Filed Pursuant to Rule 424(b)(4)
Registration Statement No. 333-144218
PROSPECTUS
$80,000,000
IDEATION ACQUISITION
CORP.
10,000,000 Units
Ideation Acquisition Corp. is a newly organized blank check
company formed for the purpose of acquiring, through a merger,
capital stock exchange, asset acquisition or other similar
business combination, one or more businesses. While our efforts
in identifying prospective target businesses will not be limited
to a particular industry, we expect to focus on businesses in
the digital media sector, which encompasses companies that
emphasize the use of digital technology to create, distribute or
service others that create or distribute content for various
platforms including online, mobile, satellite, television,
cable, radio, print, film, video games and software. We may also
focus on traditional media businesses if we believe that the
incorporation of digital technology will enhance and accelerate
the growth of those businesses. 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 units. 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
$6.00. Each warrant will become exercisable on the later of our
completion of a business combination and November 19, 2008
and will expire on November 19, 2011 or earlier upon
redemption.
We have granted Lazard Capital Markets LLC, the representative
of the underwriters for this offering, a
45-day
option to purchase up to 1,500,000 units (over and above
the 10,000,000 units referred to above) solely to cover
over-allotments, if any. The over-allotment will be used only to
cover the net syndicate short position resulting from the
initial distribution. We have also agreed to sell to Lazard
Capital Markets LLC, as representative of the underwriters, for
$100, as additional compensation, an option to purchase up to a
total of 500,000 units at $10.00 per unit. The units
issuable upon exercise of this option are identical to those
offered by this prospectus, except that each of the warrants
issued as part of such units will entitle the holder to purchase
one share of our common stock at a price of $7.00. The purchase
option and its underlying securities have been registered under
the registration statement of which this prospectus forms a part.
Our initial stockholders have agreed to purchase warrants
exercisable for 2,400,000 shares of our common stock at a
purchase price of $1.00 per warrant in a private placement that
will occur simultaneously with the consummation of this
offering. We refer to these warrants as the insider warrants
throughout this prospectus. All of the proceeds we receive from
the sale of insider warrants will be placed in the trust account
described below. The insider warrants will be identical to the
warrants included in the units being offered by this prospectus,
except that if we call the warrants for redemption, the insider
warrants will be exercisable on a cashless basis so long as they
are still held by our initial stockholders or their affiliates.
Our initial stockholders have agreed that the insider warrants
will not be sold or transferred by them until 90 days after
we have completed a business combination, provided however that
transfers can be made to certain permitted transferees who agree
in writing to be bound by such transfer restrictions.
Accordingly, the insider warrants will be placed in escrow and
will not be released until 90 days after the completion of
our initial business combination.
There is presently no public market for our units, common stock
or warrants. We have applied to have our units listed on the
American Stock Exchange under the symbol IDI.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 IDI and
IDI.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 15 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
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Underwriting
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Public
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Discount and
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Proceeds, Before
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Offering Price
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Commissions(1)
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Expenses, to Us
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Per unit
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$
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8.00
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$
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0.56
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$
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7.44
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Total
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$
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80,000,000
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$
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5,460,000
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(2)
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$
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74,540,000
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(1)
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Of the underwriting discounts and
commissions, $2,730,000 ($0.28 per unit purchased by our new
public stockholders in this offering) is being deferred by the
underwriters and will be placed in the trust account described
below. Such funds will be released to the underwriters only upon
our completion of a business combination, as described in this
prospectus.
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(2)
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The underwriters will not receive
underwriting discounts or commissions of up to $140,000 on
250,000 units that may be purchased by our initial stockholders
in this offering.
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Of the net proceeds after expenses we receive from this offering
and the private placement, approximately $7.88 per unit, or
$78,815,000 ($90,395,000 if the underwriters
over-allotment option is exercised in full), will be deposited
into a trust account at JPMorgan Chase Bank, maintained by
Continental Stock Transfer & Trust Company,
acting as trustee. This amount includes the deferred
underwriting discounts and commissions of $2,730,000 and the
$2,400,000 of net proceeds from the private placement in which
our initial stockholders will purchase 2,400,000 insider
warrants.
We are offering the units for sale on a firm commitment basis.
Lazard Capital Markets LLC, acting as representative of the
underwriters, expects to deliver our units to investors in the
offering on or about November 26, 2007.
Lazard
Capital Markets
EarlyBirdCapital,
Inc.
The date of this prospectus is
November 19, 2007
TABLE OF
CONTENTS
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F-1
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You should rely only on the information contained or
incorporated by reference in this prospectus. We have not, and
the underwriters 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.
You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front cover
of this prospectus.
i
This summary highlights material information appearing
elsewhere in this prospectus. For a more complete understanding
of this offering, you should read the entire prospectus
carefully, including the information under Risk
Factors and our financial statements and the related notes
included elsewhere in this prospectus. Unless otherwise stated
in this prospectus:
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references to we, us or our
company refer to Ideation Acquisition Corp.;
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initial shares refers to the
2,500,000 shares of common stock that our initial
stockholders originally purchased from us for $25,000 on
June 7, 2007;
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initial stockholders refers to Frost Gamma
Investments Trust, the beneficiary of which is an entity
controlled by Dr. Phillip Frost, M.D., Robert N.
Fried, Rao Uppaluri, Steven D. Rubin, Jane Hsiao, Thomas E.
Beier, Shawn Gold, David H. Moskowitz, Thomas H. Baer, Jarl Mohn
and Nautilus Trust dtd
9/10/99,
the
grantor trust of Barry A. Porter, each of whom purchased and
beneficially owns initial shares;
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insider warrants refers to the 2,400,000 warrants
we are selling privately to our initial stockholders
simultaneously with the consummation of this offering;
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management team refers to our officers and
directors;
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public stockholders means the holders of the
shares of common stock which are being sold as part of the units
in this public offering, including any of our initial
stockholders solely to the extent that they purchase such shares
either in this offering or afterwards; and
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the information in this prospectus assumes that
(i) unless otherwise stated, certain of our initial
stockholders will purchase 250,000 units in this offering that
we have asked the underwriters to reserve for purchase by them
in this offering and (ii) unless otherwise stated, the
underwriters will not exercise their over-allotment option.
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Our
Business
We are a blank check company organized under the laws of the
State of Delaware on June 1, 2007. We were formed for the
purpose of acquiring, through a merger, capital stock exchange,
asset acquisition or other similar business combination, one or
more businesses. While our efforts in identifying prospective
target businesses will not be limited to a particular industry,
we expect to focus on businesses in the digital media sector,
which encompasses companies that emphasize the use of digital
technology to create, distribute or service others that create
or distribute content for various platforms including online,
mobile, satellite, television, cable, radio, print, film, video
games and software. Digital technology refers to the use of
digitally-enabled means, as opposed to analog means, to process,
transmit, store or display content. We may also focus on
traditional media businesses, including motion picture
exhibition companies, television and radio broadcast companies,
print media publishing companies and traditional content
libraries, if we believe that the incorporation of digital
technology will enhance and accelerate the growth of those
businesses. We have not established specific criteria that would
trigger our consideration of businesses outside of the digital
media sector. In addition, we intend to direct our search toward
digital media businesses in the United States, but we would also
consider businesses outside of the United States. To date, our
efforts have been limited to organizational activities.
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. Our initial stockholders, officers, directors and
special advisors have not identified or considered a suitable
acquisition candidate, nor have they had any discussions
regarding any such candidate among themselves or with our
underwriters. Additionally, 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 potential
business combination transaction with us. In addition, we have
not, nor has anyone on our behalf, taken any
1
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.
Our management team, board of directors and special advisors,
led by our Chairman of the Board, Dr. Phillip Frost, has
extensive experience in identifying emerging technologies and
building companies through acquisitions and organic growth.
Notably, from 1987 to January 2006, Dr. Frost served as the
Chairman of the Board and Chief Executive Officer of IVAX
Corporation, which was sold to Teva Pharmaceuticals for
$9.2 billion, including assumed debt. IVAX Corporation was
a multinational company engaged in the research, development,
manufacturing and marketing of branded and generic
pharmaceuticals and veterinary products. During
Dr. Frosts tenure, IVAX Corporation consummated in
excess of 50 acquisitions and divestitures primarily in the
healthcare industry. Steven D. Rubin and Rao Uppaluri, two of
our executive officers, have worked closely with Dr. Frost
at IVAX and other subsequent ventures.
We believe, based solely on our managements collective
business experience, that there are numerous attractive
acquisition opportunities in the digital media sector. Robert
Fried, our President and Chief Executive Officer, certain
members of our board of directors and our special advisors have
extensive experience in the digital media sector as senior
executives, business consultants
and/or
entrepreneurs, and we intend to leverage their experience by
focusing our efforts on businesses in that sector. In
particular, Mr. Fried has over 23 years of experience
founding and operating traditional and digital media companies,
as well as producing numerous award-winning feature films. His
experience in both the creative and business aspects of the
entertainment industry provides us with exposure to a unique
array of business opportunities.
Certain members of our management team and board of directors
have extensive merger and acquisition experience outside of the
digital media sector that we believe will be helpful in
consummating a successful transaction. Because of this diversity
of industry experience, we may consummate a business combination
with a company in a different sector. Any information regarding
the digital media sector that is included in this prospectus
would be irrelevant if we decide to consider a target business
or businesses outside of the digital media sector.
Our initial business combination must be with a target business
whose fair market value is at least equal to 80% of our net
assets (excluding deferred underwriting discounts and
commissions of $2.73 million, or $3.15 million if the
over-allotment option is exercised in full) at the time of such
acquisition, although this may entail simultaneous acquisitions
of several businesses. 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 integration of
the operations and services or products of the acquired
companies in a single operating business. In no instance will we
acquire less than majority voting control of a target business.
However, this restriction will not preclude a reverse merger or
similar transaction where we will acquire the target business.
The target business that we acquire may have a fair market value
substantially in excess of 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
business
and/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.
Our principal executive offices are located at 100 North
Crescent Drive, Beverly Hills, California 90210, and our
telephone number is
(310) 694-8150.
2
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Securities offered
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10,000,000 units, at $8.00 per unit, each unit consisting
of:
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one share of common stock; and
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one warrant.
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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 Lazard Capital Markets LLC determines that an earlier
date is acceptable (based upon its assessment of the relative
strengths of the securities markets and small capitalization
companies in general, and the trading pattern of, and demand
for, our securities in particular). In no event will Lazard
Capital Markets LLC 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 consummation 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
of the over-allotment option. We will also include appropriate
information in this
Form 8-K,
or amendment thereto, or in a subsequent
Form 8-K,
if Lazard Capital Markets LLC has allowed separate trading of
the common stock and warrants prior to the 90th day after the
date of this prospectus.
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Warrants to be sold to initial stockholders through private
placement
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Our initial stockholders have agreed to purchase warrants
exercisable for 2,400,000 shares of our common stock at a
purchase price of $1.00 per warrant in a private placement that
will occur simultaneously with the consummation of this
offering. These insider warrants will be identical
to the warrants included in the units being offered by this
prospectus, except that if we call the warrants for redemption,
the insider warrants will be exercisable on a cashless basis so
long as they are still held by our initial stockholders or their
affiliates. The insider warrants will be purchased separately
and not in combination with the common stock or in the form of
units. The insider warrants were priced in relation to prices
paid by insider purchasers of other similar blank check
companies for comparable warrants of such other blank check
companies offered on similar terms. The proceeds from the sale
of the insider warrants will be held in the trust account
pending our completion of a business combination. Our initial
stockholders have agreed that the insider warrants will not be
sold or transferred by them until 90 days after we have
completed a business combination, provided however that
transfers can be made
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to certain permitted transferees who agree in writing to be
bound by such transfer restrictions. Accordingly, the insider
warrants will be placed in escrow and will not be released until
90 days after the completion of a business combination.
Lazard Capital Markets LLC has no intention of waiving these
restrictions on transferability.
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Common stock:
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Number outstanding before this offering and the sale
of the insider warrants
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2,500,000 shares
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Number to be outstanding after this offering and the
sale of the insider warrants
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12,500,000 shares
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Warrants:
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Number outstanding before this offering
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0
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Number to be sold to certain of our initial
stockholders
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2,400,000 warrants
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Number to be outstanding after this offering and the
sale of the insider warrants
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12,400,000 warrants
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Exercisability
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Each warrant is exercisable for one share of common stock.
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Exercise price
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$6.00
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Exercise period
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Each warrant is exercisable on the later of:
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the completion of a business combination
with one or more target businesses, and
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November 19, 2008,
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provided
that no warrants will be exercisable unless we
have an effective registration statement under the Securities
Act covering the shares of common stock issuable upon exercise
of the warrants and a current prospectus relating to them is
available.
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The warrants will expire at 5:00 p.m., New York City time,
on November 19, 2011, or earlier upon redemption.
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Redemption
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Once the warrants become exercisable, we may redeem the
outstanding warrants (including any of the insider warrants and
any outstanding warrants issued upon exercise of the unit
purchase option issued to Lazard Capital Markets LLC), without
the consent of the underwriters,
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in whole and not in part,
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at a price of $0.01 per warrant,
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upon a minimum of 30 days
prior written notice of redemption, and
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if, and only if, the last sale price of
our common stock equals or exceeds $11.50 per share
(appropriately adjusted for any stock split, reverse stock
split, stock dividend or other reclassification or combination
of our common stock) for any 20 trading days within a 30 trading
day period ending three business days before we send the notice
of redemption,
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provided
that we have an effective registration statement
under the Securities Act covering the shares of common stock
issuable upon exercise of the warrants and a current prospectus
relating to them is available throughout the 30 day notice of
redemption period.
