together with their direct inquiry, will generate a number of
potential target businesses that will warrant further
investigation. As senior executives, business consultants and
entrepreneurs in the entertainment, media, digital and
communications industries, members of our management team have
been, and are likely to continue to be, presented with proposals
and offers of many varieties with respect to prospective
investments and transactions. They may also become aware of
potential transaction opportunities by attending entertainment,
media, digital and communications conferences or conventions.
However, they have not yet been presented with any proposals
with respect to prospective transactions for us. They have also
not performed any due diligence, evaluation or other similar
activities with respect to a potential business combination for
our company. Moreover, they will not entertain any proposals
with respect to a prospective transaction, nor will they perform
any due diligence, evaluation or other similar activities with
respect to a potential business combination, until after we
complete our initial public offering. We may consider any
affiliates of our officers and directors as potential business
combination targets.
Target business candidates may also be brought to our attention
from various unaffiliated sources, including investment bankers,
venture capital funds, leveraged buyout funds, hedge funds,
management buyout funds and other members of the financial
community who are aware that we are seeking a business
combination partner via public relations and marketing efforts,
direct contact by management or other similar efforts and who
may present solicited or unsolicited proposals. To date, no
unaffiliated sources have brought any potential target
businesses to our attention. We may pay finders’ fees or
compensation to third parties for their efforts in introducing
us to potential target businesses which we would negotiate at
the time. Such payments, which are typically based on the dollar
value of the transaction, could be paid to entities we engage
for this purpose or ones that approach us on an unsolicited
basis. In no event, however, will we pay any of our existing
officers, directors or stockholders or any entity with which
they are affiliated any finder’s fee or other compensation
for services rendered to us prior to or in connection with the
consummation of a business combination. In addition, none of our
officers, directors, or existing stockholders will receive any
finder’s fee, consulting fees or any similar fees from any
person or entity (including a target company) in connection with
any business combination involving us other than any
compensation or fees that may be received for any services
provided following such business combination. A prohibition on
such fees is contained in our Code of Ethics. Any compensation
or fees that our officers and directors receive from a target
company following a business combination will be customary for a
transaction of this type. Although our officers and directors
may take compensation or fees into consideration as one of the
factors in determining which acquisition transaction to pursue,
such compensation and fees will not be the determining factor.
Selection
of a target business and structuring of a business
combination
Subject to the requirement that our initial business combination
must be with a target business with a fair market value that is
at least 80% of our net assets at the time of such acquisition,
our management will have virtually unrestricted flexibility in
identifying and selecting a prospective target business. We have
not established any other specific attributes or criteria
(financial or otherwise) for prospective target businesses. In
evaluating a prospective target business, our management may
consider a variety of factors, including one or more of the
following:
experience and skill of management and availability of
additional personnel;
•
capital requirements;
•
competitive position;
•
barriers to entry;
•
stage of development of the products, processes or services;
•
degree of current or potential market acceptance of the
products, processes or services;
•
proprietary features and degree of intellectual property or
other protection of the products, processes or services;
•
regulatory environment of the industry; and
•
costs associated with effecting the business combination.
These criteria are not intended to be exhaustive. Any evaluation
relating to the merits of a particular business combination will
be based, to the extent relevant, on the above factors as well
as other considerations deemed relevant by our management in
effecting a business combination consistent with our business
objective. In evaluating a prospective target business, we will
conduct an extensive due diligence review which will encompass,
among other things, meetings with incumbent management and
inspection of facilities, as well as review of financial and
other information which is made available to us. This due
diligence review will be conducted either by our management or
by unaffiliated third parties we may engage, although we have no
current intention to engage any such third parties. We intend to
have all prospective target businesses execute agreements with
us waiving any right, title, interest or claim of any kind in or
to any monies held in the trust account. If any prospective
target business refused to execute such agreement, it is
unlikely we would continue negotiations with such target
business. However, in no event will we enter into a definitive
agreement for a business combination with a target business
unless such entity executes a waiver agreement.
The time and costs required to select and evaluate a target
business and to structure and complete the business combination
cannot presently be ascertained 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
a loss to us and reduce the amount of capital available to
otherwise complete a business combination.
Fair
market value of target business
The target business or businesses that we acquire must
collectively have a fair market value equal to at least 80% of
our net assets at the time of such acquisition, although we may
acquire a target business whose fair market value significantly
exceeds 80% of our net assets. We anticipate structuring a
business combination to acquire 100% of the equity interests or
assets of the target business. We may, however, structure a
business combination to acquire less than 100% of such interests
or assets of the target business but will not acquire less than
a controlling interest (which would be at least 50% of the
voting securities of the target business). If we acquire only a
controlling interest in a target business or businesses, the
portion of such business that we acquire must have a fair market
value equal to at least 80% of our net assets. In order to
consummate such an acquisition, we may issue a significant
amount of our debt or equity securities to the sellers of such
businesses or seek to raise additional funds through a private
offering of debt or equity securities. Since we have no specific
business combination under consideration, we have not entered
into any such fund raising arrangement and have no current
intention of doing so. The fair market value of the target will
be determined by our board of directors based upon one or more
standards generally accepted by the financial community (such as
actual and potential sales, earnings and cash flow or book
value). If our board is not able to independently determine that
the target business has a sufficient fair market value, we will
obtain an opinion from an unaffiliated, independent investment
banking firm with respect to the satisfaction of such criteria.
Since any opinion, if obtained, would merely state that fair
market value meets the 80% of net assets threshold, it is not
anticipated that copies of such opinion would be distributed to
our stockholders, although copies will be provided to
stockholders who request it. We will not be required to obtain
an opinion from an investment banking firm as to the
fair market value if our board of directors independently
determines that the target business complies with the 80%
threshold.
Lack
of business diversification
Our business combination must be with a target business or
businesses that collectively satisfy the minimum valuation
standard at the time of such acquisition, as discussed above,
although this process may entail the simultaneous acquisitions
of several operating businesses at the same time. Therefore, at
least initially, the prospects for our success may be entirely
dependent upon the future performance of a single business.
Unlike other entities which may have the resources to complete
several business combinations of entities operating in multiple
industries or multiple areas of a single industry, it is
probable that we will not have the resources to diversify our
operations or benefit from the possible spreading of risks or
offsetting of losses. By consummating a business combination
with only a single entity, our lack of diversification may:
•
subject us to numerous economic, competitive and regulatory
developments, any or all of which may have a substantial adverse
impact upon the particular industry in which we may operate
subsequent to a business combination, and
•
result in our dependency upon the performance of a single
operating business or the development or market acceptance of a
single or limited number of products, processes or services.
If we determine to simultaneously acquire several businesses and
such businesses 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
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.
Limited
ability to evaluate the target business’
management
Although we intend to scrutinize the management of a prospective
target business when evaluating the desirability of effecting a
business combination, 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 our officers and directors, if any, in the target
business following a business combination cannot presently be
stated with any certainty. While it is possible that some of our
key personnel will remain associated in senior management or
advisory positions with us following a business combination, it
is unlikely that they will devote their full time efforts to our
affairs subsequent to a business combination. Moreover, they
would only be able to remain with the company after the
consummation of a business combination if they are able to
negotiate employment or consulting agreements in connection with
the business combination. Such negotiations would take place
simultaneously with the negotiation of the business combination
and could provide for them to receive compensation in the form
of cash payments or our securities for services they would
render to the company after the consummation of the business
combination. While the personal and financial interests of our
key personnel may influence their motivation in identifying and
selecting a target business, their ability to remain with the
company after the consummation 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.
Additionally, we cannot assure you that our officers and
directors will have significant experience or knowledge relating
to the operations of the particular target business.
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 any such
additional managers we do recruit will have the requisite
skills, knowledge or experience necessary to enhance the
incumbent management.
Opportunity
for stockholder approval of business combination
Prior to the completion of a business combination, we will
submit the transaction to our stockholders for approval, even if
the nature of the acquisition is such as would not ordinarily
require stockholder approval under applicable state law. In
connection with any such transaction, we will also submit to our
stockholders for approval a proposal to amend our amended and
restated certificate of incorporation to provide for our
corporate life to continue perpetually following the
consummation of such business combination. Any vote to extend
our corporate life to continue perpetually following the
consummation of a business combination will be taken only if the
business combination is approved. We will only consummate a
business combination if stockholders vote both in favor of such
business combination and our amendment to extend our corporate
life.
In connection with seeking stockholder approval of a business
combination, we will furnish our stockholders with proxy
solicitation materials prepared in accordance with the
Securities Exchange Act of 1934, as amended, which, among other
matters, will include a description of the operations of the
target business and audited historical financial statements of
the business.
In connection with the vote required for any business
combination, all of our existing stockholders, including all of
our officers and directors, have agreed to vote their respective
initial shares in accordance with the majority of the shares of
common stock voted by the public stockholders. If the majority
of public stockholders voting at the meeting, regardless of
percent, vote to approve the business combination, our existing
stockholders will vote all shares owned by them prior to this
offering in favor of the business combination. Similarly, if the
majority of public stockholders voting at the meeting,
regardless of percent, vote against the business combination,
our existing stockholders will vote all shares owned by them
prior to this offering against the business combination. This
voting arrangement shall not apply to shares included in units
purchased in this offering or purchased following this offering
in the open market by any of our existing stockholders, officers
and directors. Accordingly, they may vote these shares on a
proposed business combination any way they choose. We will
proceed with the 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 and public
stockholders owning less than 30% of the shares sold in this
offering both exercise their conversion rights and vote against
the business combination.
Our threshold for conversion rights has been established at
29.99% in order for our offering to be competitive with other
offerings by blank check companies currently in the market.
However, a 20% threshold is more typical in offerings of this
type. We have increased the conversion threshold from 20% to 30%
to reduce the likelihood that a small group of investors holding
a large block of our stock will exercise undue influence on the
approval process and be able to stop us from completing a
business combination that is otherwise approved by a large
majority of our public stockholders.
Conversion
rights
At the time we seek stockholder approval of any business
combination, we will offer each public stockholder the right to
have such stockholder’s shares of common stock converted to
cash if the stockholder votes against the business combination
and the business combination is approved and completed. Our
existing stockholders will not have such conversion rights with
respect to the initial shares, but will have such conversion
rights with respect to any shares they purchase in this offering
or in the aftermarket. The actual per-share conversion price
will be equal to the amount in the trust account, inclusive of
any interest (calculated as of two business days prior to the
consummation of the proposed business combination), divided by
the number of shares sold in this offering. Without taking into
account any interest earned on the trust account, the initial
per-share conversion price would be approximately $7.84.
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 at a meeting held for that purpose, but the request
will not be granted unless the stockholder votes against the
business combination and the business combination is approved
and completed. Additionally, we may require public stockholders,
whether they are a record holder or hold their shares in
“street name,” to either tender their certificates to
our transfer agent at any time through the vote on the business
combination or to deliver their shares to the transfer agent
electronically using Depository Trust Company’s DWAC
(Deposit/Withdrawal At Custodian) System, at the holder’s
option. The proxy
solicitation materials that we will furnish to stockholders in
connection with the vote for any proposed business combination
will indicate whether we are requiring stockholders to satisfy
such certification and delivery requirements. Accordingly, a
stockholder would have from the time we send out our proxy
statement through the vote on the business combination to tender
his shares if he wishes to seek to exercise his conversion
rights. This time period varies 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. However, because we do not have any control over this
process, it may take significantly longer than we anticipated.