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We have established the above conditions to our exercise of
redemption rights to provide:
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warrant holders with adequate notice of
our redemption so that they can exercise their warrants at a
time when the common stock price is substantially above the
warrant exercise price; and
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a sufficient differential between the
then-prevailing common stock price and the warrant exercise
price so there is a buffer to absorb the market reaction, if
any, to our redemption of the warrants.
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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 $6.00 warrant exercise price after the
redemption notice is issued. If we call our warrants for
redemption, our initial stockholders would be entitled to
exercise the insider warrants on a cashless basis. Because of
their affiliation with our management team, a conflict of
interest may exist in determining when to call the warrants for
redemption as they would potentially be able to avoid any
negative price pressure on the price of the warrants and common
stock due to the redemption through a cashless exercise.
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Proposed American Stock Exchange symbols for our:
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Units
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IDI.U
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Common stock
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IDI
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Warrants
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IDI.WS
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Offering proceeds to be held in trust
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$78,815,000 of the proceeds of this offering and the private
placement (or $90,395,000, if the over-allotment option is
exercised in full), or approximately $7.88 per unit, will be
placed in a trust account at JPMorgan Chase Bank, 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 the $2,400,000 in
proceeds from the private placement and $2,730,000 (or
$3,150,000 if the underwriters over-allotment option is
exercised in full) of deferred underwriting discounts and
commissions payable to the underwriters in this offering,
subject to and upon our completion of
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a business combination. We believe that the inclusion in the
trust account of the proceeds from the sale of the insider
warrants and the deferred underwriting discounts and commissions
is a benefit to our public stockholders because additional
proceeds will be available for distribution to our public
stockholders if a liquidation of our company occurs prior to our
completing a business combination. 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 deferred 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, upon our written request which
may be given from time to time, there can be released to us from
the trust account, interest earned on the funds in the trust
account, net of taxes payable on such interest, (i) up to
an aggregate of $1,700,000 to fund our expenses relating to
investigating and selecting a target business and our other
working capital requirements and (ii) to pay 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, approximately
$250,000).
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None of the insider 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 proceeds from the exercise of the insider warrants will be
paid directly to us and not placed in the trust account.
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Release of amounts held in trust account on the closing of our
initial business combination
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All amounts held in the trust account that are not returned to
investors upon conversion of their shares (as described below),
previously released to us as interest income or payable to the
underwriters for deferred discounts and commissions will be
released to us on the closing of our initial business
combination with one or more target businesses which have a fair
market value of at least 80% of our net assets (excluding
deferred underwriting discounts and commissions of
$2.73 million, or $3.15 million if the over-allotment
option is exercised in full) at the time of such business
combination, subject to compliance with the conditions to
consummating a business combination that are described below. At
the time we complete an initial business combination, following
our payment of amounts due to any public stockholders who
exercise their conversion rights, there will be released to the
underwriters from the trust account their deferred underwriting
discounts and commissions that are equal to 3.5% of the gross
proceeds of this offering not received from our initial
stockholders, or $2.73 million ($3.15 million if the
underwriters over-allotment option is exercised in full).
Funds released from the trust account to us can be used to pay
all or a portion of the purchase price of
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the business or businesses with which our initial combination
occurs. If the business combination is paid for using stock or
debt securities, we may apply the cash released to us from the
trust account to general corporate purposes, including for
maintenance or expansion of operations of acquired businesses,
the payment of principal or interest due on indebtedness
incurred in consummating our initial business combination or to
fund the purchase of other companies or for working capital.
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Limited payments to insiders
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There will be no fees or other payments paid to our initial
stockholders, officers, directors or special advisors, or any of
their affiliates, for any services rendered prior to or in
connection with the consummation of a business combination
(regardless of the type of transaction that it is) other than:
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repayment of non-interest bearing loans
of $200,000 in the aggregate made to us by Frost Gamma
Investments Trust, Robert N. Fried, Rao Uppaluri, Steven D.
Rubin and Jane Hsiao to cover expenses relating to this offering;
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a payment of $7,500 per month for office
space and related services to Clarity Partners, L.P. Barry A.
Porter, one of our special advisors, is a co-founder and
Managing General Partner of Clarity Partners, L.P., and the
grantor trust of Mr. Porter, Nautilus Trust dtd 9/10/99, is
one of our initial stockholders;
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a potential payment of a finders
or success fee to Ladenburg Thalmann & Co. Inc., an
affiliate of Dr. Frost, our Chairman of the Board, to the
extent we enter into an agreement with such company in
connection with our search for a target business; and
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reimbursement of out-of-pocket expenses
incurred by them in connection with certain activities on our
behalf, such as identifying and investigating possible business
targets and business combinations.
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There is no limit on the total amount of out-of-pocket expenses
reimbursable by us, provided that members of our management team
will not receive reimbursement for any out-of-pocket expenses
incurred by them to the extent that such expenses exceed the
amount held outside of the trust account (initially,
approximately $250,000) and interest income on the trust account
balance, net of taxes payable on such interest, of up to
$1,700,000 that may be released to us to fund our expenses
relating to investigating and selecting a target business and
other working capital requirements, unless a business
combination is consummated.
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Our audit committee will review and approve all reimbursements
made to our initial stockholders, officers, directors or their
affiliates, and any reimbursements made to members of our audit
committee will be reviewed and approved by our board of
directors, with any interested director abstaining from such
review
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and approval. Please see Use of Proceeds for
additional information concerning the allocation of proceeds of
this offering.
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Amended and Restated Certificate of Incorporation
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Our amended and restated certificate of incorporation, which we
will file with the Secretary of State of Delaware immediately
prior to the consummation of this offering, provides that we
will continue in existence only until November 19, 2009. 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 stockholders to formally vote to approve
our dissolution and liquidation). 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 the
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. Accordingly, if stockholders approved a
proposed business combination as set forth below but did not
approve the proposal to amend our amended and restated
certificate of incorporation to provide for our perpetual
existence, we would not be able to consummate such business
combination. 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 the
provision terminating our corporate life by November 19,
2009 as an obligation to our stockholders. This provision will
be amended only in connection with, and upon consummation of,
our initial business combination by such date.
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Stockholders must approve business combination
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As required by 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 initial
stockholders have agreed to vote the shares of common stock
owned by them immediately before this offering either for or
against the business combination in accordance with the majority
of the shares of common stock voted by our public stockholders
other than our initial stockholders. We will proceed
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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 and (ii) 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
approximately 29.99% of the shares of common stock held by the
public stockholders may exercise their conversion rights and the
business combination will still go forward. While our initial
stockholders do not currently intend to purchase any of our
securities in the aftermarket, neither our initial stockholders
nor their affiliates are prohibited from doing so. To the extent
that our initial stockholders or their affiliates purchase
shares of our common stock in the aftermarket, or otherwise
purchase shares of our common stock, such purchases may have an
impact on the market price of our common stock. In such case,
investors should consider the potential impact of any such
purchases on the market price for our common stock and should
not place undue reliance on such market price, but should
instead consider the merits of any proposed business combination
in deciding whether to vote in favor of such business
combination. In addition, such purchases may be made from public
stockholders that have indicated their intention to vote against
the business combination and exercise their conversion rights.
Accordingly, purchases by our initial stockholders or their
affiliates could result in a business combination being approved
that may not have otherwise been approved by our public
stockholders, but for the purchases made by our initial
stockholders or their affiliates.
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Our threshold for conversion rights has been established at 30%
in order for this 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 selected the higher threshold to reduce the risk
of a small group of stockholders exercising undue influence on
the stockholder approval process. In addition, since 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. For a discussion of risks
associated with the 30% threshold, please see Risk Factors
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
and
We will proceed
with a business combination only if public stockholders owning
less than 30% of the shares sold in this offering exercise their
conversion rights.
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Conversion rights for stockholders voting to reject a business
combination
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Under the terms of our amended and restated certificate of
incorporation, if a business combination is approved and
completed, public stockholders voting against such business
combination will be entitled to convert their common stock into
a pro rata share of the aggregate amount then on deposit in the
trust account (initially approximately $7.88 per share), before
payment of deferred underwriting discounts and commissions and
including any interest earned on their pro rata portion of the
trust account, net of taxes payable on such interest, and net of
interest income on the trust account balance, net of taxes
payable on such interest, (i) of up to $1,700,000 accrued
and reserved or released to us as described above to fund our
expenses relating to investigating and selecting a target
business and our other working capital requirements or
(ii) accrued and reserved or released to us as described
above to pay our income or other tax obligations. 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.
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Our initial stockholders will not be able to convert shares of
our common stock owned by them, directly or indirectly, whether
acquired prior to, in or after this offering, under these
circumstances (nor will they seek appraisal rights with respect
to such shares if appraisal rights would be available to them).
Public stockholders who convert their stock into their pro rata
share of the trust account will continue to have the right to
exercise any warrants they may hold. If the business combination
is not approved or completed for any reason, then public
stockholders voting against such business combination will 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. Such public stockholders would only 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 the
event that such stockholders elect to vote against a subsequent
business combination that is approved by stockholders and
completed, or in connection with our dissolution and
liquidation, discussed below.
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Public stockholders who convert their common stock into a pro
rata share of the trust account will be paid promptly their
conversion price following their exercise of conversion rights.
The initial conversion price is approximately $7.88 per share.
Since this amount is less than the $8.00 per unit price in this
offering and may be lower than the market price of the common
stock on the date of conversion, there may be a disincentive on
the part of public stockholders to exercise their conversion
rights. 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 the
non-converting
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stockholders, will bear the financial effect of such payments to
both the converting stockholders and the underwriters.
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Voting against a business combination alone will not result in
conversion of your shares into a pro rata share of the trust
account; to convert your shares, you must also exercise the
conversion rights described above and follow the specific
procedures for conversion that will be set forth in the proxy
statement relating to the stockholder vote for a proposed
business combination.
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Liquidation if no business combination
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As described above, our amended and restated certificate of
incorporation provides that, if we have not consummated a
business combination by November 19, 2009, our corporate
existence will cease by operation of law and we will promptly
distribute only to our public stockholders the amount in our
trust account including:
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all accrued interest, net of taxes
payable on such interest, and net of interest income on the
trust account balance, net of taxes payable on such interest,
(i) of up to $1,700,000 previously released to us to fund
our expenses relating to investigating and selecting a target
business and our other working capital requirements, including
the costs of our dissolution and liquidation or
(ii) previously released to us to pay our income or other
tax obligations; and
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all deferred underwriting discounts and
commissions, as well as any of our remaining net assets.
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At that time, 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). Although we will
seek to have all third parties we engage and prospective target
businesses execute valid and enforceable agreements with us
waiving any right, title, interest or claim of any kind in or to
any assets held in the trust account, there is no guarantee that
they will execute such agreements. We have not asked for or
obtained any such waiver agreements from any third parties at
this time. 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.
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Dr. Phillip Frost, Robert N. Fried, Rao Uppaluri, Steven D.
Rubin and Jane Hsiao have agreed that they will be liable to us
if and to
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the extent any claims by a vendor for services rendered or
products sold to us, by a third party with which we entered into
a contractual relationship following consummation of this
offering or by a prospective target business reduce the amounts
in the trust account available for distribution to our
stockholders in the event of a liquidation, except as to any
claimed amounts owed to a third party who executed a valid and
enforceable waiver. We have questioned each of them on their
financial net worth and reviewed their financial information and
believe that they will be able to satisfy any indemnification
obligations that may arise. However, we cannot assure you that
they will be able to satisfy those obligations, if they are
required to do so. As a result, we cannot assure you that the
per-share distribution from the trust account, if we liquidate,
will not be less than $7.88, plus interest then held in the
trust account.
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We anticipate the distribution of the funds in the trust account
to our public stockholders will occur within 10 business days
from the date our corporate existence ceases. We will pay the
costs of liquidation from our remaining assets outside of the
trust account. If such funds are insufficient, Dr. Phillip
Frost, Robert N. Fried, Rao Uppaluri, Steven D. Rubin and Jane
Hsiao 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.
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Escrow of initial shares and insider warrants
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On or prior to the date of this prospectus, all of our initial
stockholders will place the initial shares and the insider
warrants into an escrow account maintained by Continental Stock
Transfer & Trust Company, acting as escrow agent.
The initial shares will not be released from escrow until one
year after the consummation of a business combination, or
earlier if, following a business combination, we engage in a
subsequent transaction resulting in our stockholders having the
right to exchange their shares for cash or other securities or
if we liquidate and dissolve. The insider warrants will not be
released from escrow until 90 days after the completion of
our business combination. Except as described below, the initial
shares and the insider warrants will not be transferable during
the applicable escrow period.
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Our initial stockholders are permitted, subject to applicable
securities laws, to transfer all or a portion of the initial
shares and insider warrants held by them to members of our
management team, our employees and other persons or entities
affiliated with members of our management team and employees. In
addition, our initial stockholders may transfer the initial
shares and insider warrants held by them in certain other
limited circumstances, such as to immediate family members and
to trusts for estate planning purposes, and any entity holding
initial shares or insider warrants may transfer such securities
to persons or entities controlling, controlled by, or under
common control with such entity, or to any stockholder, member,
partner or limited partner of such entity. Transferees receiving
initial shares or insider warrants must agree
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to be subject to the transfer restrictions described above.