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 convert. 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 consummation 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. 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 consummation 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
is approved. There is a nominal cost associated with the
above-referenced tendering process and the act of certificating
the shares or delivering them through the DWAC system. The
transfer agent will typically charge the tendering broker $35
and it would be up to the broker whether or not to pass this
cost on to the converting holder. However, this fee would be
incurred regardless of whether or not we require holders seeking
to exercise conversion rights to tender their shares prior to
the meeting. The need to deliver shares is a requirement of
conversion regardless of the timing of when such delivery must
be effectuated. Accordingly, this would not result in any
increased cost to shareholders when compared to the traditional
process.
Any request for conversion, once made, may be withdrawn at any
time up to the vote taken with respect to the proposed business
combination. 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). It is anticipated that the funds to be
distributed to stockholders entitled to convert their shares who
elect conversion will be distributed promptly after completion
of a business combination. Public stockholders who convert their
stock into their share of the trust account still have the right
to exercise any warrants they still hold.
If a vote on our initial business combination is held and the
business combination is not approved, we may continue to try to
consummate a business combination with a different target until
twenty four months from the date of this prospectus. If the
initial business combination is not approved or completed for
any reason, then public stockholders voting against our initial
business combination 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 tender their certificates prior to the meeting,
we will promptly return such certificates to the tendering
public stockholder. Public stockholders would be entitled to
receive their pro rata share of the aggregate amount on deposit
in the trust account only in the event that the initial business
combination they voted against was duly approved and
subsequently completed, or in connection with our liquidation.
We will not complete any business combination if public
stockholders, owning 30% or more of the shares sold in this
offering, both exercise their conversion rights and vote against
the business combination. Accordingly, it is our understanding
and intention in every case to structure and consummate a
business combination in which public stockholders owning 29.99%
of the shares sold in this offering may exercise their
conversion rights and the business combination will still go
forward.
If our 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 their 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 our business combination in case a larger percentage of
stockholders exercise their conversion rights than we expect.
Therefore, we may not be able to consummate 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 to adjust the ratio of cash to stock used as
consideration or arrange for third party financing.
Investors in this offering who do not sell, or who receive less
than an aggregate of approximately $0.16 of net sales proceeds
for, the warrants included in the units, or persons who purchase
common stock in the aftermarket at a price in excess of $7.84
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.
Liquidation
if no business combination
Our amended and restated certificate of incorporation provides
that we will continue in existence only
until ,
2009 [twenty four months from the date of this
prospectus]. This provision may not be amended except in
connection with the consummation of a business combination. If
we have not completed a business combination by such date, 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. 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 Delaware General Corporation
Law. Accordingly, limiting our corporate existence to a
specified date as permitted by Section 102(b)(5) of the
Delaware General Corporation Law removes the necessity to comply
with the formal procedures set forth in Section 275 (which
would have required our board of directors and stockholders to
formally vote to approve our dissolution and liquidation and to
have filed a certificate of dissolution with the Delaware
Secretary of State). We view this provision terminating our
corporate life
by ,
2009 [twenty four months 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
consummation of a business combination.
If we are unable to complete a business combination
by ,
2009 [twenty four months from the date of this
prospectus], 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, 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 trustee of the trust account to begin liquidating
such assets promptly after such date and anticipate it will take
no more than 10 business days to effectuate such distribution.
Our existing stockholders have waived their rights to
participate in any liquidation distribution with respect to
their initial shares. There will be no distribution from the
trust account with respect to our warrants, which will expire
worthless. We will pay the costs of liquidation from our
remaining assets outside of the trust account. If such funds are
insufficient, our existing stockholders have agreed to advance
us the funds necessary to complete such liquidation (currently
anticipated to be no more than approximately $15,000) and have
agreed not to seek repayment of such expenses.
If we were to expend all of the net proceeds of this offering,
other than the proceeds deposited in the trust account, and
without taking into account interest, if any, earned on the
trust account, the initial per-share liquidation price would be
approximately $7.84. 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) which could have higher priority
than the claims of our public stockholders. Our management
stockholders have personally agreed, pursuant to agreements with
us and Pali Capital, Inc. that, if we liquidate prior to the
consummation of a business combination, they will be personally
liable to pay debts and obligations to target businesses or
vendors or other entities that are owed money by us for services
rendered or contracted for or products sold to us in excess of
the net proceeds of this offering not held in the trust account,
but only if, and to the extent, the claims reduce the amounts in
the trust account. Although we have a fiduciary obligation to
pursue our management stockholders to enforce their
indemnification obligations, and intend to pursue such actions
as and when we deem appropriate, there can be no assurance they
will be able to satisfy those obligations, if required to do so.
Furthermore, our management stockholders will not have any
personal liability as to any claimed amounts owed to a third
party (including target businesses) who executed a valid and
enforceable waiver. Accordingly, the actual per-share
liquidation price could be less than approximately $7.84, plus
interest, due to claims of creditors.
Additionally, in the case of a prospective target business that
did not execute a waiver, such liability will only be in an
amount necessary to ensure that public stockholders receive no
less than $8.00 per share upon liquidation. Furthermore, 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 $7.84 per share.
Our public stockholders will be entitled to receive funds from
the trust account only in the event of the expiration of our
corporate existence and our liquidation or if they seek to
convert their respective shares into cash upon a business
combination which the stockholder voted against and which is
completed by us. In no other circumstances will a stockholder
have any right or interest of any kind to or in the trust
account.
Under the Delaware General Corporation Law, 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 Delaware General Corporation Law
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, as stated above, it is our intention to
make liquidating distributions to our stockholders as soon as
reasonably possible
after ,
2009 [twenty four months from the date of this prospectus]
and, therefore, we do not intend to comply with those
procedures. As such, our stockholders could potentially be
liable for any claims to the extent of distributions received by
them (but no more) and any liability of our stockholders may
extend well beyond the third anniversary of such date. Because
we will not be complying with Section 280, Section 281(b)
of the Delaware General Corporation Law 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. However, because we are a
blank check company, rather than an operating company, and our
operations will be limited to searching for prospective target
businesses to acquire, the only likely claims to arise would be
from our vendors and service providers (such as accountants,
lawyers, investment bankers, etc.) and potential target
businesses. As described above, pursuant to the obligation
contained in our underwriting agreement, we will seek to have
all vendors, service providers and prospective target businesses
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. As a result, the claims that could be made
against us will be limited, thereby lessening the likelihood
that any claim would result in any liability extending to the
trust. We therefore believe that any necessary provision for
creditors will be reduced and should not have a significant
impact on our ability to distribute the funds in the trust
account to our public stockholders. Nevertheless, we cannot
assure you of this fact as there is no guarantee that vendors,
service providers and prospective target businesses will execute
such agreements. Nor is there any guarantee that, even if they
execute such agreements with us, they will not seek recourse
against the trust account. A court could also conclude that such
agreements are not legally enforceable. As a result, if we
liquidate, the per-share distribution from the trust account
could be less than approximately $7.84 due to claims or
potential claims of creditors.
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 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 promptly
after ,
2009 [twenty four months from the date of this
prospectus], 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 may be
viewed as having breached their fiduciary duties to our
creditors or may have acted in bad faith, and thereby exposing
itself and our company to claims of punitive damages, by paying
public stockholders from the trust account prior to addressing
the claims of creditors. We cannot assure you that claims will
not be brought against us for these reasons.
Competition
In identifying, evaluating and selecting a target business, we
may encounter intense competition from other entities having a
business objective similar to ours. There are approximately 56
blank check companies that have completed initial public
offerings in the United States that have not announced or
completed a business combination with more than
$5.6 billion in trust that are seeking to carry out a
business plan similar to our business plan. Furthermore, there
are a number of additional offerings for blank check companies
that are still in the registration process but have not
completed initial public offerings and there are likely to be
more blank check companies filing registration statements for
initial public offerings after the date of this prospectus and
prior to our completion of a business combination. Additionally,
we may be subject to competition from entities other than blank
check companies having a business objective similar to ours,
including venture capital firms, leverage buyout firms and
operating businesses looking to expand their operations through
the acquisition of a target business. Many of these entities are
well established and have extensive experience identifying and
effecting business combinations directly or through affiliates.
Many of these competitors possess greater technical, human and
other resources than us and our financial resources will be
relatively limited when contrasted with those of many of these
competitors. While we believe there may be numerous potential
target businesses that we could acquire with the net proceeds of
this offering, our ability to compete in acquiring certain
sizable target businesses will be limited by our available
financial resources. This inherent competitive limitation gives
others an advantage in pursuing the acquisition of a target
business. Further, the following may not be viewed favorably by
certain target businesses:
•
our obligation to seek stockholder approval of a business
combination may delay the completion of a transaction;
•
our obligation to convert into cash shares of common stock held
by our public stockholders to such holders that both vote
against the business combination and exercise their conversion
rights may reduce the resources available to us for a business
combination; and
•
our outstanding warrants, and the potential future dilution they
represent.
Any of these factors may place us at a competitive disadvantage
in successfully negotiating a business combination. Our
management believes, however, that our status as a public entity
and potential access to the United States public equity markets
may give us a competitive advantage over privately-held entities
having a similar business objective as ours in acquiring a
target business with significant growth potential on favorable
terms.
If we succeed in effecting a business combination, there will
be, in all likelihood, intense competition from competitors of
the target business. We cannot assure you that, subsequent to a
business combination, we will have the resources or ability to
compete effectively.
Facilities
We maintain our executive offices at 307 East 87th Street,
New York, NY10128 and our telephone number is
(212) 289-6942.
Our management stockholders have agreed to provide us with, or
to arrange for third parties to provide, certain administrative,
technology and secretarial services, as well as the use of
certain limited office space, at this location or another
location pursuant to letter agreements between us and our
management stockholders. The cost for the foregoing services to
be provided to us is $7,500 per month. We believe, based on
rents and fees for similar services in the New York City
metropolitan area, that the fee charged 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 have two executive officers. These individuals are not
obligated to devote any specific number of hours to our matters
and intend to devote only as much time as they deem necessary to
our affairs. The amount of time they
will devote in any time period will vary based on whether a
target business has been selected for the business combination
and the stage of the business combination process the company is
in. Accordingly, once management locates a suitable target
business to acquire, they will spend more time investigating
such target business and negotiating and processing the business
combination (and consequently devote more time to our affairs)
than they would prior to locating a suitable target business. We
presently expect each of our executive officers to devote an
average of approximately 40 hours per week to our business.
We do not intend to have any full time employees prior to the
consummation of a business combination.
Periodic
Reporting and Audited Financial Statements
We have registered our units, common stock and warrants under
the Securities Exchange Act of 1934, as amended, and have
reporting obligations, including the requirement that we file
annual, quarterly and current reports with the SEC. In
accordance with the requirements of the Securities Exchange Act
of 1934, our annual reports will contain financial statements
audited and reported on by our independent registered public
accountants.