Additionally, transferees receiving initial shares must agree to
waive any right to receive a liquidation distribution with
respect to the initial shares in the event of our liquidation,
to waive any right to exercise conversion rights with respect to
the initial shares and to vote the initial shares in accordance
with the majority of the shares of common stock voted by our
public stockholders other than our initial stockholders.
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During the escrow period applicable to the initial shares, our
initial stockholders will retain their 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.
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Conflicts of Interest
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Members of our management team and our directors may become
aware of business opportunities that may be appropriate for
presentation to us as well as the other entities with which they
are or may be affiliated. Due to affiliations with other
companies, members of our management team and our directors may
have fiduciary obligations to present potential business
opportunities to those entities prior to presenting them to us
which could cause conflicts of interest. For a discussion of
potential conflicts of interest that you should be aware of,
please see Risk Factors and
Management Conflicts of Interest.
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Risks
We are a newly formed company that has conducted no operations
and has generated no revenues. Until we complete a business
combination, we will have no operations and will generate no
operating revenues. 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. In addition, 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. For additional
information concerning how Rule 419 blank check offerings
differ from this offering, please see Proposed
Business Comparison of this offering to those of
blank check companies subject to Rule 419. You should
carefully consider these and the other risks set forth in the
section entitled Risk Factors beginning on
page 15 of this prospectus.
13
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.
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September 30, 2007
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Actual
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As Adjusted
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Balance Sheet Data:
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Working capital (deficiency)
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$
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(275,545
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$
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79,084,910
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Total assets
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477,275
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79,084,910
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Total liabilities
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457,365
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2,730,000
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Value of common stock which may be converted to cash
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23,639,992
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Stockholders equity
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$
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19,910
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$
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52,714,918
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(1)
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The as adjusted liabilities consist of deferred
underwriting discounts and commissions to be placed in trust and
to be payable to the underwriters only if we consummate a
business combination.
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The as adjusted information gives effect to the sale
of the units we are offering, including the application of the
related gross proceeds, the receipt of $2,400,000 from the sale
of the insider warrants, the payment of the estimated remaining
expenses of this offering and the repayment of the accrued and
other liabilities required to be repaid. Additionally, if a
business combination is consummated, public stockholders who
voted against the business combination and exercised their
conversion rights would be entitled to receive approximately
$7.88 per share, which amount represents approximately $7.61 per
share from the proceeds of this offering and the private
placement and the deferred underwriting discounts and
commissions.
The working capital deficiency excludes $295,455 of costs
related to this offering which were paid or incurred prior to
September 30, 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 working capital and total assets
amounts include the $76,085,000 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. The as adjusted total assets also
include an additional $2,730,000 of deferred underwriting
discounts and commissions to be placed in trust and to be
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 and all accrued interest
earned thereon, less (i) up to $1,700,000 that may be
released to us to fund our expenses relating to investigating
and selecting a target business 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 approximately
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 approximately 29.99% of the
10,000,000 shares sold in this offering, or
2,999,999 shares of common stock, at an initial per-share
conversion price of approximately $7.88 (for a total of
approximately $23,640,000, including $2,730,000, payable from
the deferred underwriting discounts and commissions), without
taking into account interest earned on the trust account. The
actual per share conversion price will be equal to the aggregate
amount then on deposit in the trust account, before payment of
deferred underwriting discounts and commissions, and including
any interest earned on their pro rata portion of the trust
account, net of taxes payable on such interest, and net of
interest income on the trust account balance, net of taxes
payable on such interest, (i) of up to $1,700,000 accrued
and reserved or released to us as described above to fund our
expenses relating to investigating and selecting a target
business and our other working capital requirements or
(ii) accrued and reserved or released to us as described
above to pay our income or other tax obligations.
14
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. If any of the following events occur, our business,
financial condition and operating results may be materially
adversely affected. In that event, the trading price of our
securities could decline, and you could lose all or part of your
investment. This prospectus also contains forward-looking
statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the
forward-looking statements as a result of specific factors,
including the risks described below.
Risks
Related to Our Business and This Offering
We are
a newly formed, development stage company with no operating
history and no revenues 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. Because 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 one or more businesses. We have not conducted any
discussions and we have no plans, arrangements or understandings
with any prospective acquisition candidates and may be unable to
complete a business combination. We will not generate any
revenues until, at the earliest, after the consummation of a
business combination.
We may
not be able to consummate a business combination within the
required time frame, in which case, we would be forced to
liquidate.
We must complete a business combination with a business or
businesses whose fair market value is at least 80% of our net
assets (excluding deferred underwriting discounts and
commissions of $2.73 million, or $3.15 million if the
over-allotment option is exercised in full) at the time of the
business combination within 24 months after the
consummation of this offering. If we fail to consummate a
business combination within the required time frame, we will be
forced to liquidate our assets. We may not be able to consummate
a business combination for any number of reasons. We may not be
able to find suitable target businesses within the required time
frame. In addition, our negotiating position and our ability to
conduct adequate due diligence on any potential target may be
reduced as we approach the deadline for the consummation of a
business combination. Furthermore, we will be unable to
consummate a business combination if holders of 30% or more of
the shares sold in this offering vote against the transaction
and opt to convert their stock into a pro rata share of the
trust account even if a majority of our stockholders approve the
transaction. If we fail to complete a specific business
combination after expending substantial management time and
attention and substantial costs for accountants, attorneys and
others, such costs likely would not be recoverable, which could
materially adversely affect subsequent attempts to locate and
combine with another target business within the required time
frame. We do not have any specific business combination under
consideration, and neither we nor any representative acting on
our behalf has had any contacts with any target businesses
regarding a business combination, nor taken any direct or
indirect actions to locate or search for a target business.
If we
are forced to liquidate before a business combination and
distribute the trust account, our public stockholders will
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 will 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 liquidating
distribution with respect to our outstanding warrants which will
expire worthless if we liquidate before the completion of a
business combination.
15
If the
net proceeds of this offering available to us outside of the
trust account are insufficient to allow us to operate for at
least the next 24 months, we may be unable to complete a
business combination.
Upon the consummation of this offering, there will be funds
available to us outside of the trust account of $250,000, plus
any amounts that we need to pay our income or other tax
obligations and up to an additional $1,700,000 that may be
released to us to fund our expenses relating to investigating
and selecting a target business and other working capital
requirements, which will be funded solely from interest earned
on the trust account balance, net of taxes payable on such
interest. Our board of directors will review and approve all
significant expenditures by the Company. We believe that the
funds 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 may
request the release of such funds for a number of purposes that
may not ultimately lead to a business combination. For instance,
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 with respect to a particular proposed business
combination, or enter into a letter of intent where we pay for
the right to receive exclusivity from a target business, where
we may be required to forfeit funds (whether as a result of our
breach or otherwise). In any of these cases, or in other
situations where we expend the funds available to us outside of
the trust account for purposes that do not result in a business
combination, we may not have sufficient remaining funds to
continue searching for, or to conduct due diligence with respect
to, a target business, in which case we would be forced to
obtain alternative financing or liquidate.
Under
Delaware law, the requirements and restrictions relating to this
offering contained in our amended and restated certificate of
incorporation may be amended, which could reduce or eliminate
the protection afforded to our stockholders by such requirements
and restrictions.
Our amended and restated certificate of incorporation contains
certain requirements and restrictions relating to this offering
that will apply to us until the consummation of a business
combination. Specifically, our amended and restated certificate
of incorporation provides, among other things, that:
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upon consummation of this offering, $78,815,000 (or $90,395,000
if the underwriters over-allotment option is exercised in
full), of the proceeds from the offering and the private
placement shall be placed into the trust account, which proceeds
may not be disbursed from the trust account except in connection
with a business combination, including the payment of the
deferred underwriting discounts and commissions, or thereafter,
upon our dissolution and liquidation, or as otherwise permitted
in the amended and restated certificate of incorporation;
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prior to consummating a business combination, we must submit
such business combination to our stockholders for approval;
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we may consummate the business combination if approved by a
majority of our stockholders and public stockholders owning less
than 30% of the shares sold in this offering exercise their
conversion rights;
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if a business combination is approved and consummated, public
stockholders who voted against the business combination and who
exercise their conversion rights will receive their pro rata
share of the trust account, before payment of deferred
underwriting discounts and commissions and including any
interest earned on their pro rata share, net of taxes payable on
such interest, and net of interest income on the trust account
balance, net of taxes payable on such interest, (i) of up
to $1,700,000 accrued and reserved or released to us to fund
working capital requirements or (ii) accrued and reserved
or released to us to pay income or other tax
obligations; and
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if a business combination is not consummated within the time
periods specified in this prospectus, then our corporate
purposes and powers will immediately thereupon be limited to
acts and activities relating to dissolving and winding up our
affairs, including liquidation of our assets, including funds in
the trust account, and we will not be able to engage in any
other business activities.
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16
Our amended and restated certificate of incorporation requires
that prior to the consummation of our initial business
combination we obtain the consent of 95% of our stockholders to
amend these provisions. However, a court could conclude that the
95% consent requirement constitutes a practical prohibition on
amendment in violation of the stockholders statutory
rights to amend the corporate charter. In that case, these
provisions could be amended without the consent of 95% of our
stockholders, and any such amendment could reduce or eliminate
the protection these provisions afford to our stockholders.
However, we view all of the foregoing provisions as obligations
to our stockholders. Neither we nor our board of directors will
propose any amendment to these provisions, or support, endorse
or recommend any proposal that stockholders amend any of these
provisions at any time prior to the consummation of our initial
business combination (subject to any fiduciary obligations our
management or board may have).
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
we anticipate that 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
believe that we will be exempt from rules promulgated by the SEC
to protect investors in blank check companies such as
Rule 419. Accordingly, investors will not be afforded the
benefits or protections of those rules. Among other things, this
means our units will be immediately tradeable, compared with
offerings subject to Rule 419, which would prohibit trading
of the units or the common stock or warrants included in the
units until the completion of a business combination. We will
have a longer period of time to complete a business combination
than do companies subject to Rule 419. Also, an offering
subject to Rule 419 would restrict us from acquiring a
target business unless the fair value of such business or net
assets to be acquired represented at least 80% of the maximum
offering proceeds, compared with this offering, in which the
target business that we acquire with the proceeds of this
offering must have a fair market value equal to at least 80% of
our net assets (excluding deferred underwriting discounts and
commissions of $2.73 million, or $3.15 million if the
over-allotment option is exercised in full) at the time of such
acquisition. Moreover, offerings subject to Rule 419 would
prohibit the release of any interest earned on funds held in the
trust account to us unless, and only after, the funds held in
the trust account were released to us in connection with our
consummation of a business combination. As this offering is not
subject to Rule 419, an aggregate of up to $1,700,000 we
may need to fund our expenses relating to investigating and
selecting a target business and other working capital
requirements and any amounts that we may need to pay our income
or other tax obligations may be released to us from the interest
earned on the funds held in the trust account, net of taxes
payable on such interest. For additional information concerning
how Rule 419 blank check offerings differ from this
offering, please see Proposed Business
Comparison of this offering to those of blank check companies
subject to Rule 419.
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.
Based upon publicly available information, since August 2003,
approximately 128 similarly structured blank check companies
have completed initial public offerings in the United States. Of
these companies, only 36 companies have consummated a
business combination, while 25 other companies have announced
they have entered into a definitive agreement for a business
combination, but have not consummated such business combination,
and while 7 companies have dissolved or announced their
intention to dissolve and return proceeds to investors.
Accordingly, there are approximately 60 blank check companies
with more than approximately $7.8 billion of proceeds that
are seeking to carry out a business plan similar to our business
plan. Furthermore, as of October 28, 2007, there are
approximately 44 additional blank check companies that are still
in the registration process but have not completed initial
public offerings, which will have approximately
$7.2 billion of proceeds upon completion of the 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. Although we are not aware of any other
blank check
17
companies with a specific focus on the digital media sector and
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
carry out 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.
We
will depend on interest earned on the trust account to fund our
search for a target business or businesses, to pay our tax
obligations and to complete our initial business
combination.
Of the net proceeds of this offering, only approximately
$250,000 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 certain 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 management team to operate or may be forced to liquidate.
However, neither our management team nor any other party is
required to provide financing to us under any 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 $7.88.
Our placing of funds in trust may not protect those funds from
third party claims against us. Although we will seek to have all
third parties we engage and prospective target businesses
execute valid and enforceable agreements with us waiving any
right, title, interest or claim of any kind in or to any assets
held in the trust account, there is no guarantee that they will
execute such agreements. Furthermore, there is no guarantee
that, even if such entities execute such agreements with us,
they will not seek recourse against the trust account, or if
executed, that such waivers will be enforceable or otherwise
prevent potential contracted parties from making claims 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 and, as a
result, the per-share liquidation price could be less than $7.88
due to claims of such third parties. Dr. Phillip Frost,
Robert N. Fried, Rao Uppaluri, Steven D. Rubin and Jane Hsiao
have agreed that they will be liable to us if and to the extent
any claims by a vendor for services rendered or products sold to
us, by a third party with which we entered into a contractual
relationship following consummation of this offering or by a
prospective target business reduce the amounts in the trust
account available for distribution to our stockholders in the
event of a liquidation, except as to any claimed amounts owed to
a third party who executed a valid and enforceable waiver.