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 comply with the internal control
requirements of the Sarbanes-Oxley Act for the fiscal year
ending December 31, 2008. A target company may not be in
compliance with the provisions of the Sarbanes-Oxley Act
regarding adequacy of their internal controls. The development
of the internal controls of any such entity to achieve
compliance with the Sarbanes-Oxley Act may increase the time and
costs necessary to complete any such acquisition.
Legal
Proceedings
To the knowledge of management, there is no litigation currently
pending or contemplated against us or any of our officers or
directors in their capacity as such.
The following table compares and contrasts the terms of our
offering and the terms of an offering of blank check companies
under Rule 419 promulgated by the SEC assuming that the
gross proceeds, underwriting discounts and underwriting expenses
for the Rule 419 offering are the same as this offering and
that the underwriters will not exercise their over-allotment
option. None of the terms of a Rule 419 offering will apply
to this offering.
Terms of Our Offering
Terms Under a Rule 419 Offering
Escrow of offering
proceeds
$68,420,000 of the net offering
proceeds plus the $2,100,000 we will receive from the sale of
the insider warrants will be deposited into a trust account at
HSBC Bank USA, N.A., maintained by Continental Stock Transfer
& Trust Company, acting as trustee.
$60,264,000 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
The $68,420,000 of net offering
proceeds plus the $2,100,000 we will receive from the sale of
the insider warrants held in trust will only be invested 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 of 1940.
Proceeds could be invested only in
specified securities such as a money market fund meeting
conditions of the Investment Company Act of 1940 or in
securities that are direct obligations of, or obligations
guaranteed as to principal or interest by, the United States.
Limitation on Fair Value or Net
Assets of Target Business
The initial target business that
we acquire must have a fair market value equal to at least 80%
of our net assets at the time of such acquisition.
We would be restricted from
acquiring a target business unless the fair value of such
business or net assets to be acquired represent at least 80% of
the maximum offering proceeds.
The units may commence trading on
or promptly after the date of this prospectus. The common stock
and warrants comprising the units will begin to trade separately
on the 90th day after the date of this prospectus unless
Pali Capital, Inc. informs us of its decision to allow earlier
separate trading, provided we have filed with the SEC a Current
Report on
Form 8-K,
which includes an audited balance sheet reflecting our receipt
of the proceeds of this offering, including any proceeds we
receive from the exercise of the over-allotment option, if such
option is exercised prior to the filing of the Current Report on
Form 8-K and having issued a press release announcing when such
separate trading will begin. Following the date the common stock
and warrants are eligible to trade separately, the units will
continue to be listed for trading on the American Stock Exchange
and any stockholder may elect to trade the common stock or
warrants separately or as a unit. If the over-allotment option
is exercised after our initial filing of a Form 8-K, we will
file an amendment to the Form 8-K to provide updated financial
information to reflect the exercise and consummation of the
over-allotment option. We will also include in this Form 8-K, an
amendment thereto, or in a subsequent Form 8-K, information
indicating if Pali Capital, Inc. has allowed separate trading of
the common stock and warrants prior to the 90th day after
the date of this prospectus.
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 the completion of a business combination and
one year from the date of this prospectus and, accordingly, will
be exercised only after the trust account has been terminated
and distributed.
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.
We will give our stockholders the
opportunity to vote on the business combination. In connection
with seeking stockholder approval, we will send each stockholder
a proxy statement containing information required by the SEC. A
stockholder following the procedures described in this
prospectus is given the right to convert his or her shares into
his or her pro rata share of the trust account. However, 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.
A prospectus containing
information 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 the post-effective amendment, to decide whether he or she
elects to remain a stockholder of the company or require the
return of his or her 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 would automatically be returned to the stockholder.
Unless a sufficient number of investors elect to remain
investors, all of the deposited funds in the escrow account must
be returned to all investors and none of the securities will be
issued.
Business combination
deadline
Pursuant to our amended and
restated certificate of incorporation, our corporate existence
will cease 24 months from 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
consummated within 18 months after the effective date of
the initial registration statement, funds held in the trust or
escrow account would be returned to investors.
There can be released to us, from
time to time, interest earned on the funds in the trust account
(i) up to an aggregate of $1,900,000 to fund expenses related to
investigating and selecting a target business and our other
working capital requirements and (ii) any amounts necessary to
pay our tax obligations. The remaining interest earned on the
funds in the trust account will not be released until the
earlier of the completion of a business combination and our
liquidation upon failure to effect a business combination within
the allotted time.
All interest earned on the funds
in the trust account will be held in trust for the benefit of
public stockholders until the earlier of the completion of a
business combination and our liquidation upon failure to effect
a business combination within the allotted time. In the event a
business combination was not consummated with 18 months,
proceeds held in the trust account would be returned within 5
business days of such date.
Release of funds
Except for (i) up to $1,900,000 we
may need to fund expenses related to investigating and selecting
a target business and our other working capital requirements and
(ii) any amounts that we may need to pay our tax obligations
that may be released to us from the interest earned on the trust
account balance, the proceeds held in the trust account will not
be released until the earlier of the completion of a business
combination and our liquidation upon failure to effect a
business combination within the allotted time.
The proceeds held in the escrow
account would not be released until the earlier of the
completion of a business combination or the failure to effect a
business combination within the allotted time.
Our current directors and executive officers are as follows:
Name
Age
Position
Theodore S. Green
54
Chairman, Co-Chief Executive
Officer and Director
Malcolm Bird
39
Co-Chief Executive Officer and
Director
Jonathan F. Miller
50
Director
Theodore
S. Green
Theodore (Ted) S. Green has served as our Chairman, Co-Chief
Executive Officer and a director since our inception. From 2003
to 2006, Mr. Green was the Chief Executive Officer of
Anchor Bay Entertainment, which at such time was the subsidiary
of IDT Entertainment, Inc. that focused on the production,
marketing and distribution of various media. Mr. Green
began serving as Chief Executive Officer, with the acquisition
of Anchor Bay from The Handleman Co. Mr. Green had full
operating authority over the marketing, financial, sales,
products, operations, legal, business and corporate resources
departments. Prior to that, in 2001, Mr. Green established
Greenlight Consulting Inc., a project-based consulting practice
focused on the media and entertainment industry. Greenlight
Consulting’s clients include Sony Music and
Vivendi-Universal as well as numerous other regional media
organizations. Prior to founding Greenlight Consulting, in 2000,
Mr. Green was President and Chief Operating Officer of
MaMaMedia, Inc., an Internet company that creates activity-based
learning products for children and their families. From 1992 to
2000, Mr. Green was the founder and President of Sony
Wonder, the division of Sony BMG Music Entertainment responsible
for the production and distribution of media geared toward
youthful audiences and also for all home video distribution.
Mr. Green was responsible for all creative, production,
operations, finance, marketing and business efforts. Beginning
in 1989, Mr. Green was the Executive Vice President of
Administration and Operations for ATCO Records, a music industry
label co-owned with The Warner Music Group. Mr. Green was
responsible for all business, legal and financial operations.
From 1982 until 1989, Mr. Green served as the Senior Vice
President of Polygram Records, overseeing the Business Affairs
and Music Publishing divisions of the company. Mr. Green
was responsible for negotiations, administration, rights and
contracts. Mr. Green’s career in the entertainment
industry began first in the legal department and thereafter as
the Director of Business Affairs for CBS Records. Prior to that
Mr. Green practiced general entertainment law at the firm
of Moses Singer. Mr. Green holds a BS from Cornell
University and received his JD from Columbia University School
of Law.
Malcolm
Bird
Malcolm Bird has served as our Co-Chief Executive Officer and a
director since our inception. Mr. Bird has worked in the
entertainment industry for the past 25 years. Mr. Bird
served as senior vice president of kids and teens for AOL from
December 2002 through his resignation in March 2007.
Mr. Bird was responsible for strategy, development,
instigation, sales, staffing, business development, marketing,
and public relations. From 1995 to 1997 Mr. Bird was
Director of International Programming at Hanna-Barbera Studio
responsible for program development, negotiation with
international broadcasters, production, licensing development,
liaison with International Cartoon Network and branding for
Europe, Asia Pacific and Latin America. From 1997 to 1999,
Mr. Bird was head of youth programming at USA Broadcasting.
Working with the senior management team, (Jon Miller and
Barry Diller), Mr. Bird was responsible for
20 hours of Barry Diller’s new “CityVision”
network, WAMI. From 1999 to 2002, Mr. Bird was President of
Craftsman Productions, Inc., a company he co-founded in 1995 to
develop and produce innovative programs for television.
Mr. Bird created, developed and sold into broadcast and
cable networks programming. Mr. Bird has been involved in
publishing, marketing, public relations, radio, television
development, television production, international business
(overseeing operations in Europe, Asia Pacific, and Latin
America for a Hollywood studio), and multi-platform business
development. Mr. Bird has received two Emmy awards and two
Telly awards. Mr. Bird sits on the executive board of
directors of the National Children’s Museum in
Washington, D.C.
Jonathan (Jon) F. Miller has served as a director since
June 15, 2007. From 2002 to 2006, Mr. Miller served as
Chairman and Chief Executive Officer of AOL Inc. and AOL LLC.
From 2000 to 2002, Mr. Miller was Chief Executive Officer
and President of USA Information and Services, now IACI and
Expedia (the company split in two in 2005). In this period,
Mr. Miller acted as a corporate officer and served on four
public boards of related entities. Mr. Miller joined USA in
1997 as Chief Executive Officer and President of USA
Broadcasting. Prior to USA, from 1993 to 1997, Mr. Miller
was Managing Director of Nickelodeon International, a unit of
Viacom’s MTV Networks. During this period, Mr. Miller
also acted as Chief Executive Officer of several Nickelodeon and
Paramount Pictures channels that were joint ventures with such
partners as BSkyB in the UK and Foxtel in Australia. Under
Mr. Miller’s guidance, program distribution was
extended to over 100 territories including sales to the BBC,
ITV, Channel 4, ARD (Germany), ABC (Australia), and RAI (Italy).
From 1987 to 1993, Mr. Miller was Vice-President,
Programming and Co-General Manager of NBA Entertainment. In this
capacity, Mr. Miller worked with NBA sponsors in fashioning
and executing their sports marketing programs across electronic
media, print and retail. Previous positions included positions
at WGBH in Boston, MA (PBS) in educational programming and in
various advertising and video production roles in Boston. Mr.
Miller is on the Board of Directors of Idearc Inc., Next New
Networks, Mahalo.com Incorporated, Kosmix Corporation and Hanley
Wood, LLC. Mr. Miller is also on the Board of the American
Film Institute, a trustee of Emerson College, and of WNYC Public
Radio in NY.
These individuals will play a key role in identifying and
evaluating prospective acquisition candidates, selecting the
target business, and structuring, negotiating and consummating
its acquisition. We believe that the skills and expertise of
these individuals, their collective access to acquisition
opportunities and ideas, their contacts, and their transactional
expertise should enable them to successfully identify and effect
an acquisition.