Because we will seek to have all third parties we engage and
prospective target businesses execute agreements with us waiving
any right, title, interest or claim of any kind whatsoever they
may have in or to any assets held in the trust account, we
believe the likelihood of such persons having any such
obligations is minimal. Notwithstanding the foregoing, we have
questioned them on their financial net worth and reviewed their
financial information and believe that they will be able to
satisfy any indemnification obligations that may arise. However,
we cannot assure you that they will be able to satisfy those
obligations. Therefore, if we liquidate, we cannot assure you
that the per-share distribution from the trust account will not
be less than $7.88 plus interest, due to such claims.
Furthermore, creditors may seek to interfere with the
distribution of the trust account pursuant to federal or state
creditor and bankruptcy laws, which could delay the actual
distribution of such funds or reduce the amount ultimately
available for distribution to our public stockholders. 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. Any claims by creditors could cause
additional delays in the distribution of trust funds to the
public stockholders beyond the time periods required to comply
with Delaware General Corporation Law and federal securities
laws and
18
regulations. 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 $7.88 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 therewith, 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 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
stockholders 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 November 19, 2009 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 such date. Accordingly, we
cannot assure you that third parties will not seek to recover
from our stockholders amounts owed to them by us.
Additionally, 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 in our
dissolution could be viewed under applicable debtor/creditor
and/or
bankruptcy laws as either a preferential transfer or
a fraudulent conveyance. As a result, a bankruptcy
court could seek to recover all amounts received by our
stockholders in our dissolution. Because we intend to distribute
the proceeds held in the trust account to our public
stockholders promptly after November 19, 2009, 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
and/or
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.
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 warrants will be exercisable and we will not be obligated to
issue shares of common stock unless, at the time of such
exercise, we have an effective registration statement under the
Securities Act covering the shares of common stock issuable upon
exercise of the warrants and a current prospectus relating to
them is available. Although we have undertaken in the warrant
agreement to use our best efforts to have an effective
registration statement covering shares of common stock issuable
upon exercise of the warrants from the date the warrants become
exercisable and to maintain a current prospectus relating to
that common stock until the
19
warrants expire or are redeemed, and we intend to comply with
our undertaking, we cannot assure you that we will be able to do
so or that we will be able to prevent the warrants from expiring
worthless. Holders of warrants may not be able to exercise their
warrants, the market for the warrants may be limited and the
warrants may be deprived of any value if there is no effective
registration statement covering the shares of common stock
issuable upon exercise of the warrants or the prospectus
relating to the common stock issuable upon the exercise of the
warrants is not current. In such event, the holder of a unit
will have paid the entire unit purchase price for the common
stock contained in the unit as the warrant will be worthless.
Holders of warrants will not be entitled to a net cash
settlement for their warrants if we fail to have an effective
registration statement or a current prospectus available
relating to the common stock issuable upon exercise of the
warrants.
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 from registration or qualification under the
securities laws of the state of residence of the holder of such
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, we expect to be
listed on a national securities exchange, which, under current
laws, would provide an exemption from registration in every
state, or we would use our best efforts to register the warrants
in every state in which they were initially offered (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, holders of warrants may not be able to exercise their
warrants, the market for the warrants may be limited and the
warrants may be deprived of any value if the common stock
issuable upon exercise of the warrants is not registered or
qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of
residence of the holder of such warrants. In such event, the
holder of a unit will have paid the entire unit purchase price
for the common stock contained in the unit as the warrant will
be worthless. In no event will holders of warrants be entitled
to a net cash settlement for their warrants.
Since
we are not restricted to a particular industry and we have not
yet selected a target business with which to complete a business
combination, we are unable to currently ascertain the merits or
risks of the industry or business in which we may ultimately
operate.
While our efforts in identifying prospective target businesses
will not be limited to a particular industry, we expect to focus
on businesses in the digital media sector, which encompasses
companies that emphasize the use of digital technology to
create, distribute or service others that create or distribute
content for various platforms including online, mobile,
satellite, television, cable, radio, print, film, video games
and software. Digital technology refers to the use of
digitally-enabled means, as opposed to analog means, to process,
transmit, store or display content. We may also focus on
traditional media businesses, including motion picture
exhibition companies, television and radio broadcast companies,
print media publishing companies and traditional content
libraries, if we believe that the incorporation of digital
technology will enhance and accelerate the growth of those
businesses. We have not established specific criteria that would
trigger our consideration of businesses outside of the digital
media sector. In addition, we intend to direct our search toward
digital media businesses in the United States, but we would also
consider businesses outside of the United States. Accordingly,
there is no current basis for you to evaluate the possible
merits or risks of the particular industry in which we may
ultimately operate or the target business which we may
ultimately acquire. To the extent we complete a business
combination with a company that does not have a stable history
of earnings and growth or an entity in a relatively early stage
of its development, we may be affected by numerous risks
inherent in the business operations of those entities. If we
complete a business combination with an entity in an industry
characterized by a high level of risk, we may be affected by the
currently
20
unascertainable risks of that industry. Although our management
will endeavor to evaluate the risks inherent in a particular
industry or target business, we cannot assure you that we will
properly ascertain or assess all of the significant risk
factors. Even if we properly assess those risks, some of them
may be outside of our control or ability to affect. We also
cannot assure you that 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.
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 amended and restated certificate of incorporation, which
will be in effect at the time of consummation of this offering,
authorizes the issuance of up to 50,000,000 shares of
common stock, par value $0.0001 per share, and
1,000,000 shares of preferred stock, par value $0.0001 per
share. Immediately after this offering and the sale of the
insider warrants (assuming no exercise of the over-allotment
option), there will be 24,100,000 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 unit purchase option granted to
Lazard Capital Markets LLC) 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, including through convertible debt securities,
to complete a business combination. The issuance of additional
shares of our common stock or any number of shares of our
preferred stock:
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may significantly reduce the equity interest of investors in
this offering;
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may subordinate the rights of holders of common stock if we
issue preferred stock with rights senior to those afforded to
our common stock;
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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 could result in the resignation or removal
of our present officers and directors; and
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may adversely affect the then-prevailing market price for our
common stock.
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Similarly, if we issue debt securities, it could result in:
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default and foreclosure on our assets if our operating cash flow
after a business combination is insufficient to pay our debt
obligations;
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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;
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a required immediate payment of all principal and accrued
interest, if any, if the debt security is payable on
demand; and
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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.
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Our
long-term success will likely be dependent upon a yet to be
identified management team which you will not be able to fully
evaluate prior to purchasing our units.
Our ability to successfully effect a business combination is
dependent upon the efforts of our management team. The future
role of our management team in any acquired business or
businesses, however, cannot presently be ascertained. Although
it is possible that one or more of our officers, directors and
special advisors, including Robert N. Fried, will remain
associated in some capacity with any acquired business or
businesses following a business combination (potentially as
officers, directors or consultants), it is likely that the
management team of the acquired business or businesses at the
time of the business combination will remain in place given that
it is likely that they will have greater knowledge, experience
and expertise than our management team in the industry in which
the acquired business or businesses operate as well as in
managing
21
the acquired business or businesses. Thus, even though one or
more of our officers, directors and special advisors may
continue to be associated with us after a business combination,
it is likely that we will be dependent upon a yet to be
identified management team for our long-term success. As a
result, you will not be able to fully evaluate the management
team that we will likely be dependent upon for our long-term
success prior to purchasing our units in this offering. Although
we intend to closely scrutinize the management team of a
prospective target business in connection with evaluating the
desirability of effecting a business combination, we cannot
assure you that our assessment of the management team will prove
to be correct. These individuals may be unfamiliar with the
requirements of operating a public company and the securities
laws, which could increase the time and resources we must expend
to assist them in becoming familiar with the complex disclosure
and financial reporting requirements imposed on U.S. public
companies. This could be expensive and time-consuming and could
lead to various regulatory issues that may adversely affect our
operations.
Our
officers, directors and special advisors 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.
After the consummation of a business combination, our officers,
directors and special advisors may remain associated in some
capacity with the acquired business or businesses 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
and/or
our
securities for services they would render to the acquired
business or businesses 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.
We
will likely seek a business combination with one or more
privately-held companies, which may present certain challenges
to us, including the lack of available information about these
companies.
In accordance with our business strategy, we will likely seek a
business combination with one or more privately-held companies.
Generally, very little public information exists about these
companies, and we are required to rely on the ability of our
management team to obtain adequate information to evaluate the
potential returns from investing in these companies. If we are
unable to uncover all material information about these
companies, then we may not make a fully informed investment
decision, and we may lose money on our investments.
If we
do not conduct an adequate due diligence investigation of a
target business with which we combine, we may be required to
subsequently take write-downs or write-offs, restructuring, and
impairment or other charges that could have a significant
negative effect on our financial condition, results of
operations and our stock price, which could cause you to lose
some or all of your investment.
In order to meet our disclosure and financial reporting
obligations under the federal securities laws, and in order to
develop and seek to execute strategic plans for how we can
increase the revenues
and/or
profitability of a target business, realize operating synergies
or capitalize on market opportunities, we must conduct a due
diligence investigation of one or more target businesses.
Intensive due diligence is time consuming and expensive due to
the operations, accounting, finance and legal professionals who
must be involved in the due diligence process. Even if we
conduct extensive due diligence on a target business with which
we combine, we cannot assure you that this diligence will
surface all material issues that may be present inside a
particular target business, or that factors outside of the
target business and outside of our control will not later arise.
If our diligence fails to identify issues specific to a target
business, industry or the environment in which the target
business operates, we may be forced to later write-down or
write-off assets, restructure our operations, or incur
impairment or other charges that could result in our reporting
losses. Even
22
though these charges may be non-cash items and not have an
immediate impact on our liquidity, the fact that we report
charges of this nature could contribute to negative market
perceptions about us or our common stock. In addition, charges
of this nature may cause us to violate net worth or other
covenants to which we may be subject as a result of assuming
pre-existing debt held by a target business or by virtue of our
obtaining post-combination debt financing.
Our
board of directors may not accurately determine the fair market
value of a target business, and as a result we may pay more than
what the target business is actually worth.
We must complete a business combination with a business or
businesses whose fair market value is at least 80% of our net
assets (excluding deferred underwriting discounts and
commissions of $2.73 million, or $3.15 million if the
over-allotment option is exercised in full) at the time of the
business combination. The fair market value of a target business
or businesses will be determined by our board of directors based
upon standards generally accepted by the financial community,
such as actual and potential gross margins, the values of
comparable businesses, earnings and cash flow, book value and,
where appropriate, upon the advice of appraisers or other
professional consultants. If our board is not able to
independently determine that the target business has a
sufficient fair market value to meet the threshold criterion, we
will obtain an opinion from an unaffiliated, independent
investment banking firm that is a member of the Financial
Industry Regulatory Authority with respect to the satisfaction
of such criterion. However, 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. If our
board of directors, or any investment banking firm or other
expert upon whose opinion our board may rely, overestimates the
fair market value of a company that we acquire, then the value
of our securities could be adversely affected.
There
is no limit on the total amount of out-of-pocket expenses that
may be incurred by our officers and directors in connection with
identifying and investigating possible target businesses and
business combinations.
We will reimburse our officers and directors for any reasonable
out-of-pocket expenses incurred by them in connection with
identifying and investigating possible target businesses and
business combinations. There is no limit on the total amount of
out-of-pocket expenses reimbursable by us, provided that members
of our management team will not receive reimbursement for any
out-of-pocket expenses incurred by them to the extent that such
expenses exceed the amount held outside of the trust account of
$250,000 and interest income on the trust account balance, net
of taxes payable on such interest, of up to $1,700,000 that may
be released to us to fund our expenses relating to investigating
and selecting a target business and other working capital
requirements, unless a business combination is consummated.
Additionally, there will be no review of the reasonableness of
the expenses other than by our audit committee and, in some
cases, by our board of directors, or if such reimbursement is
challenged, by a court of competent jurisdiction. As
out-of-pocket expenses incurred by our officers and directors
will not be subject to any dollar limit or any review of the
reasonableness of such expenses other than by our audit
committee or our board of directors, the aggregate business
expenses incurred by our officers and directors in connection
with investigating and selecting possible target businesses may
be greater than if such expenses were subject to a more
extensive review, which would reduce the amount of working
capital available to us for a business combination. In addition,
if such out-of-pocket expenses exceed the available funds held
outside of the trust and the interest income that may be
released to us as described above, our members of management
will not be reimbursed for such excess unless we consummate a
business combination. As described in more detail below, this
may create a conflict of interest for members of our management
in determining whether a particular target business is
appropriate for a business combination and in the public
stockholders best interest.
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 any
specified amount of time to our affairs, which could create a
conflict of interest when allocating their time between our
operations and their other
23
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.
Members
of our management team and our directors may become aware of
business opportunities that may be appropriate for presentation
to us as well as other entities with which they are or may
become affiliated and, as a result, may have conflicts of
interest that may adversely affect us.
Due to affiliations with other companies, members of our
management team and our directors may have fiduciary obligations
to present potential business opportunities to entities with
which they are affiliated prior to presenting them to us which
could cause conflicts of interest. Additionally, 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 us. Our
officers and directors may organize, promote or become involved
with other blank check companies, including blank check
companies with a focus on the digital media sector, either
before or after we consummate a business combination.