Our board of directors is divided into three classes with only
one class of directors being elected in each year and each class
serving a three-year term. The term of office of the first class
of directors, consisting of
[ ],
will expire at our first annual meeting of stockholders. The
term of office of the second class of directors, consisting of
[ ],
will expire at the second annual meeting. The term of the third
class of directors, consisting of
[ ]
and
[ ],
will expire at the third annual meeting.
Prior
Involvement of Principals in Blank Check Companies
None of our directors or officers has been or currently is a
principal of, or affiliated with, entities, including other
“blank check” companies, engaged in business
activities similar to those intended to be conducted by us.
Executive
Compensation
No executive officer has received any cash compensation for
services rendered to us. Commencing on the date of this
prospectus through the acquisition of a target business, we will
pay our management stockholders, an affiliate of our management
stockholders or third parties a fee of $7,500 per month for
providing us with certain administrative, technology and
secretarial services, as well as the use of certain limited
office space. However, this arrangement is solely for our
benefit and is not intended to provide our management
stockholders compensation in lieu of a salary. Other than the
$7,500 per month administrative fee, no compensation of any
kind, including finders, consulting or other similar fees, will
be paid to any of our management stockholders, including our
directors, or any of their respective affiliates, prior to, or
for any services they render in order to effectuate, the
consummation of a business combination. However, our existing
stockholders will be reimbursed for any out-of-pocket expenses
incurred in connection with activities on our behalf such as
identifying potential target businesses and performing due
diligence on suitable business combinations. There is no limit
on the amount of these out-of-pocket expenses and there will be
no review of the reasonableness of the expenses by anyone other
than our board of directors, which includes persons who may seek
reimbursement, or a court of competent jurisdiction if such
reimbursement is challenged.
Director
Independence
The American Stock Exchange requires that a majority of our
board must be composed of “independent directors,”
which is defined generally as a person 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.
Upon consummation of this offering, Mr. Miller and
[ ]
will be our independent directors. Our independent directors
will have regularly scheduled meetings at which only independent
directors are present.
Any affiliated transactions will be on terms no less favorable
to us than could be obtained from independent parties. Any
affiliated transactions must be approved by a majority of our
independent and disinterested directors.
Committees
of the Board of Directors
Audit
Committee
Effective upon consummation of this offering, we will establish
an audit committee of the board of directors, which will consist
of
[ ],
each of whom is an independent director under the American Stock
Exchange’s listing standards. 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.
Financial
Experts on Audit Committee
The audit committee will at all times be composed exclusively of
“independent directors” who are “financially
literate” as defined under the American Stock Exchange
listing standards. The American Stock Exchange listing standards
define “financially literate” as being able to read
and understand fundamental financial statements, including a
company’s balance sheet, income statement and cash flow
statement.
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
[ ]
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
Committee
Effective upon consummation of this offering, we will establish
a nominating committee of the board of directors, which will
consist of
[ ],
each of whom is an independent director under the American Stock
Exchange’s listing standards. The nominating committee is
responsible for overseeing the selection of persons to be
nominated to serve on our board of directors. The nominating
committee considers persons identified by its members,
management, shareholders, investment bankers and others.
Guidelines
for Selecting Director Nominees
The guidelines for selecting nominees, which are specified in
the Nominating Committee Charter, 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.
The nominating committee will consider a number of
qualifications relating to management and leadership experience,
background and integrity and professionalism in evaluating a
person’s candidacy for membership on the board of
directors. The nominating committee may require certain skills
or attributes, such as financial or accounting experience, to
meet specific board needs that arise from time to time. The
nominating committee does not distinguish among nominees
recommended by shareholders and other persons.
Compensation
Committee
Our board of directors intends to establish a compensation
committee which initially will be comprised of
[ ],
each of whom is an independent director under the American Stock
Exchange listing standards. The compensation committee’s
duties, which are specified in our Compensation Committee
Charter, include, but are not limited to:
•
evaluating the performance of our named executive officers and
approve their compensation;
•
preparing an annual report on executive compensation for
inclusion in our proxy statement;
•
reviewing and approving compensation plans, policies and
programs, considering their design and competitiveness;
•
administering and reviewing changes to our equity incentive
plans pursuant to the terms of the plans; and
•
reviewing our non-employee independent director compensation
levels and practices and recommending changes as appropriate.
The compensation committee will review and approve corporate
goals and objectives relevant to our Chief Executive
Officers’ compensation, evaluate our Chief Executive
Officers’ performance in light of those goals and
objectives, and recommend to the board our Chief Executive
Officers’ compensation levels based on its evaluation.
Other
Corporate Governance Matters
Code
of Ethics
Effective upon consummation of this offering, we will adopt a
code of ethics that applies to all of our executive officers,
directors and employees. The code of ethics codifies the
business and ethical principles that govern all aspects of our
business.
Potential investors should be aware of the following potential
conflicts of interest:
•
none of our officers and directors is 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, our officers
and directors may become aware of investment and business
opportunities which 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. Mr. Miller has a pre-existing
fiduciary obligation to each of Idearc Inc., Next New Networks,
Mahalo.com Incorporated, Kosmix Corporation, and Hanley Wood,
LLC as a director of such entities. Accordingly, due to this
affiliation, he may have a fiduciary obligation to present
potential business opportunities to such entities in addition to
presenting them to us which could cause additional conflicts of
interest;
•
our officers and directors may in the future become affiliated
with entities, including other blank check companies, engaged in
business activities similar to those intended to be conducted by
our company;
•
the initial shares owned by our officers and directors will be
released from escrow only if a business combination is
successfully completed, and the insider warrants purchased by
our officers and directors and any warrants which they may
purchase in this offering or in the aftermarket will expire
worthless if a business combination is not consummated.
Additionally, our officers and directors will not receive
liquidation distributions with respect to any of their initial
shares. Furthermore, while the insider warrants have been
registered for resale under the registration statement of which
this prospectus forms a part, the purchasers have agreed that
such securities will not be sold or transferred by them until
after we have completed a business combination. For the
foregoing reasons, our board may have a conflict of interest in
determining whether a particular target business is appropriate
to effect a business combination with; and
•
our directors and officers may purchase shares of common stock
as part of 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.
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 addition,
conflicts of interest may arise when our board evaluates a
particular business opportunity with respect to the above-listed
criteria. We cannot assure you that any of the above mentioned
conflicts will be resolved in our favor.
In order to minimize potential conflicts of interest which may
arise from multiple corporate affiliations, each of our
management stockholders has agreed, until the earliest of a
business combination, our liquidation or such time as he or she
ceases to be a management stockholder, to present to our company
for our consideration, prior to presentation to any other
entity, any business opportunity which may reasonably be
required to be presented to us under Delaware law, subject to
any pre-existing fiduciary or contractual obligations he might
have.
In connection with the vote required for any business
combination, all of our existing stockholders, including all of
our officers and directors, have agreed to vote their respective
initial shares in accordance with the vote of the public
stockholders owning a majority of the shares of our common stock
sold in this offering. In addition, they have agreed to waive
their respective rights to participate in any liquidation
distribution with respect to those shares of
common stock acquired by them prior to this offering. Any common
stock acquired by existing stockholders in the offering or
aftermarket will be considered part of the holdings of the
public stockholders. Except with respect to the conversion
rights afforded to public stockholders, these existing
stockholders will have the same rights as other public
stockholders with respect to such shares, including voting
rights in connection with a potential business combination.
Accordingly, they may vote such shares on a proposed business
combination any way they choose.
To further minimize potential conflicts of interest, we have
agreed not to consummate a business combination with an entity
which is affiliated with any of our existing stockholders unless
we obtain an opinion from an independent investment banking firm
that the business combination is fair to our unaffiliated
stockholders from a financial point of view. Although we
currently do not anticipate doing so, we may enter into a
business combination with an entity affiliated with any of our
officers, directors or existing stockholders. Furthermore, in no
event will any of our existing officers, directors, stockholders
or advisors, 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 consummation of a business combination.
The following table sets forth information regarding the
beneficial ownership of our common stock as of May 31, 2007
and as adjusted to reflect the sale of our common stock included
in the units offered by this prospectus (assuming none of the
individuals listed purchase 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.
Prior to Offering
After Offering(2)
Amount and
Approximate
Amount and
Approximate
Nature of
Percentage of
Nature of
Percentage of
Beneficial
Outstanding
Beneficial
Outstanding
Name and Address of Beneficial Owner(1)
Ownership
Common Stock
Ownership(4)
Common Stock
Theodore S. Green(3)
1,375,000
61.1
%
1,375,000
12.2
%
Malcolm Bird
875,000
38.9
%
875,000
7.8
%
Jonathan F. Miller
0
0
%
0
0
%
All directors and executive
officers as a group (three individuals)
2,250,000
100
%
2,250,000
20
%
(1)
The business address of each of the individuals is c/o TM
Entertainment and Media, Inc., 307 East
87th
Street, New York, NY10128.
(2)
Assumes the sale of 9,000,000 units in this offering but
not the exercise of the 9,000,000 warrants to purchase common
stock included in such units or the over-allotment option.
(3)
Includes an aggregate of 375,000 shares of common stock
owned by two trusts established for the benefit of
Mr. Green’s daughters. Mr. Green and the trustee
of the Trusts will enter into a voting agreement under which
Mr. Green will have the right to vote the shares owned by
the Trusts on all matters that come before the shareholders of
the company, and accordingly Mr. Green has beneficial
ownership of such shares. Mr. Green disclaims any other
beneficial or pecuniary interest in such shares.
(4)
Does not include an aggregate of 2,100,000 shares of common
stock issuable upon exercise of the insider warrants to be
issued to our existing stockholders in a private placement.
On June 14, 2007 Mr. Green sold to each of the Trusts
established for the benefit of his daughters 187,500 shares
of common stock for a purchase price of approximately $0.01 per
share, the price that Mr. Green paid for the shares.
Immediately after this offering, our existing stockholders,
which include all of our officers and directors, collectively,
will beneficially own 20% of the then issued and outstanding
shares of our common stock (assuming none of them purchase any
units offered by this prospectus). None of our existing
stockholders, officers and directors has indicated to us that he
intends to purchase our securities in the offering. Because of
the ownership block held by our existing stockholders, such
individuals may be able to effectively exercise control over all
matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate
transactions other than approval of our initial business
combination.
All of the initial shares outstanding prior to the date of this
prospectus will be placed in escrow with Continental Stock
Transfer & Trust Company, as escrow agent, until
one year after the consummation of our initial business
combination. The initial shares may be released from escrow
earlier than this date if, within the first year after we
consummate a business combination:
•
the last sales price of our common stock equals or exceeds
$11.50 per share for any 20 trading days within any 30-trading
day period; or
we consummate a subsequent liquidation, merger, stock exchange
or other similar transaction which results in all of our
stockholders having the right to exchange their shares of common
stock for cash, securities or other property.