Accordingly, they may have conflicts of interest in determining
to which entity a particular business opportunity should be
presented. For a discussion of our management teams and
our directors existing affiliations and potential
conflicts of interest that you should be aware of, please see
Management Directors and Executive
Officers, Management Conflicts of
Interest and Transactions with Related
Persons. We cannot assure you that any conflicts of
interest will be resolved in our favor, and a potential target
business may be presented to another entity prior to its
presentation to us.
In addition, after the consummation of this offering, in
connection with our search for a target business, we may enter
into an agreement with Ladenburg Thalmann & Co. Inc., or
Ladenburg Thalmann, an investment banking and securities
brokerage firm and a subsidiary of Ladenburg Thalmann Financial
Services Inc., that provides for the payment of a finders
or success fee. Dr. Frost, our Chairman of the Board, is
the Chairman of the Board of Ladenburg Thalmann Financial
Services Inc. and a significant stockholder of Ladenburg
Thalmann Financial Services Inc. To date, we have not entered
into any agreements with Ladenburg Thalmann, and we have not had
any discussions with Ladenburg Thalmann regarding potential
acquisitions. In no instance will we pay Ladenburg
Thalmann & Co. Inc. a finders fee for a referral
involving a business opportunity that was brought to the
attention of Ladenburg Thalmann & Co. Inc. initially
by any of our officers, directors or special advisors, including
Dr. Frost. While Ladenburg Thalmann may be involved in our
business combination, neither its role nor its proposed fee
structure has been determined. Dr. Frosts
relationship with Ladenburg Thalmann & Co. Inc. and
Ladenburg Thalmann Financial Services Inc. may present a
conflict of interest, and we cannot assure you that any such
conflict will be resolved in our favor.
Our
officers and directors beneficially own shares of our common
stock issued prior to the offering and will beneficially 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.
Our initial stockholders own shares of our common stock that
were issued prior to this offering. Additionally, our initial
stockholders will purchase all of the insider warrants on a
private placement basis simultaneously with the consummation of
this offering. Our initial stockholders will not be able to
exercise their insider warrants if investors in this offering
are not able to exercise their warrants. The insider warrants
are identical to the warrants included in the units sold in this
offering, except that if we call the warrants for redemption,
the insider warrants will be exercisable on a cashless basis so
long as they are still held by our initial stockholders or their
affiliates. Our initial stockholders 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
24
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.
Unless
we complete a business combination, members of our management
team will not receive reimbursement for any out-of-pocket
expenses they incur if such expenses exceed the available funds
held outside of the trust and the interest income that may be
released to us to fund our expenses relating to investigating
and selecting a target business and other working capital
requirements. Therefore, they may have a conflict of interest in
determining whether a particular target business is appropriate
for a business combination and in the public stockholders
best interest.
Members of our management team will not receive reimbursement
for any out-of-pocket expenses incurred by them to the extent
that such expenses exceed the $250,000 held outside of the trust
account and interest income on the trust account balance, net of
taxes payable on such interest, of up to $1,700,000 that may be
released to us to fund our expenses relating to investigating
and selecting a target business and other working capital
requirements, unless a business combination is consummated.
Members of our management team may, as part of any such
combination, negotiate the repayment of some or all of any such
expenses. If the target business owners do not agree to
such repayment, this could cause our management team to view
such potential business combination unfavorably, thereby
resulting in a conflict of interest. The financial interests of
members of our management team could influence their motivation
in selecting a target business and thus, there may be a conflict
of interest when determining whether a particular business
combination is in the 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:
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a limited availability of market quotations for our securities;
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a reduced liquidity with respect to our securities;
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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;
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a limited amount of news and analyst coverage for our company;
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a decreased ability to issue additional securities or obtain
additional financing in the future; and
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a determination that we are subject to provisions of the
California Corporations Code.
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For a discussion of the potential application of provisions of
the California Corporations Code, please see Description
of Securities Applicability of Provisions of
California Corporate Law.
25
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 initial business combination must be with a business with a
fair market value of at least 80% of our net assets (excluding
deferred underwriting discounts and commissions of
$2.73 million, or $3.15 million if the over-allotment
option is exercised in full) at the time of such acquisition,
although this may entail the simultaneous acquisitions of
several businesses at the same time. By consummating a business
combination with only a single entity, 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:
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solely dependent upon the performance of a single
business, or
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dependent upon the development or market acceptance of a single
or limited number of products, processes or services.
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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 our business combination entails the
simultaneous acquisitions of several businesses at the same time
from different sellers, we would face additional risks,
including difficulties and expenses incurred in connection with
the subsequent integration of the operations and services or
products of the acquired companies into a single operating
business. If we are unable to adequately address these risks, it
could negatively impact our profitability and results of
operations.
We may
effect a business combination with a financially unstable
company or an entity in the early stage of development or
growth, which may subject us to greater risks than if we were to
effect a business combination with a more established company
with a proven record of earnings and growth.
After conducting due diligence investigations to evaluate risks
in potential target businesses, we may still decide to effect a
business combination with a company that is financially unstable
or is in the early stage of development or growth, including an
entity without established records of sales or earnings. To the
extent we effect a business combination with financially
unstable or early stage or emerging growth companies, we may be
affected by numerous risks inherent in the business and
operations of such companies that we would not be subject to if
we were to effect a business combination with a more established
company with a proven record of earnings and growth.
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 initial
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 if the transaction is
approved, 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.
The conversion rights afforded to the public stockholders may
result in the conversion into cash of up to approximately 29.99%
of the aggregate number of the shares sold in this offering.
Therefore, as much as approximately $23,640,000 (plus the
converting stockholders share of all accrued interest
after distribution of
26
interest income on the trust account balance to us as described
above) may be required to fund the exercise of conversion
rights. 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. In the event that the acquisition involves
the issuance of our stock as consideration, we may be required
to issue a higher percentage of our stock to make up for a
shortfall in funds. Raising additional funds to cover any
shortfall may involve dilutive equity financing or incurring
indebtedness at a higher than desirable level. This may limit
our ability to effectuate the most attractive business
combination available to us.
We
will proceed with a business combination only if public
stockholders owning less than 30% of the shares sold in this
offering exercise their conversion rights.
We will proceed with a business combination only if public
stockholders owning less than 30% of the shares sold in this
offering exercise their conversion rights. Accordingly,
approximately 29.99% of the public stockholders may exercise
their conversion rights and we could still consummate a proposed
business combination. We have established the conversion
percentage at 30%, rather than the 20% threshold that is
customary and standard of offerings similar to ours, in order to
reduce the likelihood that a small group of investors holding a
large block of our stock will be able to stop us from completing
a business combination that is otherwise approved by a large
majority of our public stockholders. 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.
Our business combination may require us to use substantially all
of our cash to pay the purchase price. In such a case, because
we will not know how many stockholders may exercise such
conversion rights, we may need to arrange third party financing
to help fund our business combination in case a large percentage
of stockholders exercise their conversion rights. We cannot
assure you that such financing will be available on acceptable
terms, if at all. If third party financing is unavailable to
consummate a particular business combination, we would be
compelled to restructure or abandon the combination and seek an
alternative target business.
Even if we do not need third party financing to consummate a
business combination, we may require additional
capital in the form of debt, equity, or a
combination of both to operate or grow any potential
business we may acquire. There can be no assurance that we will
be able to obtain such additional capital if it is required. If
we fail to secure such financing, this failure could have a
material adverse effect on the operations or growth of the
target business. None of our officers or directors or any other
party is required to provide any financing to us in connection
with, or following, our initial business combination.
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,
including other blank check companies having a business
objective similar to ours, private equity funds, 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 the availability of
sufficient financial resources. This inherent competitive
limitation gives others an advantage in pursuing the acquisition
of certain target businesses. In addition, we expect to focus
our efforts on identifying a prospective target business in the
in the digital media sector, and Robert Fried, our President and
Chief Executive Officer, is the only member of our management
team with experience in that sector. Furthermore, the obligation
we have to seek stockholder approval of a business combination
may delay the consummation of a transaction. Additionally, our
27
outstanding warrants, and the future dilution they potentially
represent, may not be viewed favorably by certain target
businesses. Any of these factors may place us at a competitive
disadvantage in successfully negotiating a business combination.
The fact that only 36 of the blank check companies that have
gone public in the United States since August 2003 have
consummated a business combination and only 25 other companies
have announced they have entered into a definitive agreement for
a business combination may be an indication 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 any additional financing necessary 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.
We believe that the net proceeds of this offering will be
sufficient to allow us to consummate a business combination.
However, 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 expended 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, even if we do not need
additional financing to consummate a business combination, we
may require additional financing to fund the operations or
growth of the target business. The failure to secure such
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 following, a business
combination.
Our
initial 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 initial stockholders will
collectively own 22% of our issued and outstanding shares of
common stock (assuming the purchase by certain of our initial
stockholders of 250,000 units in this offering). Unless we are
or become subject to any applicable limitations under
Section 2115(b) of the California Corporations Code, upon
the consummation of this offering, our board of directors 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. For a discussion of the potential
application of provisions of the California Corporations Code,
please see Description of Securities
Applicability of Provisions of California Corporate Law.
We may consummate an initial business combination before there
is an annual meeting of stockholders to elect new directors, in
which case all of the current directors will continue in office
at least until the consummation of our initial 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 initial
stockholders, because of their ownership position, will have
considerable influence regarding the outcome. Accordingly, our
initial stockholders will continue to exert control at least
until the consummation of a business combination. While our
initial stockholders do not currently intend to purchase any of
our securities in the aftermarket, neither our initial
stockholders nor any of their affiliates are prohibited from
doing so. Our initial stockholders have not established specific
criteria that would trigger purchases of our securities, and
they would likely consider a wide variety of factors in
determining whether to purchase any of our securities, including
whether they believe that such securities are undervalued. If
they were to make any such purchases, our initial stockholders
will have a greater influence on matters requiring stockholder
approval, including the vote taken in connection with a business
combination. To the extent that our initial stockholders or
their affiliates purchase shares of our common stock in the
aftermarket, or otherwise purchase shares of our common stock,
such purchases may have an impact on the market price of our
common stock.
28
In such case, investors should consider the potential impact of
any such purchases on the market price for our common stock and
should not place undue reliance on such market price, but should
instead consider the merits of any proposed business combination
in deciding whether to vote in favor of such business
combination.
Any
purchases of our common stock by our initial stockholders or
their affiliates could impact the stockholder vote in favor of a
business
combination
.
Neither our initial stockholders nor their affiliates are
prohibited from purchasing any of our securities in this
offering or in the aftermarket or otherwise. Such purchases may
be made from public stockholders that have indicated their
intention to vote against the business combination and exercise
their conversion rights. Accordingly, purchases by our initial
stockholders or their affiliates could result in a business
combination being approved that may not have otherwise been
approved by our public stockholders, but for the purchases made
by our initial stockholders or their affiliates. Investors
should note that all of our initial stockholders own shares of
our common stock which will become worthless if we do not
consummate a business combination and, accordingly, they have an
interest in causing a business combination to be consummated
that is different from our other stockholders.
Our
stockholders will not be able to take any action by written
consent subsequent to the consummation of this offering, which
may have the effect of discouraging, delaying or preventing
takeover attempts or other changes in the control of our
company, our board or management, that are not supported by our
board of directors, despite possible benefits to our
stockholders.
Our amended and restated certificate of incorporation provides
that our stockholders will not be able to take any action by
written consent subsequent to the consummation of this offering,
but will only be able to take action at a duly called annual or
special meetings of stockholders. Our bylaws further provide
that special meetings of our stockholders may be called by a
majority of our board of directors, by our Chairman of the Board
or Chief Executive Officer and will be called by our President
or Secretary upon the written request of the holders of a
majority of the outstanding shares of our common stock. These
provisions, by making it difficult for our stockholders to take
action, may have the effect of discouraging, delaying or
preventing non-negotiated takeover attempts not approved by our
board of directors that our stockholders may consider favorable,
including transactions that might result in payment of a premium
over the market price for the shares of common stock held by our
stockholders. Moreover, these provisions may prevent or
frustrate attempts by our stockholders to replace or remove
members of our board of directors.
Our
initial stockholders paid an aggregate of $25,000, or $0.01 per
share, for their initial 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 of
our common stock (allocating the entire unit purchase price to
the common stock and none to the warrant included in the unit)
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 initial stockholders acquired
their initial shares of common stock at a nominal price,
significantly contributing to this dilution. Assuming the
offering is completed, you and the other new investors will
incur an immediate and substantial dilution of approximately
30.6% or $2.45 per share (the difference between the pro forma
net tangible book value per share of $5.55, and the initial
offering price of $8.00 per unit).
Our
outstanding warrants and option 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 10,000,000 shares
of common stock as part of the units offered by this prospectus
and will also issue the insider warrants to purchase
2,400,000 shares of common stock. In addition, we will
grant an option to purchase 500,000 units to the
representative of the underwriters which, if exercised, will
result in the issuance of an additional 500,000 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
29
additional shares upon exercise of these warrants and option
could make us a less attractive acquisition vehicle in the eyes
of a target business. This is because such securities, when
exercised, will increase the number of issued and outstanding
shares of our common stock and reduce the value of the shares
issued to complete the business combination. Accordingly, our
warrants and option 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 and option 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 and option are exercised, you may experience
dilution to your holdings.