During the escrow period, the holders of these shares will not
be able to sell or transfer their securities except (i) to
an entity’s members upon its liquidation, (ii) to
relatives and trusts for estate planning purposes or
(iii) by private sales made at or prior to the consummation
of a business combination at prices no greater than the price at
which the shares were originally purchased, in each case where
the transferee agrees to the terms of the escrow agreement, but
will retain all other rights as our stockholders, including,
without limitation, the right to vote their shares of common
stock and the right to receive cash dividends, if declared. If
dividends are declared and payable in shares of common stock,
such dividends will also be placed in escrow. If we are unable
to effect a business combination and liquidate, none of our
existing stockholders will receive any portion of the
liquidation proceeds with respect to their initial shares.
Our existing stockholders have committed to purchase the insider
warrants (for a total purchase price of $2,100,000) from us.
These purchases will take place in a private placement that will
occur simultaneously with the consummation of this offering. The
insider warrants will be identical to warrants underlying the
units being offered by this prospectus except that the insider
warrants will be exercisable on a cashless basis and will not be
redeemable by us so long as they are still held by the
purchasers or their affiliates. Each of the purchasers have
agreed, pursuant to the agreements, that he will not sell or
transfer the insider warrants (except to an affiliate of such
purchaser, to relatives and trusts for estate planning purposes,
or to our directors at the same cost per warrant originally paid
by them) until the later
of ,
2008 [one year from the date of this prospectus] and
60 days after the consummation of our initial business
combination.
Messrs. Green and Bird are our “promoters,” as
that term is defined under the Federal securities laws.
On May 1, 2007, we issued 2,250,000 shares of our
common stock to the individuals set forth below for $25,000 in
cash, at a purchase price of approximately $0.01 share, as
follows:
Number of
Name
Shares
Relationship to Us
Theodore S. Green(1)
1,375,000
Chairman, Co-Chief Executive
Officer and Director
Malcolm Bird
875,000
Co-Chief Executive Officer and
Director
(1)
Includes an aggregate of 375,000 shares of common stock
owned by two trusts established for the benefit of
Mr. Green’s daughters. Mr. Green and the trustee
of the Trusts will enter into a voting agreement under which
Mr. Green will have the right to vote the shares owned by
the Trusts on all matters that come before the shareholders of
the company, and accordingly Mr. Green has beneficial
ownership of such shares. Mr. Green disclaims any other
beneficial or pecuniary interest in such shares.
On June 14, 2007 Mr. Green sold to each of the Trusts
established for the benefit of his daughters 187,500 shares
of common stock for a purchase price of approximately $0.01 per
share, the price that Mr. Green paid for the shares.
If the underwriters determine the size of the offering should be
increased or decreased, a stock dividend or a contribution back
to capital, as applicable, would be effectuated in order to
maintain our existing stockholders’ ownership at a
percentage of the number of shares to be sold in this offering.
The holders of the majority of these shares will be entitled to
make up to two demands that we register these shares pursuant to
an agreement to be signed prior to or on the date of this
prospectus. The holders of the majority of these shares may
elect to exercise these registration rights at any time
commencing on the date on which these shares of common stock are
released from escrow. In addition, these stockholders have
certain “piggy-back” registration rights with respect
to registration statements filed subsequent to the date on which
these shares of common stock are released from escrow. We will
bear the expenses incurred in connection with the filing of any
such registration statements.
Our existing stockholders have committed, pursuant to private
placement purchase agreements with us to purchase the 2,100,000
insider warrants (for a total purchase price of $2,100,000) from
us. These purchases will take place in a private placement that
will occur simultaneously with the consummation of this
offering. The purchase price for the insider warrants will be
delivered to Continental Stock Transfer &
Trust Company, who will also be acting solely as escrow
agent in connection with the private sale of insider warrants,
at least 24 hours prior to the date of this prospectus to
hold in an account until we consummate this offering. The
insider warrants will be identical to warrants underlying the
units being offered by this prospectus except that the insider
warrants will be exercisable on a cashless basis and will not be
redeemable by us so long as they are still held by the
purchasers or their affiliates. Each of the purchasers have
agreed, pursuant to the agreements, that he will not sell or
transfer the insider warrants (except to an affiliate of such
purchaser, to relatives and trusts for estate planning purposes,
or to our directors at the same cost per warrant originally paid
by them) until the later
of ,
2008 [one year from the date of this prospectus] and
60 days after the consummation of our business combination.
The holders of the majority of these insider warrants (or
underlying shares) will be entitled to demand that we register
these securities pursuant to an agreement to be signed prior to
or on the date of this prospectus. The holders of the majority
of these securities may elect to exercise these registration
rights with respect to such securities at any time after we
consummate a business combination. In addition, these holders
have certain “piggy-back” registration rights with
respect to registration statements filed subsequent to such
date. We will bear the expenses incurred in connection with the
filing of any such registration statements.
Our management stockholders have agreed that, commencing on the
effective date of this prospectus through the acquisition of a
target business, they will make available to us certain
administrative, technology and secretarial services, as well as
the use of certain limited office space. We have agreed to pay
to our management stockholders, an affiliate of our management
stockholders or third parties $7,500 per month for these
services. Accordingly, they will benefit from the transaction.
However, this arrangement is solely for our benefit and is not
intended to provide
our management stockholders compensation in lieu of a salary. We
believe, based on rents and fees for similar services in the New
York City metropolitan area, that the fee charged is at least as
favorable as we could have obtained from an unaffiliated person.
However, as our directors may not be deemed
“independent,” we did not have the benefit of
disinterested directors approving this transaction.
As of the date of this prospectus, Theodore S. Green has
advanced to us $100,000 to cover expenses related to this
offering. The loan bears interest at the rate of 5% per annum,
compounded semi-annually, and will be payable on the earlier of
May 21, 2008 or the consummation of this offering. We
intend to repay these loans from the proceeds of this offering
not being placed in trust.
We will reimburse our officers and directors for any reasonable
out-of-pocket business expenses incurred by them in connection
with certain activities on our behalf such as identifying and
investigating possible target businesses and business
combinations. There is no limit on the amount of out-of-pocket
expenses reimbursable by us, which will be reviewed only by our
board or a court of competent jurisdiction if such reimbursement
is challenged.
Other than the $7,500 per-month administrative fee and
reimbursable out-of-pocket expenses payable to our officers and
directors, no compensation or fees of any kind, including
finder’s fees, consulting fees or other similar
compensation, will be paid to any of our existing stockholders,
officers or directors who owned our common stock prior to this
offering, or to any of their respective affiliates, prior to or
with respect to the business combination (regardless of the type
of transaction that it is).
All ongoing and future transactions between us and any of our
officers and directors or their respective affiliates, including
loans by our officers and directors, will be on terms believed
by 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
by a majority of our uninterested “independent”
directors (to the extent we have any) or the members of our
board who do not have an interest in the transaction, in either
case who had access, at our expense, to our attorneys or
independent legal counsel. We will not enter into any such
transaction unless our disinterested “independent”
directors (or, if there are no “independent”
directors, our disinterested directors) determine that the terms
of such transaction are no less favorable to us than those that
would be available to us with respect to such a transaction from
unaffiliated third parties.
We are authorized to issue 40,000,000 shares of common
stock, par value $0.001, and 1,000,000 shares of preferred
stock, par value $0.001. As of the date of this prospectus,
2,250,000 shares of common stock are outstanding, held by
two stockholders of record. No shares of preferred stock are
currently outstanding.
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. The common stock and warrants will begin to trade
separately on the 90th day after the date of this
prospectus unless Pali Capital, Inc. informs us of its decision
to allow earlier separate trading, provided that in no event may
the common stock and warrants be traded separately until we have
filed with the SEC a Current Report on
Form 8-K
which includes an audited balance sheet reflecting our receipt
of the gross proceeds of this offering. We will file a Current
Report on
Form 8-K
which includes this audited balance sheet promptly upon the
consummation of this offering. The audited balance sheet will
reflect proceeds we receive from the exercise of the
over-allotment option, if the over-allotment option is exercised
prior to the filing of the
Form 8-K.
If the over-allotment option is exercised after our initial
filing of a
Form 8-K,
we will file an amendment to the
Form 8-K
to provide updated financial information to reflect the exercise
of the over-allotment option. We will also include in this
Form 8-K,
an amendment thereto, or in a subsequent
Form 8-K
information indicating if Pali Capital, Inc. has allowed
separate trading of the common stock and warrants prior to the
90th day after the date of this prospectus.
Common
stock
Our 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 vote required for any business combination,
all of our existing stockholders, including all of our officers
and directors, have agreed to vote their respective shares of
common stock owned by them immediately prior to this offering in
accordance with the majority of the shares of our common stock
voted by our public stockholders. This voting arrangement shall
not apply to shares included in units purchased in this offering
or purchased following this offering in the open market by any
of our existing stockholders, officers and directors. Our
existing stockholders, officers and directors will vote all of
their shares in any manner they determine, in their sole
discretion, with respect to any other items that come before a
vote of our stockholders.
We will proceed with the 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 and public
stockholders owning less than 30% of the shares sold in this
offering both exercise their conversion rights discussed below
and vote against the business combination.
Our board of directors is 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. 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
eligible to vote for the election of directors can elect all of
the directors.
Pursuant to our amended and restated certificate of
incorporation, if we do not consummate a business combination
by ,
2009 [twenty four months from the date of this
prospectus], our corporate existence will cease except for
the purposes of winding up our affairs and liquidating. If we
are forced to liquidate prior to a business combination, our
public stockholders are entitled to share ratably in the trust
fund, including any interest, and any net assets remaining
available for distribution to them after payment of liabilities.
Our existing stockholders have agreed to waive their rights to
share in any distribution with respect to their initial shares.
Our stockholders have no conversion, preemptive or other
subscription rights and there are no sinking fund or redemption
provisions applicable to the common stock, except that public
stockholders have the right to have their shares of common stock
converted to cash equal to their pro rata share of the trust
account if they vote against the business combination and the
business combination is approved and completed. Public
stockholders who convert
their stock into their share of the trust account still have the
right to exercise the warrants that they received as part of the
units.
Preferred
stock
Our certificate of incorporation authorizes the issuance of
1,000,000 shares of blank check preferred stock 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. However, the underwriting agreement prohibits
us, prior to a 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 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
No warrants are currently outstanding. The material terms of the
warrants are set forth herein. Each warrant entitles the
registered holder to purchase one share of our common stock at a
price of $5.50 per share, subject to adjustment as discussed
below, at any time commencing on the later of:
•
the completion of a business combination; and
•
one year from the date of this prospectus.
However, the warrants will be exercisable only if a registration
statement relating to the common stock issuable upon exercise of
the warrants is effective and current. The warrants will expire
four years from the date of this prospectus at 6:00 p.m.,
New York City time.
We may call the warrants for redemption (including any warrants
held by the underwriters as a result of the exercise of their
option, but excluding any insider warrants held by our existing
stockholders or their affiliates), without the consent of Pali
Capital, Inc.:
•
in whole and not in part,
•
at a price of $0.01 per warrant at any time after the warrants
become exercisable,
•
upon not less than 30 days’ prior written notice of
redemption to each warrant holder, and
•
if, and only if, the reported last sale price of the common
stock equals or exceeds $11.50 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.
The right to exercise will be forfeited unless they are
exercised prior to the date specified in the notice of
redemption. On and after the redemption date, a record holder of
a warrant will have no further rights except to receive the
redemption price for such holder’s warrant upon surrender
of such warrant.
The redemption criteria for our warrants have been established
at a price which is intended to provide warrant holders a
reasonable premium to the initial exercise price and provide a
sufficient differential between the then-prevailing common stock
price and the warrant exercise price so that if the stock price
declines as a result of our redemption call, the redemption will
not cause the stock price to drop below the exercise price of
the warrants.
We have agreed that the insider warrants may be exercised on a
cashless basis and will not be redeemable by us so long as they
are held by the initial purchasers or their affiliates. The
reason that we have agreed to this is because it is not known at
this time whether they will be affiliated with us following a
business combination. If they are, their ability to sell our
securities in the open market will be significantly limited. If
they remain insiders, we will have policies in place that
prohibit insiders from selling our securities except during
specific periods of time. Even during
such periods of time, an insider cannot trade in our securities
if he or she is in possession of material non-public
information. Accordingly, unlike public stockholders who could
exercise their warrants and sell the shares of common stock
received upon such exercise freely in the open market in order
to recoup the cost of such exercise, the insiders could be
significantly restricted from selling such securities. As a
result, we believe that allowing the holders to exercise such
warrants on a cashless basis or restrict our ability to redeem
such warrants is appropriate.
The warrants will be issued in registered form under a warrant
agreement between Continental Stock Transfer &
Trust Company, as warrant agent, and us. Although the
material provisions of the warrants are set forth herein, a copy
of the warrant agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part.
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, 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 held by public stockholders will be exercisable and
we will not be obligated to issue shares of common stock unless
at the time a holder seeks to exercise such warrant, a
registration statement relating to the common stock issuable
upon exercise of the warrants is effective and current and the
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 our best efforts to meet these
conditions and to maintain a current prospectus relating to the
common stock issuable upon exercise of the warrants until the
expiration of the warrants. However, we cannot assure you that
we will be able to do so and, if we do not maintain a current
prospectus relating to the common stock issuable upon exercise
of the warrants, holders will be unable to exercise their
warrants and we will not be required to settle any such warrant
exercise. If the prospectus relating to the common stock
issuable upon the exercise of the warrants is not current or if
the common stock is not qualified or exempt from qualification
in the jurisdictions in which the holders of the warrants
reside, we will not be required to net cash settle or cash
settle the warrant exercise, the warrants may have no value, the
market for the warrants may be limited and the warrants may
expire worthless.
No fractional shares 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 or down to the nearest whole number the
number of shares of common stock to be issued to the warrant
holder.
Insider
Warrants
We anticipate that simultaneously with the consummation of this
offering we will privately sell an aggregate of 2,100,000
warrants to our existing stockholders at a purchase price of
$1.00 per warrant, for an aggregate purchase price of
$2,100,000. All of the proceeds we receive from these purchases
will be placed in the trust account. The insider warrants will
be identical to the warrants underlying the units being offered
by this prospectus except that the insider warrants will be
exercisable on a cashless basis and will not redeemable by us so
long as they are still held by the purchasers or their
affiliates. Each of the purchasers have agreed, pursuant to the
agreements, that he will not sell or transfer the insider
warrants (except to an affiliate of such purchaser, to relatives
and trusts for estate planning purposes, or to our directors at
the same cost per warrant originally paid by them) until the
later
of ,
2008 [one year from the date of this prospectus] and
60 days after the consummation of our business combination.
The price per share for the insider warrants was determined
based on a survey of recently completed initial public offerings
of blank check companies in which management of the issuers were
purchasing warrants or units simultaneously with the completion
of the offering in a private placement.
Purchase
Option
We have agreed to sell to the representative of the underwriters
an option for $100 to purchase up to a total of
900,000 units at a per unit price of $10.00. The units
issuable upon exercise of this option are identical to those
offered by this prospectus. For a more complete description of
the purchase option, see the section below entitled
“Underwriting — Purchase Option.” In no
event will we be required to net cash settle this option or the
underlying warrants.
Dividends
We have not paid any cash dividends on our common stock to date
and do not intend to pay cash dividends prior to the completion
of a business combination. The payment of cash dividends in the
future will be dependent upon our revenues and earnings, if any,
capital requirements and general financial condition subsequent
to completion of a business combination. The payment of any
dividends subsequent to a business combination will be within
the discretion of our then board of directors. It is the present
intention of our board of directors to retain all earnings, if
any, for use in our business operations and, accordingly, our
board does not anticipate declaring any dividends in the
foreseeable future.
Our
Transfer Agent and Warrant Agent
The transfer agent for our securities and warrant agent for our
warrants is Continental Stock Transfer &
Trust Company.
American
Stock Exchange Listing
There is presently no public market for our units, common stock
or warrants. We anticipate that the units will be listed on the
American Stock Exchange under the symbol TMI.U on or promptly
after the date of this prospectus. Once the securities
comprising the units begin separate trading, we anticipate that
the common stock and warrants will be listed on the American
Stock Exchange under the symbols TMI and TMI.WS, respectively.
Shares
Eligible for Future Sale
Immediately after this offering, we will have
11,250,000 shares of common stock outstanding, or
12,600,000 shares if the over-allotment option is exercised
in full. Of these shares, the 9,000,000 shares sold in this
offering, or 10,350,000 shares if the over-allotment option
is exercised, will be freely tradable without restriction or
further registration under the Securities Act, except for any
shares purchased by one of our affiliates within the meaning of
Rule 144 under the Securities Act. All of the remaining
shares are restricted securities under Rule 144, in that
they were issued in private transactions not involving a public
offering. None of those shares would be eligible for sale under
Rule 144 prior to
[ ],
2008. However, as described below, the Securities and Exchange
Commission has taken the position that these securities would
not be eligible for transfer under Rule 144. Furthermore,
all of those shares have been placed in escrow and will not be
transferable for a period of one year from the consummation of
our initial business combination and will be released prior to
that date only if, following a business combination,
(i) the last sales price of our common stock equals or
exceeds $11.50 per share for any 20 trading days within any
30-trading day period or (ii) we consummate a subsequent
liquidation, merger, stock exchange or other similar transaction
which results in all of our stockholders having the right to
exchange their shares of common stock for cash, securities or
other property.
In general, under Rule 144 as currently in effect, a person
who has beneficially owned restricted shares of our common stock
for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of either of the following:
•
1% of the number of shares of common stock then outstanding,
which will equal 112,500 shares immediately after this
offering (or 126,000 if the over-allotment option is exercised
in full); and
•
the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
Sales under Rule 144 are also limited by manner of sale
provisions and notice requirements and to the availability of
current public information about us.
Rule 144(k)
Under Rule 144(k), a person who 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 who has beneficially owned
the restricted shares proposed to be sold for at least two
years, including the holding period of any prior owner other
than an affiliate, is entitled to sell their shares without
complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
SEC
Position on Rule 144 Sales
The Securities and Exchange Commission has taken the position
that promoters or affiliates of a blank check company and their
transferees, both before and after a business combination act as
“underwriters” under the Securities Act when reselling
the securities of a blank check company acquired prior to the
consummation of its initial public offering. Accordingly, the
Securities and Exchange Commission believes that those
securities can be resold only through a registered offering and
that Rule 144 would not be available for those resale
transactions despite technical compliance with the requirements
of Rule 144.
Registration
Rights
The holders of our initial shares issued and outstanding on the
date of this prospectus, as well as the holders of the insider
warrants (and underlying securities), will be entitled to
registration rights pursuant to an agreement to be signed prior
to or on the effective date of this offering. The holders of the
majority of these securities are entitled to make up to two
demands that we register such securities. The holders of the
majority of the initial shares can elect to exercise these
registration rights at any time commencing on the date on which
these shares of common stock are to be released from escrow. The
holders of a majority of the insider warrants (or underlying
securities) can elect to exercise these registration rights at
any time after we consummate a business combination. In
addition, the holders have certain “piggy-back”
registration rights with respect to registration statements
filed subsequent to our consummation of a business combination.
We will bear the expenses incurred in connection with the filing
of any such registration statements.
In accordance with the terms and conditions contained in the
underwriting agreement, we have agreed to sell to each of the
underwriters named below, and each of the underwriters, for
which Pali Capital, Inc. is acting as representative, has
individually agreed to purchase on a firm commitment basis the
number of units set forth opposite its name below:
Number of
Underwriter
Units
Pali Capital, Inc.
Total
9,000,000
A copy of the underwriting agreement has been filed as an
exhibit to the registration statement of which this prospectus
forms a part.
Pricing
of Securities
We have been advised by the representative that the underwriters
propose to offer the units to the public at the offering price
set forth on the cover page of this prospectus. They may allow
some dealers concessions not in excess of
$[ ] per unit and the dealers may
reallow a concession not in excess of
$[ ] per unit to other dealers.
Prior to this offering there has been no public market for any
of our securities. The public offering price of the units and
insider warrants and the terms of the warrants were negotiated
between us and the representative. Factors considered in
determining the prices and terms of the units, including the
common stock and warrants underlying the units, and the insider
warrants 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;
•
our belief that the aggregate gross proceeds raised in this
offering will be sufficient to complete a desirable acquisition;
•
general conditions of the securities markets at the time of the
offering; and
•
other factors as were deemed relevant.
In consultation with our underwriters, we determined the size of
this offering based on our beliefs concerning the capital that
could be successfully raised given market conditions, our
company’s business, our management team and other factors.
With an equity base equivalent to the net proceeds of this
offering and the private placement, and with access to the
revolving line of credit, we believe we will have the ability to
consider a broad range of potential target businesses possessing
the scale of operations and developed infrastructure that will
allow us to execute a business plan which will leverage our
skills and resources. The determination of the offering price of
our units and the valuation accorded to our company is more
arbitrary than the pricing of securities for or valuation of,
operating companies in general since the underwriters are unable
to compare our financial results and prospects with those of
public companies operating in the same industry.
Over-Allotment
Option
We have granted to the representative an option, exercisable
during the
45-day
period commencing on the date of this prospectus, to purchase
from us at the offering price, less underwriting discounts, up
to an aggregate of 1,350,000 additional units for the sole
purpose of covering over-allotments, if any. The over-allotment
option will only be used to cover the net syndicate short
position resulting from the initial distribution. The
representative may exercise the over-allotment option if the
underwriters sell more units than the total number set forth in
the table above.