If our
initial stockholders exercise their registration rights with
respect to their initial shares or insider warrants (or
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.
The holders of the 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 will be entitled to make up to two
demands that we register such securities. As the initial shares
will be released from escrow one year after the consummation of
a business combination, our initial stockholders will be able to
make a demand for registration of the resale of their initial
shares at any time commencing nine months after the consummation
of a business combination. Additionally, our initial
stockholders will be able to elect to exercise these
registration rights with respect to the insider warrants (and
underlying securities) at any time after we consummate a
business combination. In addition, the holders will 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.
If our initial stockholders exercise their registration rights
with respect to all of their initial shares and the insider
warrants (and underlying securities), then there will be an
additional 4,900,000 shares of common stock 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 will 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
satisfy burdensome compliance requirements and our activities
may be restricted, which may make it more 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 will 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 will 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:
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restrictions on the nature of our investments; and
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restrictions on the issuance of securities.
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In addition, we may have imposed upon us certain burdensome
compliance requirements, including:
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registration as an investment company;
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adoption of a specific form of corporate structure; and
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reporting, record keeping, voting, proxy, compliance policies
and procedures and disclosure requirements and other rules and
regulations.
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Compliance with these additional regulatory burdens would
require additional expense for which we have not allotted.
The
determination of the terms of this offering was more arbitrary
than would typically be the case if we were an operating
company.
Prior to this offering there has been no public market for any
of our securities. The public offering price of the units, the
terms of the warrants, the size of this offering and the amount
to be placed in the trust account were the results of a
negotiation between the underwriters and us. In determining the
terms of this offering, our management considered a number of
factors, including:
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the history and prospects of companies whose principal business
is the acquisition of other companies;
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prior offerings of similar blank check companies;
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our prospects for acquiring one or more businesses at attractive
values given the restrictions placed on our company and other
similar blank check companies;
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practical issues such as trying to remain the below the size at
which we will be competing directly with large private equity
firms and underwriters for target businesses;
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our capital structure;
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an assessment of our management and their experience in
identifying operating companies;
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general conditions of the securities markets at the time of the
offering and the anticipated reception of the securities markets
to this offering; and
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other factors as were deemed relevant.
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However, although these factors were considered, the
determination of the terms of this offering was more arbitrary
than would typically be the case if we were an operating
company. In addition, because we have not identified any
potential target businesses, managements assessment of the
financial requirements necessary to complete a business
combination may prove to be inaccurate, in which case we may not
have sufficient funds to consummate a business combination and
we would be forced to either find additional financing or
liquidate, or we may have too great an amount in the trust
account to identify a target business having a fair market value
of at least 80% of our net assets.
If we
acquire a target business with operations outside of the United
States, economic, political, social and other factors of the
country where the target business operates may adversely affect
our ability to achieve our business objective.
If we seek to acquire a target business that operates in a
foreign country, our ability to achieve our business objective
may be adversely affected by economic, political, social and
religious factors of the country where the target business
operates. The economy of such country may differ favorably or
unfavorably from the U.S. economy in such respects as the
level of economic development, the amount of governmental
involvement, the growth rate of its gross domestic product, the
allocation of resources, the control of foreign exchange, the
rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. These
differences may adversely affect our ability to acquire one or
more businesses with operations
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outside the United States. Additionally, changes in the
countrys laws or regulations or political conditions may
also impact our ability to acquire a foreign target business.
One or
more countries where the target business operates may have
corporate disclosure, governance and regulatory requirements
that are different from those in the United States, which may
make it more difficult or complex to consummate a business
combination.
Companies in other countries are subject to accounting,
auditing, regulatory and financial standards and requirements
that differ, in some cases significantly, from those applicable
to public companies in the United States, which may make it more
difficult or complex to consummate a business combination. In
particular, the assets and profits appearing on the financial
statements of a company located outside the United States may
not reflect its financial position or results of operations in
the way they would be reflected had such financial statements
been prepared in accordance with U.S. generally accepted
accounting principles. There may be substantially less publicly
available information about companies located outside the United
States than there is about United States companies. Moreover,
companies in other countries may not be subject to the same
degree of regulation as are United States companies with respect
to such matters as insider trading rules, tender offer
regulation, shareholder proxy requirements and the timely
disclosure of information.
Legal principles relating to corporate affairs and the validity
of corporate procedures, directors fiduciary duties and
liabilities and shareholders rights for companies located
outside the United States may differ from those that may apply
in the United States, which may make the consummation of a
business combination with such companies located outside of the
United States more difficult. We therefore may have more
difficulty in achieving our business objective.
Foreign
currency fluctuations could adversely affect our business and
financial results.
If we acquire a target business which does business and
generates sales in one or more countries outside the United
States, 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.
Exchange
controls that exist in certain countries may limit our ability
to utilize our cash flow effectively following a business
combination.
If we effect a business combination with a target business that
operates in one or more countries outside of the United States,
we may become subject to rules and regulations on currency
conversion that are in effect in certain countries. Such rules
and regulations impose restrictions on conversion of local
currency into foreign currencies with respect to entities with
foreign equity holdings in excess of a certain level. Such
restrictions on currency exchanges may limit our ability to use
our cash flow for the distribution of dividends to our
stockholders or to fund operations we may have outside of the
country where the target business is located.
Because
any target business with which we attempt to complete a business
combination may be required to provide our stockholders with
financial statements prepared in accordance with, or which can
be reconciled to, United States generally accepted accounting
principles, prospective target businesses may be
limited.
In accordance with requirements of United States federal
securities laws, in order to seek stockholder approval of a
business combination, a proposed target business may be required
to have certain financial statements which are prepared in
accordance with, or which can be reconciled to,
U.S. generally accepted accounting principles and audited
in accordance with U.S. generally accepted auditing
standards. To the extent that a proposed target business does
not have financial statements which have been prepared in
accordance with, or which can be reconciled to,
U.S. generally accepted accounting principles and audited
in accordance with U.S. generally accepted auditing
standards, we may not be able to complete a business combination
with that proposed target business. These financial statement
requirements may limit the pool of potential target businesses
with which we may complete a business combination.
32
Returns
on investment in companies with operations outside the United
States may be decreased by withholding and other
taxes.
If we effect a business combination with a target business that
operates in one or more countries outside of the United States,
our investments in certain countries may incur tax risk, and
income that might otherwise not be subject to withholding of
local income tax under normal international conventions may be
subject to withholding in such countries. Any withholding taxes
paid by us on income from our investments in other countries may
or may not be creditable on our income tax returns. We intend to
avail ourselves of income tax treaties that are in place to seek
to minimize any withholding tax or local tax otherwise imposed
in other countries. However, there is no assurance that the
local tax authorities will recognize application of such
treaties to achieve a minimization of local tax. We may also
elect to create foreign subsidiaries to effect the business
combinations to attempt to limit the potential tax consequences
of a business combination.
Certain
sectors of the economy in one or more countries where a target
business operates may be subject to government regulations that
limit foreign ownership, which may adversely affect our ability
to achieve our business objective.
Some countries have in place government regulations that aim to
limit foreign ownership in certain sectors of their economy. As
we intend to avoid sectors in which foreign investment is
disallowed, the possible number of acquisitions outside of the
United States that are available for investment may be limited.
Our management team will evaluate the risk associated with
investments in sectors in which foreign investment is
restricted. However, there can be no guarantee that our
management team will be correct in its assessment of political
and policy risk associated with investments in general and in
particular in sectors that are regulated by the applicable
government. Any changes in policy could have an adverse impact
on our ability to achieve our business objective.
If any relevant government authorities find us or the target
business with which we ultimately complete a business
combination to be in violation of any existing or future laws or
regulations in place, they would have broad discretion in
dealing with such a violation, including, without limitation:
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Levying fines;
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Revoking our business and other licenses; and
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Requiring that we restructure our ownership or operations.
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If we
effect a business combination with a target business located
outside of the United States, the target businesss
operations may become less attractive if political and
diplomatic relations between the United States and the country
where the target business is located deteriorate.
The relationship between the United States and the country where
a target business is located may weaken over time. Changes in
the state of the relations between such country and the United
States are difficult to predict and could adversely affect our
future operations or cause potential target businesses to become
less attractive. This could lead to a decline in our
profitability. Any meaningful deterioration of the political and
diplomatic relations between the United States and the relevant
country could have a material adverse effect on our operations
after a successful completion of a business combination.
If we
effect a business combination with a target business located
outside of the United States, we may be unable to enforce our
rights because the local judiciary, which may be relatively
inexperienced in enforcing corporate and commercial law, will
determine the scope and enforcement of almost all of our target
businesss material agreements under local
law.
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 local judiciary may be relatively
inexperienced in enforcing corporate and commercial law, and 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
33
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.
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.
If we effect a business combination with a company located
outside of the United States, we would be subject to risks
associated with companies operating in the target
businesss home jurisdiction. The additional risks we may
be exposed to include but are not limited to the following:
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tariffs and trade barriers;
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regulations related to customs and import/export matters;
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longer payment cycles;
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tax issues, such as tax law changes and variations in tax laws
as compared to the United States;
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challenges in collecting accounts receivable;
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cultural and language differences;
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employment regulations; and
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crimes, strikes, riots, civil disturbances, terrorist attacks
and wars.
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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.
Risks
Associated with the Digital Media Sector
We believe that businesses in the digital media sector are
subject to the risks discussed below. Any information regarding
the digital media sector that is included in this prospectus
would be irrelevant if we decide to consider a target business
or businesses outside of the digital media sector.
The
speculative nature of the digital media sector may result in our
inability to produce products or services that receive
sufficient market acceptance for us to be
successful.
Certain segments of the digital media sector are highly
speculative and historically have involved a substantial degree
of risk. For example, the success of a particular film, video
game, program 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,
we may be unable to produce products or services that receive
sufficient market acceptance for us to be successful.
Changes
in technology may reduce the demand for the products or services
we may offer following a business combination.
The digital media sector is substantially affected by rapid and
significant changes in technology. These changes may reduce the
demand for certain existing services and technologies used in
these industries or render them obsolete. We cannot assure you
that the technologies used by or relied upon or produced by a
target business with which we effect a business combination will
not be subject to such occurrence. While we may attempt to adapt
and apply the services provided by the target business to newer
technologies, we cannot assure you that we will have sufficient
resources to fund these changes or that these changes will
ultimately prove successful.
34
If
following a business combination, the products or services that
we market or sell are not accepted by the public, our profits
may decline.
Certain segments of the digital media sector are dependent on
developing and marketing new products and services that respond
to technological and competitive developments and changing
customer needs and tastes. We cannot assure you that the
products and services of a target business with which we effect
a business combination will gain market acceptance. Any
significant delay or failure in developing new or enhanced
technology, including new product and service offerings, could
result in a loss of actual or potential market share and a
decrease in revenues.
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 invalidation of 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
invalidation of our proprietary rights
and/or
restrict our ability to publish and distribute the infringing or
defaming content.
35
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus that are not purely
historical are forward-looking statements. Our forward-looking
statements include, but are not limited to, statements regarding
our managements expectations, hopes, beliefs, intentions
or strategies regarding the future. In addition, any statements
that refer to projections, forecasts or other characterizations
of future events or circumstances, including any underlying
assumptions, are forward-looking statements. The words
anticipate, believe,
continue, could, estimate,
expect, intend, may,
might, plan, possible,
potential, predict, should,
would and similar expressions may identify
forward-looking statements, but the absence of these words does
not mean that a statement is not forward-looking.
Forward-looking statements in this prospectus may include, for
example, statements about our:
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ability to complete a combination with one or more target
businesses;
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success in retaining or recruiting, or changes required in, our
officers, key employees or directors following a business
combination;
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management team allocating their time to other businesses and
potentially having conflicts of interest with our business or in
approving a business combination, as a result of which they
would then receive expense reimbursements;
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potential inability to obtain additional financing to complete a
business combination;
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limited pool of prospective target businesses;
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potential change in control if we acquire one or more target
businesses for stock;
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public securities limited liquidity and trading;
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failure to list or delisting of our securities from the American
Stock Exchange or an inability to have our securities listed on
the American Stock Exchange following a business combination;
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use of proceeds not in trust or available to us from interest
income on the trust account balance; or
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our financial performance following this offering.
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The forward-looking statements contained in this prospectus are
based on our current expectations and beliefs concerning future
developments and their potential effects on us. There can be no
assurance that future developments affecting us will be those
that we have anticipated. These forward-looking statements
involve a number of risks, uncertainties (some of which are
beyond our control) or other assumptions that may cause actual
results or performance to be materially different from those
expressed or implied by these forward-looking statements. These
risks and uncertainties include, but are not limited to, those
factors described under the heading Risk Factors.
Should one or more of these risks or uncertainties materialize,
or should any of our assumptions prove incorrect, actual results
may vary in material respects from those projected in these
forward-looking statements. We undertake no obligation to update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as may be
required under applicable securities laws
and/or
if
and when management knows or has a reasonable basis on which to
conclude that previously disclosed projections are no longer
reasonably attainable.