We have agreed to sell to the representative of the
underwriters, for $100, an option to purchase up to a total of
900,000 units. The units issuable upon exercise of this
option are identical to those offered by this prospectus. This
option is exercisable at $10.00 per unit, and may be exercised
on a cashless basis, commencing on the later of the consummation
of a business combination and one year from the date of this
prospectus and expiring five years from the date of this
prospectus. The option and the 900,000 units, the
900,000 shares of common stock and the 900,000 warrants
underlying such units, and the 900,000 shares of common
stock underlying such warrants, have been deemed compensation by
the NASD and are therefore subject to a
180-day
lock-up
pursuant to Rule 2710(g)(1) of the NASD Conduct Rules. Pali
Capital, Inc. will not sell, transfer, assign, pledge, or
hypothecate this option or the securities underlying this
option, nor will it engage in any hedging, short sale,
derivative, put, or call transaction that would result in the
effective economic disposition of this option or the underlying
securities for a period of 360 days from the effective date of
this prospectus. We estimate that the value of the
representative’s unit purchase option is $2,835,000 using a
Black-Scholes option pricing model. The fair value of the
representative’s unit purchase option is estimated as of
the date of the grant using the following assumptions:
(1) expected volatility of 45.2%, (2) risk-free
discount rate of 4.95%, (3) contractual life of five years
and (4) dividend rate of zero. Additionally, the option may
not be sold, transferred, assigned, pledged or hypothecated for
a one-year period (including the foregoing
180-day
period) following the date of this prospectus except to any
underwriter and selected dealers participating in the offering
and their bona fide officers or partners. Although the purchase
option and its underlying securities have been registered under
the registration statement of which this prospectus forms a
part, the option grants to holders demand and “piggy
back” rights for periods of five and seven years,
respectively, from the date of this prospectus with respect to
the registration under the Securities Act of the securities
directly and indirectly issuable upon exercise of the option. We
will bear all fees and expenses attendant to registering the
securities, other than underwriting commissions which will be
paid for by the holders themselves. The exercise price and
number of units issuable upon exercise of the option may be
adjusted in certain circumstances including in the event of a
stock dividend, or our recapitalization, reorganization, merger
or consolidation. However, the option will not be adjusted for
issuances of common stock at a price below its exercise price.
Commissions
and Discounts
The following table shows the public offering price,
underwriting discount to be paid by us to the underwriters and
the proceeds, before expenses, to us. This information assumes
either no exercise or full exercise by the representative of the
underwriters of its over-allotment option.
Per
Without
With
Unit
Option
Option
Public offering price
$
8.00
$
72,000,000
$
82,800,000
Discount
$
0.56
$
5,040,000
$
5,796,000
Proceeds before expenses
$
7.44
$
66,960,000
$
77,004,000
No discounts or commissions will be paid on the sale of the
insider warrants. The above table does not include the fair
value of the unit purchase option we have agreed to sell to the
representative, which, based upon a Black Scholes model, on the
date of sale would be approximately $2,835,000 using an expected
life of five years, volatility of 45.2% and a risk-free interest
rate of 4.95%.
We have agreed to reimburse the underwriters for up to $10,000
of expenses incurred by them in connection with the
investigative background search as part of their due diligence
of our management. This expense reimbursement will be deemed
additional compensation under NASD Rule 2710.
Rules of the SEC may limit the ability of the underwriters to
bid for or purchase our units before the distribution of the
units is completed. However, the underwriters may engage in the
following activities in accordance with the rules:
•
Stabilizing Transactions. The underwriters may
make bids or purchases for the purpose of preventing or
retarding a decline in the price of our units, as long as
stabilizing bids do not exceed the offering price of $8.00.
•
Over-Allotments and Syndicate Coverage
Transactions. The underwriters may create a short
position in our units by selling more of our units than are set
forth on the cover page of this prospectus. If the underwriters
create a short position during the offering, the representative
may engage in syndicate covering transactions by purchasing our
units in the open market. The representative may also elect to
reduce any short position by exercising all or part of the
over-allotment option.
•
Penalty Bids. The representative may reclaim a
selling concession from a syndicate member when the units
originally sold by the syndicate member are purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
Stabilization and syndicate covering transactions may cause the
price of our securities to be higher than they would be in the
absence of these transactions. The imposition of a penalty bid
might also have an effect on the prices of our securities if it
discourages resales of our securities.
Neither we nor the underwriters make any representation or
prediction as to the effect that the transactions described
above may have on the price of our securities. These
transactions may occur on the American Stock Exchange, in the
over-the-counter market or on any trading market. If any of
these transactions are commenced, they may be discontinued
without notice at any time.
The restricted period under Regulation M for this offering
will have ended when all of the units have been distributed and
after any over-allotment and stabilization arrangements and
trading restrictions in connection with the offering have been
terminated.
Other
Terms
Although we are not under any contractual obligation to engage
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 the underwriters provide services to
us after this offering, we may pay such underwriters 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 underwriters and no fees for such
services will be paid to the underwriters prior to the date
which is 90 days after the date of this prospectus, unless
the National Association of Securities Dealers determines that
such payment would not be deemed underwriter’s compensation
in connection with this offering.
Indemnification
We have agreed to indemnify the underwriters against some
liabilities, including civil liabilities under the Securities
Act, or to contribute to payments the underwriter may be
required to make in this respect.
Morrison Cohen LLP, New York, New York, is acting as counsel in
connection with the registration of our securities under the
Securities Act of 1933, and as such, will pass upon the validity
of the securities offered in this prospectus. Kramer Levin
Naftalis & Frankel LLP, New York, New York, is acting
as counsel for the underwriters in this offering.
The financial statements included in this prospectus and in the
registration statement have been audited by Goldstein Golub
Kessler LLP, an independent registered public accounting firm,
to the extent and for the period set forth in their report
appearing elsewhere in this prospectus and in the registration
statement. The financial
statements and the report of Goldstein Golub Kessler LLP are
included in reliance upon their report given upon the authority
of Goldstein Golub Kessler LLP as experts in auditing and
accounting.
We have filed with the SEC a registration statement on
Form S-1,
which includes exhibits, schedules and amendments, under the
Securities Act, with respect to this offering of our securities.
Although this prospectus, which forms a part of the registration
statement, contains all material information included in the
registration statement, parts of the registration statement have
been omitted as permitted by rules and regulations of the SEC.
We refer you to the registration statement and its exhibits for
further information about us, our securities and this offering.
The registration statement and its exhibits, as well as our
other reports filed with the SEC, can be inspected and copied at
the SEC’s public reference room at 100 F Street,
N.E., Washington, D.C. 20549. The public may obtain
information about the operation of the public reference room by
calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains a web site at
http://www.sec.gov
which contains the
Form S-1
and other reports, proxy and information statements and
information regarding issuers that file electronically with the
SEC.
We have audited the accompanying balance sheet of TM
Entertainment and Media, Inc. (a corporation in the development
stage) as of May 31, 2007, and the related statements of
operations, stockholders’ equity, and cash flows for the
period from May 1, 2007 (inception) to May 31, 2007.
These financial statements are the responsibility of the
Company’s management. 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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, the financial statements referred to above
present fairly, in all material respects, the financial position
of TM Entertainment and Media, Inc. as of May 31, 2007 and
the results of its operations and its cash flows for the period
from May 1, 2007 (inception) to May 31, 2007, in
conformity with United States generally accepted accounting
principles.
TM Entertainment and Media Inc. (the “Company”) was
incorporated in Delaware on May 1, 2007 for the purpose of
effecting a merger, capital stock exchange, asset acquisition or
other similar business combination with an operating business.
At May 31, 2007, the Company had not yet commenced any
operations. All activity through May 31, 2007 relates to
the Company’s formation and the proposed 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
public offering of up to 9,000,000 units
(“Units”) which is discussed in Note 2
(“Proposed Offering”). 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 of the Proposed Offering
are intended to be generally applied toward consummating a
business combination with an operating business (“Business
Combination”). Furthermore, there is no assurance that the
Company will be able to successfully effect a Business
Combination. Upon the closing of the Proposed Offering,
management has agreed that $7.84 per Unit sold in the Proposed
Offering will be held in a trust account
(“Trust Account”) and invested in United States
“government securities” within the meaning of
Section 2(a)(16) of the Investment Company Act of 1940
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 its first Business
Combination and (ii) liquidation of the Company. The
placing of funds in the Trust Account may not protect those
funds from third party claims against the Company. Although the
Company will seek to have all vendors and service providers
(which would include any third parties engaged by the Company to
assist it in any way in connection with the Company’s
search for a target business) and prospective target businesses
execute agreements with the Company waiving any right, title,
interest or claim of any kind in or to any monies held in the
Trust Account, there is no guarantee that they will execute
such agreements. Nor is there any guarantee that, even if such
entities execute such agreements with the Company, they will not
seek recourse against the Trust Account or that a court
would not conclude that such agreements are not legally
enforceable. The Company’s Chairman of the Board and
Co-Chief Executive Officer, and the Company’s Co-Chief
Executive Officer have agreed that they will be liable under
certain circumstances to ensure that the proceeds in the
Trust Account are not reduced by the claims of target
businesses or claims of vendors or other entities that are owed
money by the Company for services rendered or contracted for or
products sold to the Company. However, there can be no assurance
that they will be able to satisfy those obligations.
Furthermore, they will not have any personal liability as to any
claimed amounts owed to a third party who executed a waiver
(including a prospective target business). Additionally, in the
case of a prospective target business that did not execute a
waiver, such liability will only be in an amount necessary to
ensure that public stockholders receive no less than $8.00 per
share upon liquidation.
The remaining net proceeds (not held in the Trust Account)
may be used to pay for business, legal and accounting due
diligence on prospective acquisitions and continuing general and
administrative expenses. Additionally, up to an aggregate of
$1,900,000 of interest earned on the Trust Account balance
may be released to the Company to fund working capital
requirements and additional amounts may be released to the
Company as necessary to satisfy tax obligations.
The Company, after signing a definitive agreement for the
acquisition of a target business, is required to submit such
transaction for stockholder approval. In the event that
stockholders owning 30% or more of the shares sold in the
Proposed Offering vote against the Business Combination and
exercise their conversion rights described below, the Business
Combination will not be consummated. All of the Company’s
stockholders prior to the Proposed Offering, including all of
the officers and directors of the Company (“Initial
Stockholders”), have agreed to vote their initial shares of
Common Stock in accordance with the vote of the majority in
interest of all other stockholders
TM
ENTERTAINMENT AND MEDIA, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
Notes to Financial
Statements — (Continued)
of the Company (“Public Stockholders”) with respect to
any Business Combination. After consummation of a Business
Combination, these voting safeguards will no longer be
applicable.
With respect to a Business Combination which is approved and
consummated, any Public Stockholder who voted against the
Business Combination may demand that the Company convert his,
hers, or its shares. The per share conversion price will equal
the amount in the Trust Account, calculated as of two
business days prior to the consummation of the proposed Business
Combination, divided by the number of shares of Common Stock
held by Public Stockholders at the consummation of the Proposed
Offering. Accordingly, Public Stockholders holding 29.99% of the
aggregate number of shares owned by all Public Stockholders may
seek conversion of their shares in the event of a Business
Combination. Such Public Stockholders are entitled to receive
their per share interest in the Trust Account computed
without regard to the shares held by Initial Stockholders.
The Company’s Certificate of Incorporation will be amended
prior to the Proposed Offering to provide that the Company will
continue in existence only until 24 months from the
effective date of the Proposed Offering. If the Company has not
completed a Business Combination by such date, its corporate
existence will cease and it will dissolve and liquidate for the
purposes of winding up its affairs. In the event of liquidation,
it is likely that the per share value of the residual assets
remaining available for distribution (including Trust Fund
assets) will be less than the initial public offering price per
share 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 2).
Concentration of Credit Risk — The Company
maintains cash in a bank deposit account which, at times,
exceeds federally insured (FDIC) limits. The Company has not
experienced any losses on this account.
Deferred Income Taxes — Deferred income tax
assets and liabilities are computed for differences between the
financial statements and tax basis of assets and liabilities
that will result in future taxable or deductible amounts and are
based on enacted tax laws and rates applicable to the periods in
which the differences are expected to effect taxable income.
Valuation allowances are established when necessary to reduce
deferred income tax assets to the amount expected to be realized.
Loss Per Share — Loss per share is computed by
dividing net loss by the weighted-average number of shares of
Common Stock outstanding during the period.
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 at the date of the financial
statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those
estimates.
New Accounting Pronouncements — Management does
not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
2.
Proposed
Public Offering
The Proposed Offering calls for the Company to offer for public
sale up to 9,000,000 Units at a proposed offering price of $8.00
per Unit (plus up to an additional 1,350,000 units solely
to cover over-allotments, if any). Each Unit consists of one
share of the Company’s Common Stock and one redeemable
common stock purchase warrant (“Warrants”). Each
Warrant will entitle the holder to purchase from the Company one
share of Common Stock at an exercise price of $5.50 commencing
on the later of the completion of a Business Combination and one
year from the effective date of the Proposed Offering and
expiring four years from the effective date of the Proposed
Offering. The Company may redeem the Warrants, at a price of
$.01 per Warrant upon 30 days’ notice while the
Warrants are exercisable, only in the event that the last sale
price of the Common Stock is at least $11.50 per share for any
20 trading days within a 30 trading day period ending on the
third day prior to the date on which notice of
TM
ENTERTAINMENT AND MEDIA, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
Notes to Financial
Statements — (Continued)
redemption is given. In accordance with the warrant agreement
relating to the Warrants to be sold and issued in the Proposed
Offering, the Company is only required to use its best 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 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 will pay the underwriters in the Proposed Offering
an underwriting discount of 7% of the gross proceeds of the
Proposed Offering. However, the underwriters have agreed that 3%
of the underwriting discount will not be payable unless and
until the Company completes a Business Combination and have
waived their right to receive such payment upon the
Company’s liquidation if it is unable to complete a
Business Combination.
The Company has agreed to sell to Pali Capital, Inc.
(“Pali”), as representatives of the underwriters, for
$100, an option to purchase up to a total of 900,000 units
at $10.00 per unit. The units issuable upon the exercise of this
option are identical to those to be offered in the Proposed
Offering. This option is exercisable at $10.00 per unit, and may
be exercised on a cashless basis, commencing on the later of the
consummation of a Business Combination and one year from the
date of this prospectus and expiring five years from the date of
this prospectus. The estimated fair value of this option is
approximately $2,835,000, $3.15 per unit, using a Black-Scholes
option-pricing model. The fair value of the option granted is
estimated as of the date of the grant using the following
assumptions: (1) expected volatility of 45.2%,
(2) risk-free discount rate of 4.95% (3) expected life
of five years and (4) dividend rate of zero. The volatility
is based on the average five year daily volatility of the 20
smallest (by market capitalization) media companies in the
Russell 2000 Index.
3.
Deferred
Offering Costs
Deferred offering costs consist of legal and other fees incurred
through the balance sheet date that are directly related to the
Proposed Offering and that will be charged to stockholders’
equity upon the receipt of the capital raised or charged to
operations if the Proposed Offering is not completed.
4.
Notes
Payable, Stockholder
The Company issued an unsecured promissory note in an aggregate
principal amount of $100,000 to one of the Initial Stockholders
on May 21, 2007. The note bears interest at 5% per year,
compounded semiannually and is payable on the earlier of
May 21, 2008 or the consummation of the Proposed Offering.
The Statement of Operations includes $151 of interest expense
related to this note. Due to the short-term nature of the note,
the fair value of the note approximates its carrying amount.
5.
Income
Taxes
Significant components of the Company’s deferred tax assets
are as follows:
Expenses deferred for income tax
purposes
$
3,073
Less: valuation allowance
(3,073
)
TOTAL
$
—
Management has recorded a full valuation allowance against the
Company’s deferred tax assets because the company has not
consummated an IPO and has not commenced operations.
The effective tax rate differs from the statutory rate of 34%
due to the increase in the valuation allowance.
TM
ENTERTAINMENT AND MEDIA, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
Notes to Financial
Statements — (Continued)
6.
Commitments
The Company may occupy office space provided by one of the
Initial Stockholders, or an affiliate of one of the Initial
Stockholders, or a third party. Such Initial Stockholder,
affiliate or third party has agreed that, until the Company
consummates a Business Combination, it will make such office
space, as well as certain office and secretarial services,
available to the Company, as may be required by the Company from
time to time. The Company has agreed that it will to pay $7,500
per month for such services commencing on the effective date of
the Proposed Offering.
Pursuant to letter agreements which the Initial Stockholders
will enter into with the Company and the underwriters, the
Initial Stockholders will waive their right to receive
distributions with respect to their initial shares upon the
Company’s liquidation.
The Company’s Chairman and Co-Chief Executive Officer, and
the Company’s Co-Chief Executive Officer have committed to
purchase a total of 2,100,000 Warrants (“Insider
Warrants”) at $1.00 per Warrant (for an aggregate purchase
price of $2,100,000) privately from the Company. These purchases
will take place simultaneously with the consummation of the
Proposed Offering. All of the proceeds received from these
initial purchases will be placed in the Trust Account. The
Insider Warrants to be purchased by such purchasers will be
identical to the Warrants underlying the Units being offered in
the Proposed Offering except that the Insider Warrants may not
be called for redemption and the Insider Warrants may be
exercisable on a “cashless basis,” at the
holder’s option, so long as such securities are held by
such purchaser or his affiliates. Furthermore, the purchaser has
agreed that the Insider Warrants will not be sold or transferred
by them, except for estate planning purposes, until after the
Company has completed a Business Combination.
The Initial Stockholders and the holders of the Insider Warrants
(or underlying securities) will be entitled to registration
rights with respect to their initial shares or Insider Warrants
(or underlying securities) pursuant to an agreement to be signed
prior to or on the date of the Proposed Offering. The holders of
the majority of these securities may elect to exercise these
registration rights with respect to such securities at any time
after the Company consummates a Business Combination. The
holders have certain “piggy-back registration rights with
respect to registration statements filed after the
Company’s consummation of a Business Combination.
The Company has also agreed to pay the fees to the underwriters
in the Proposed Offering as described in Note 2 above. The
Company has granted Pali a 45 day option to purchase up to
1,350,000 units to cover overallotments. The Company has
also agreed to sell Pali for $100, as additional compensation,
an option to purchase up to a total of 900,000 units at
$10.00 per unit.
7.
Preferred
Stock
The Company is authorized to issue 1,000,000 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.
The agreement with the underwriters will prohibit the Company,
prior to a Business Combination, from issuing preferred stock
which participates in the proceeds of the Trust Account or
which votes as a class with the Common Stock on a Business
Combination.
Until
[ ],
2007, all dealers that effect transactions in these securities,
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
underwriters and with respect to their unsold allotments or
subscriptions.
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 estimated expenses payable by us in connection with the
offering described in this registration statement (other than
the underwriting discount and commissions) will be as follows:
SEC Registration Fee
5,300
NASD filing fee
17,758
American Stock Exchange filing and
listing fee
80,000
Accounting fees and expenses
65,000
Printing and engraving expenses
50,000
Legal fees and expenses
250,000
Miscellaneous
131,942
Total
$
600,000
Item 14.
Indemnification
of Directors and Officers.
Our certificate of incorporation provides that all 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 Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law
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 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 our directors, officers, and
controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment of expenses incurred or paid by a
director, officer or controlling person in a successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to
the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
“The Corporation, to the full extent permitted by
Section 145 of the GCL, as amended from time to time, shall
indemnify all persons whom it may indemnify pursuant thereto.
Expenses (including attorneys’ fees) incurred by an officer
or director in defending any civil, criminal, administrative, or
investigative action, suit or proceeding for which such officer
or director may be entitled to indemnification hereunder shall
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 he is not
entitled to be indemnified by the Corporation as authorized
hereby.”
Pursuant to the Underwriting Agreement filed as Exhibit 1.1
to this Registration Statement, we have agreed to indemnify the
Underwriters and the Underwriters have 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.
(a) During the past three years, we sold the following
shares of common stock without registration under the Securities
Act:
Number of
Stockholders
Shares
Theodore S. Green
1,375,000
Malcolm Bird
875,000
Such shares were issued on May 1, 2007 in connection with
our organization pursuant to the exemption from registration
contained in Section 4(2) of the Securities Act as they
were sold to sophisticated, accredited individuals. The shares
issued to the individuals above were sold for an aggregate
offering price of $25,000 at an average purchase price of
approximately $0.01 per share.
On June 14, 2007, Mr. Green sold to each of the Trusts
established for the benefit of his daughters 187,500 shares
of common stock for a purchase price of approximately $0.01 per
share, the price that Mr. Green paid for the shares.
In addition, our existing stockholders have committed to
purchase from us 2,100,000 warrants at a purchase price of $1.00
per warrant (for an aggregate purchase price of $2,100,000).
These purchases will take place in a private placement that will
occur simultaneously with the consummation of our initial public
offering. These issuances will be made pursuant to the exemption
from registration contained in Section 4(2) of the
Securities Act. The obligation to purchase the warrants
undertaken by the above individuals was made pursuant to a
Warrant
Purchase Agreement, dated as of June [ ], 2007
(the form of which was filed as Exhibit 10.9 to the
Registration Statement on
Form S-1).
Such obligation was made prior to the filing of the Registration
Statement, and the only conditions to the obligation undertaken
by such individuals are conditions outside of the
investors’ control. Consequently, the investment decision
relating to the purchase of the warrants was made prior to the
filing of the Registration Statement relating to the public
offering and therefore constitutes a “completed private
placement.”
No underwriting discounts or commissions were paid with respect
to such sales.
Item 16.
Exhibits
and Financial Statement Schedules.
(a) The following exhibits are filed as part of this
Registration Statement:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment 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.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) That for the purpose of determining any liability under
the Securities Act of 1933 in a primary offering of securities
of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered
or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
(b) 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.
(c) 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 Act 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 Act and will be
governed by the final adjudication of such issue.
(d) 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, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the
25th day of July, 2007.
TM ENTERTAINMENT AND MEDIA, INC.
By: /s/
Theodore S. Green
Name: Theodore S. Green
Title: Chairman and Co-Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
Name
Position
Date
/s/ Theodore
S. Green
Theodore
S. Green
Chairman, Co-Chief Executive
Officer and Director (principal executive officer and principal
financial and accounting officer)