36
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:
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Without
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Over-Allotment
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Over-Allotment
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Option
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Option Exercised
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Gross proceeds
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From sale to the public in this offering
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$
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78,000,000
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$
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90,000,000
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From sale to certain of our initial stockholders in this offering
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2,000,000
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2,000,000
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From private placement of insider warrants
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2,400,000
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2,400,000
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Total gross proceeds
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$
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82,400,000
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$
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94,400,000
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Offering expenses
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Underwriting discount (7% of gross proceeds from offering, 3.5%
of which is payable at closing and excluding 3.5% which is
payable upon consummation of a business combination)
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$
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2,730,000
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(1)
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$
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3,150,000
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(1)
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Legal fees and expenses (including blue sky services and
expenses)
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300,000
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300,000
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Printing and engraving expenses
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65,000
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65,000
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American Stock Exchange filing and listing fee
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70,000
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70,000
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Accounting fees and expenses
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50,000
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50,000
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SEC registration fee
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5,204
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5,204
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FINRA filing fee
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25,000
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25,000
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Miscellaneous expenses
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89,796
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89,796
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Total offering expenses
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$
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3,335,000
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$
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3,755,000
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Net proceeds before payment of deferred underwriting fees
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Held in trust
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$
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78,815,000
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$
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90,395,000
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Not held in trust
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250,000
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250,000
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Total net proceeds
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$
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79,065,000
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$
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90,645,000
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Use of net proceeds not held in trust and amounts available
from interest income earned on the trust account(2)
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Legal, accounting and other expenses attendant to the due
diligence investigation, structuring and negotiation of a
business combination
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$
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800,000
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$
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800,000
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Payment for office space and administrative and support services
to Clarity Partners, L.P. ($7,500 per month)
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180,000
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180,000
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Legal and accounting fees relating to SEC reporting obligations
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200,000
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200,000
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Working capital to cover miscellaneous expenses(3)
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770,000
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770,000
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Total
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$
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1,950,000
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$
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1,950,000
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(1)
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No discounts or commissions will be paid with respect to the
purchase of the insider warrants or on the sale of up to 250,000
units that certain of our initial stockholders may purchase
directly from the underwriters in this offering. For purposes of
presentation, the underwriting discounts are reflected as the
amount payable to the underwriters upon consummation of this
offering. An additional $2,730,000, or $3,150,000 if the
over-allotment option is exercised in full, all of which will be
deposited in trust following the consummation of this offering,
is payable to the underwriters only if and when we consummate a
business combination.
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(2)
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The amount of net proceeds from this offering not held in trust
will remain constant at $250,000 even if the over-allotment is
exercised. In addition, there can be released to us from the
trust account, interest
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37
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earned on the funds in the trust account, net of taxes payable
on such interest, (i) up to an aggregate of $1,700,000 to
fund our expenses related to investigating and selecting a
target business and our other working capital requirements and
(ii) to pay any amounts we may need to pay our income or
other tax obligations. For purposes of presentation, the full
amount available to us is shown as the total amount of net
proceeds available to us immediately following this offering.
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(3)
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The miscellaneous expenses may include deposits or down payments
for a proposed initial business combination, director and
officer liability insurance premiums, brokers retainer
fees, consulting fees, finders fees and fees payable to
Continental Stock Transfer & Trust Company.
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In addition to the offering of units by this prospectus, our
initial stockholders have agreed to purchase warrants
exercisable for 2,400,000 shares of our common stock at a
purchase price of $1.00 per warrant 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 the sale of the insider warrants will
be placed in the trust account described below.
$76,415,000, or $87,995,000 if the over-allotment option is
exercised in full, of the net proceeds of this offering, plus
the $2,400,000 we will receive from the sale of the insider
warrants, will be placed in a trust account at JPMorgan Chase
Bank, maintained by Continental Stock Transfer &
Trust Company, acting 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 from time to time (i) of up to $1,700,000 to
fund our expenses related to investigating and selecting a
target business and our other working capital requirements and
(ii) to pay our income or other tax obligations, the
proceeds held in trust 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.
We have agreed to pay Clarity Partners, L.P., or Clarity, a
monthly fee of $7,500 for office space and administrative and
support services. Barry A. Porter, one of our special advisors,
is a co-founder and Managing General Partner of Clarity, and the
grantor trust of Mr. Porter, Nautilus Trust dtd
9/10/99,
is
one of our initial stockholders. This arrangement is being
agreed to by Clarity for our benefit and is not intended to
provide Mr. Porter, any member of our management team, any
other special advisor or any of our directors with compensation
in lieu of a salary or other remuneration. We believe, based on
rents and fees for similar services in the Beverly Hills,
California area, that the fee charged by Clarity is at least as
favorable as we could have obtained from any unaffiliated
person. This arrangement will terminate upon completion of a
business combination or the distribution of the trust account to
our public stockholders.
No compensation of any kind, including finders, consulting
or other similar fees, will be paid to any of our initial
stockholders, officers, directors or special advisors, or any of
their affiliates, for any services rendered prior to or in
connection with the consummation of a business combination,
other than the monthly fee of $7,500 for office space and
administrative and support services referred to above, a
potential finders or success fee to Ladenburg
Thalmann & Co. Inc., an affiliate of Dr. Frost,
our Chairman of the Board, to the extent we enter into an
agreement with such company in connection with our search for a
target business, and repayment of non-interest bearing loans of
$200,000 in the aggregate made by certain of our initial
stockholders. However, such individuals will receive
reimbursement for any out-of-pocket expenses incurred by them in
connection with activities on our behalf, such as 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. Our audit
38
committee will review and approve all reimbursements made to our
initial stockholders, officers, directors or their affiliates,
and any reimbursements made to members of our audit committee
will be reviewed and approved by our board of directors, with
any interested director abstaining from such review and
approval. Such review will encompass an analysis of the
corporate purposes advanced by such expenses and their
reasonableness as compared to similar services or products that
could have been procured from an independent third party source.
There is no limit on the total amount of these out-of-pocket
expenses reimbursable by us, and there will be no review of the
reasonableness of the expenses other than by our audit committee
and, in some cases, by our board of directors as described
above, or if such reimbursement is challenged, by a court of
competent jurisdiction. Reimbursement for such expenses will be
paid by us out of the funds not held in trust. To the extent
such out-of-pocket expenses exceed the available funds not held
in trust and the interest income that may be released to us as
described above, such out-of-pocket expenses will not be
reimbursed by us unless we consummate a business combination.
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 and the private
placement available to us out of trust for our search for a
business combination will be approximately $250,000. In
addition, interest earned on the funds held in the trust
account, net of taxes payable on such interest, of up to
$1,700,000 may be released to us from time to time upon our
request to fund our expenses relating to investigating and
selecting a target business and other working capital
requirements. We intend to use these funds for director and
officer liability insurance premiums, due diligence, legal,
accounting and other expenses of structuring and negotiating
business combinations, as well as for reimbursement of any
out-of-pocket expenses incurred by our initial stockholders in
connection with activities on our behalf as described above. 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 believe that these funds will be sufficient
to allow us to operate for 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 may request the release of such funds for a number
of purposes that may not ultimately lead to a business
combination. For instance, 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 with respect to a particular proposed
business combination, or enter into a letter of intent where we
pay for the right to receive exclusivity from a target business,
where we may be required to forfeit funds (whether as a result
of our breach or otherwise). In any of these cases, or in other
situations where we expend the funds available to us outside of
the trust account for purposes that do not result in a business
combination, we may not have sufficient remaining funds to
continue searching for, or to conduct due diligence with respect
to, a target business, in which case we would be forced to
obtain alternative financing or liquidate.
The net proceeds of this offering not held in the trust account
and not immediately required for the purposes set forth above
will be held as cash or cash equivalents or 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. The income derived from investment of these net
proceeds during this period will be used to defray our general
and administrative expenses, as well as costs relating to
compliance with securities laws and regulations, including
associated professional fees, until a business combination is
completed.
The allocation of net proceeds not held in trust and amounts
available from the interest income earned on the trust account
represents our best estimate of the intended uses of these
funds. We do not expect to use such amounts for anything other
than the purposes stated above. However, management may be
required to pay a different amount than the amount indicated in
the table above for legal, accounting and other expenses
attendant to the due diligence investigation, structuring and
negotiation of a business combination, depending upon the level
of complexity of such business combination. The difference, if
any, will be allocated to, or deducted from, our working capital.
39
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 acquired business or businesses. Such working capital
funds could be used in a variety of ways, including, without
limitation, for maintenance or expansion of the operations of an
acquired business or businesses, the payment of principal or
interest due on indebtedness incurred in consummating our
business combination, to fund 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.
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 initial stockholders have agreed to advance us
the funds necessary to complete such liquidation (currently
anticipated to be no more than approximately $15,000) and has
agreed not to seek repayment of such expenses.
Frost Gamma Investments Trust, Robert N. Fried, Rao Uppaluri,
Steven D. Rubin and Jane Hsiao have agreed to loan a total of
$200,000 to us for the payment of offering expenses. The loans
bear no interest and are due on the earlier of June 12,
2008 or the consummation of this offering. The loans will be
repaid out of the proceeds of this offering available to us for
payment of offering expenses.
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.
40
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 September 30, 2007, our net tangible book value was a
deficiency of $275,545, or approximately $(0.11) per share of
common stock. After giving effect to the sale of
10,000,000 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 September 30, 2007 would have been
$52,714,918 or $5.55 per share, representing an immediate
increase in net tangible book value of $5.66 per share to the
initial stockholders and an immediate dilution of $2.45 per
share or 30.6% to new investors not exercising their conversion
rights. For purposes of presentation, our pro forma net tangible
book value after this offering is approximately $23,640,000 less
than it otherwise would have been because if we effect a
business combination, the conversion rights to the public
stockholders (but not our initial stockholders) may result in
the conversion into cash of up to approximately 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 $2,730,000 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:
|
|
|
|
|
|
|
|
|
Public offering price
|
|
|
|
|
|
$
|
8.00
|
|
Net tangible book value before this offering
|
|
$
|
(0.11
|
)
|
|
|
|
|
Increase attributable to new investors and private sales
|
|
|
5.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value after this offering
|
|
|
|
|
|
|
5.55
|
|
|
|
|
|
|
|
|
|
|
Dilution to new investors
|
|
|
|
|
|
$
|
2.45
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth information with respect to our
initial stockholders and the new investors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
Per Share
|
|
|
Initial stockholders(1)
|
|
|
2,500,000
|
|
|
|
20.00
|
%
|
|
$
|
25,000
|
|
|
|
.03
|
%
|
|
$
|
0.01
|
|
New investors(2)
|
|
|
10,000,000
|
|
|
|
80.00
|
%
|
|
$
|
80,000,000
|
|
|
|
99.97
|
%
|
|
$
|
8.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500,000
|
|
|
|
100.00
|
%
|
|
$
|
80,025,000
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Refers to the 2,500,000 shares of common stock that our
initial stockholders originally purchased from us for $25,000 on
June 7, 2007.
|
|
(2)
|
|
Includes the 250,000 units that may be sold to certain of our
initial stockholders in this offering, at the initial public
offering price of $8.00 per unit (for an aggregate purchase
price of $2,000,000).
|
41
The pro forma net tangible book value per share after the
offering is calculated as follows:
|
|
|
|
|
Numerator:
|
|
|
|
|
Net tangible book value before this offering and the private
placement
|
|
$
|
(275,545
|
)
|
Net proceeds from this offering and the sale of the insider
warrants (net of deferred underwriting discounts and commissions)
|
|
|
76,335,000
|
|
Offering costs paid in advance and excluded from net tangible
book value before this offering and the sale of the insider
warrants
|
|
|
295,455
|
|
Less: Proceeds held in trust subject to conversion to cash(1)
|
|
|
(23,639,992
|
)
|
|
|
|
|
|
|
|
$
|
52,714,918
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Shares of common stock outstanding prior to this offering
|
|
|
2,500,000
|
|
Shares of common stock included in the units offered
|
|
|
10,000,000
|
|
Less: Shares subject to conversion (10,000,000 x 29.99)%
|
|
|
(2,999,999
|
)
|
|
|
|
|
|
|
|
|
9,500,001
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Does not include the deferred underwriting discounts and
commissions which may be distributed to public stockholders if
they seek conversion of their shares upon consummation of a
business combination.
|
42
The following table sets forth our capitalization at
September 30, 2007 and as adjusted to give effect to the
sale of our units and insider warrants, and the application of
the estimated net proceeds derived from the sale of such
securities:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
|
Actual
|
|
|
As Adjusted(1)
|
|
|
Notes payable(2)
|
|
$
|
200,000
|
|
|
$
|
|
|
Total debt(3)
|
|
$
|
200,000
|
|
|
$
|
|
|
Deferred underwriting discounts and omissions
|
|
|
|
|
|
|
2,730,000
|
|
Common stock, $0.0001 par value, -0- and
2,999,999 shares which are subject to possible conversion,
shares at conversion value
|
|
$
|
|
|
|
$
|
23,639,992
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 1,000,000 shares
authorized; none issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 50,000,000 shares
authorized; 2,500,000 shares issued and outstanding,
actual; 12,500,000 shares issued and outstanding (including
2,999,999 shares subject to possible conversion), as
adjusted
|
|
|
250
|
|
|
|
1,250
|
|
Additional paid-in capital
|
|
|
24,750
|
|
|
|
52,718,758
|
|
Deficit accumulated during the development stage
|
|
|
(5,090
|
)
|
|
|
(5,090
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
$
|
19,910
|
|
|
$
|
52,714,918
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
219,910
|
|
|
$
|
79,084,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes the $2,400,000 we will receive from the sale of the
insider warrants.
|
|
(2)
|
|
The loans from Frost Gamma Investments Trust, Robert N. Fried,
Rao Uppaluri, Steven D. Rubin and Jane Hsiao are due at the
earlier of June 12, 2008 or the consummation of this
offering. The unpaid principal balance under these loans as of
September 30, 2007 was $200,000.
|
|
(3)
|
|
Excludes deferred underwriting discounts and commissions equal
to 3.5% of the gross proceeds not received from our initial
stockholders, or $2,730,000 ($3,150,000 if the
underwriters over-allotment option is exercised in full),
which will be deposited in the trust account and which the
underwriters have agreed to defer until the consummation of our
initial business combination. See the section entitled
Underwriting Commissions and Discounts.
|
If we consummate a business combination, the conversion rights
afforded to our public stockholders (but not our initial
stockholders) may result in the conversion into cash of up to
approximately 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, before payment of the $2,730,000 in
deferred underwriting discounts and commissions and inclusive of
any interest thereon (net of taxes payable), net of interest
income (net of taxes payable) (i) of up to $1,700,000
accrued and reserved or released to us for working capital
purposes or (ii) accrued and reserved or released to us to
pay our income or other 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.
43
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a blank check company organized under the laws of the
State of Delaware on June 1, 2007. We were formed for the
purpose of acquiring, through a merger, capital stock exchange,
asset acquisition or other similar business combination, one or
more businesses. While our efforts in identifying prospective
target businesses will not be limited to a particular industry,
we expect to focus on businesses in the digital media sector,
which encompasses companies that emphasize the use of digital
technology to create, distribute or service others that create
or distribute content for various platforms including online,
mobile, satellite, television, cable, radio, print, film, video
games and software. Digital technology refers to the use of
digitally-enabled means, as opposed to analog means, to process,
transmit, store or display content. We may also focus on
traditional media businesses, including motion picture
exhibition companies, television and radio broadcast companies,
print media publishing companies and traditional content
libraries, if we believe that the incorporation of digital
technology will enhance and accelerate the growth of those
businesses. We have not established specific criteria that would
trigger our consideration of businesses outside of the digital
media sector. In addition, we intend to direct our search toward
digital media businesses in the United States, but we would also
consider businesses outside of the United States.
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 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 in a business combination:
|
|
|
|
|
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 securities, 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 security contains covenants that required 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 security is payable on demand; and
|
|
|
|
our inability to obtain additional financing, if necessary, if
the debt security contains covenants restricting our ability to
obtain additional financing while such security is outstanding.
|
Liquidity
and Capital Resources
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.
44
Our liquidity needs have been satisfied to date through receipt
of $25,000 from the sale of 2,500,000 shares of our common
stock to the initial stockholders and loans of $200,000 in the
aggregate from Frost Gamma Investments Trust, Robert N. Fried,
Rao Uppaluri, Steven D. Rubin and Jane Hsiao for the payment of
offering expenses. The loans bear no interest and are due at the
earlier of June 12, 2008 or the closing of this offering.
The loans will be repaid out of the proceeds of this offering
available to us for payment of offering expenses. We estimate
that the net proceeds from the sale of the units, after
deducting offering expenses of approximately $605,000 and
underwriting discounts of approximately $5,460,000, or
$6,300,000 if the over-allotment option is exercised in full,
will be approximately $73,935,000, or approximately $85,095,000
if the over-allotment option is exercised in full. However, the
underwriters have agreed that $2,730,000 of the underwriting
discounts and commissions, or $3,150,000 if the over-allotment
option is exercised in full, will not be payable unless and
until we consummate a business combination. Accordingly,
$76,415,000, or $87,995,000 if the over-allotment option is
exercised in full, of the net proceeds of this offering will be
held in trust and the remaining $250,000 in either case will not
be held in trust. An additional $2,400,000 will also be
deposited into trust upon consummation of this offering from the
sale of the insider warrants described below.
We intend to use substantially all of the net proceeds of this
offering and the private placement, 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 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 acquired business or businesses. Such
working capital funds could be used in a variety of ways,
including, without limitation, for maintenance or expansion of
the operations of an acquired business or businesses, the
payment of principal or interest due on indebtedness incurred in
consummating our business combination, to fund 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
$250,000 in funds available to us outside of the trust account,
together with up to $1,700,000 of interest earned on the trust
account balance, net of taxes payable on such interest, that may
be released to us to fund our expenses relating to investigating
and selecting a target business and other working capital
requirements, will be sufficient to allow us to operate for 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 may request the release of
such funds for a number of purposes that may not ultimately lead
to a business combination. For instance, 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 with respect to a
particular proposed business combination, or enter into a letter
of intent where we pay for the right to receive exclusivity from
a target business, where we may be required to forfeit funds
(whether as a result of our breach or otherwise). In any of
these cases, or in other situations where we expend the funds
available to us outside of the trust account for purposes that
do not result in a business combination, we may not have
sufficient remaining funds to continue searching for, or to
conduct due diligence with respect to, a target business, in
which case we would be forced to obtain alternative financing or
liquidate. Following this offering, 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, 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:
|
|
|
|
|
$800,000 of expenses for legal, accounting and other expenses
attendant to the due diligence investigation, structuring and
negotiating of a business combination;
|
45
|
|
|
|
|
$180,000 of expenses for office space and administrative and
support services payable to Clarity Partners, L.P. ($7,500 per
month for 2 years);
|
|
|
|
$200,000 of expenses in legal and accounting fees relating to
our SEC reporting obligations; and
|
|
|
|
$770,000 for general working capital that will be used for
miscellaneous expenses and general corporate purposes (including
director and officer liability insurance premiums).
|
The amount of available proceeds is based on managements
estimates of the costs needed to fund our operations for the
next 24 months and consummate a business combination. 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 following the offering 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 Clarity a monthly fee of $7,500 for office space and
administrative and support services. Barry A. Porter, one of our
special advisors, is a co-founder and Managing General Partner
of Clarity, and the grantor trust of Mr. Porter, Nautilus
Trust dtd
9/10/99,
is
one of our initial stockholders.
Our initial stockholders have agreed to purchase warrants
exercisable for 2,400,000 shares of our common stock at a
purchase price of $1.00 per warrant in a private placement that
will occur simultaneously with the consummation of this
offering. See Transactions with Related Persons.
46
Overview
We are a blank check company organized under the laws of the
State of Delaware on June 1, 2007. We were formed for the
purpose of acquiring, through a merger, capital stock exchange,
asset acquisition or other similar business combination, one or
more businesses. While our efforts in identifying prospective
target businesses will not be limited to a particular industry,
we expect to focus on businesses in the digital media sector,
which encompasses companies that emphasize the use of digital
technology to create, distribute or service others that create
or distribute content for various platforms including online,
mobile, satellite, television, cable, radio, print, film, video
games and software. Digital technology refers to the use of
digitally-enabled means, as opposed to analog means, to process,
transmit, store or display content. We may also focus on
traditional media businesses, including motion picture
exhibition companies, television and radio broadcast companies,
print media publishing companies and traditional content
libraries, if we believe that the incorporation of digital
technology will enhance and accelerate the growth of those
businesses. We have not established specific criteria that would
trigger our consideration of businesses outside of the digital
media sector. In addition, we intend to direct our search toward
digital media businesses in the United States, but we would also
consider businesses outside of the United States. 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.
Our management team, board of directors and special advisors,
led by our Chairman of the Board, Dr. Phillip Frost, has
extensive experience in identifying emerging technologies and
building companies through acquisitions and organic growth.
Notably, from 1987 to January 2006, Dr. Frost served as the
Chairman of the Board and Chief Executive Officer of IVAX
Corporation, which was sold to Teva Pharmaceuticals for
$9.2 billion, including assumed debt. IVAX Corporation was
a multinational company engaged in the research, development,
manufacturing and marketing of branded and generic
pharmaceuticals and veterinary products. During
Dr. Frosts tenure, IVAX Corporation consummated in
excess of 50 acquisitions and divestitures primarily in the
health care industry. Steven D. Rubin and Rao Uppaluri, two of
our executive officers, have worked closely with Dr. Frost
at IVAX and other subsequent ventures.
Robert Fried, our President and Chief Executive Officer, certain
members of our board of directors and our special advisors have
extensive experience in the digital media sector as senior
executives, business consultants
and/or
entrepreneurs, and we intend to leverage their experience by
focusing our efforts on businesses in that sector. In
particular, Mr. Fried has over 23 years of experience
founding and operating traditional and digital media companies,
as well as producing numerous award-winning feature films. His
experience in both the creative and business aspects of the
entertainment industry provides us with exposure to a unique
array of business opportunities.
Certain members of our management team and board of directors
have extensive merger and acquisition experience outside of the
digital media sector that we believe will be helpful in
consummating a successful transaction. Because of this diversity
of industry experience, we may consummate a business combination
with a company in a different sector.
We believe, based solely on our managements collective
business experience, that there are numerous attractive
acquisition opportunities in the digital media sector. However,
neither we nor any of our agents have conducted any research
with respect to identifying the number and characteristics of
the potential acquisition candidates within these industries or
the likelihood or probability of success of any proposed
business combination. Accordingly, 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.
Digital
Media Sector Trends
The enterprises that create and distribute content and
entertainment and their related service businesses are in the
midst of a dramatic transformation, mostly due to technological
innovation. Content owners are
47
struggling to adapt to changing paradigms and disruptions to
their traditional business models. Some of the key trends
impacting the digital media sector are as follows:
|
|
|
|
|
Proliferation of broadband internet
access.
According to the Global Household
Subscription Forecast,
2007-2011,
by Ben Piper of Strategy Analytics, dated July 30, 2007,
nearly half of all North American households had broadband
Internet access in 2006, with broadband Internet penetration
expected to reach 73% by 2010. In addition, according to Market
Analysis: U.S. Broadband Services
2006-2010
Forecast published by IDC, dated September 2006, IDC estimates
that the average speed of downstream access for a broadband
connection, the speed at which an end-user accesses media files,
doubled from the third quarter of 2004 to the same quarter of
2006. The proliferation of broadband Internet connections has
provided an increasing number of users with the capability to
access rich media content efficiently.
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Increasing sophistication of Internet-connected
devices.
The proliferation of devices that are
capable of connecting to the Internet, such as MP3 players,
mobile phones and videogame consoles, has given users more
control and flexibility over how and where they access and use
media content from the Internet. For example, the increasing
prevalence of music-enabled consumer electronic devices is
driving the transition of music from offline to online to mobile
phones. We believe that this trend will result in greater usage
of rich multimedia, such as short-form video and music, as
wireless service providers seek to differentiate their service
offerings.
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Explosion of user-generated content.
Through
technologies like Internet search, personal digital video
recorders,
video-on-demand
and social media platforms, consumers are increasingly
accustomed to immediate, on-demand access to media content,
including videos, music and photos provided by media or content
providers or by users themselves. The popularity of websites
like YouTube and My Space are driving increased interest in
watching user-created content online. As a result, consumers are
spending more time online and downloading and uploading
significantly larger files. As content becomes more
personalized, we believe that users will consume content that is
targeted towards their own tastes, thus moving beyond the mass
market broadcasting methods of distributing video and film.
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Importance of social networking.
Social
networking websites allow users to create their own personalized
webpage, express their personality and interact with people with
similar interests. Social networking sites are among the most
popular destinations online, where users spend a significant
amount of their time online. Social networking websites
typically offer interactive entertainment, such as blogs, audio,
video, messaging and discussion forums. These virtual
communities offer advertisers the ability to tailor marketing to
consumers more precisely. Beyond advertising, companies use
social networking sites as a tool to promote their products
through viral marketing. These sites offer a powerful way to
attract users with good content that is tightly integrated with
their brand. Furthermore, many social networking websites offer
some form of role-play or game situation encompassing the social
network, which brings new revenue sources, including
merchandising, pay for usage components and immersive
advertising, where brands are used on items inside the game.
Finally, many companies use social networking tools, such as
customer recommendations or ratings of products or services, to
enable consumers to find products and services more easily on
their websites.
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Long Tail opportunities created by the
Internet.
The traditional retailers and
distributors of entertainment content, such as movie theaters,
music stores, book stores and DVD rental stores, are governed by
their need to find large audiences in order to maximize the use
of limited physical space. Therefore, these traditional channels
focus on the marketing and distribution of hits, or
the highest volume, most popular titles with mass market appeal.
However, outside of the hits, there is a significant
amount of high quality entertainment content that has the
potential to generate meaningful revenues but does not meet the
revenue thresholds set by the traditional distribution channels.
These represent opportunities that exist in the long
tail, which is a term used in statistics to describe the
low-frequency population which gradually tails off
following a high-frequency population.
E-commerce
companies without the constraints of physical space, such as
eBay, Amazon, RealNetworks and Netflix, have used the Internet
to exploit long tail opportunities by expanding the
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amount of content available to consumers at minimal incremental
cost. Content libraries can be digitized, stored on the Internet
and sold to niche markets, where consumers may be willing to pay
higher prices for content that is harder to locate. The
increased breadth of available content enables consumers to
personalize their media content by pulling only the
content that they desire, rather than having mass media
pushed to them via traditional channels.
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Evolution of Hollywoods content distribution
model.
Hollywoods traditional distribution
system relies on sequential windows of exclusive viewing,
designed to maximize revenue over the life cycle of the film.
The traditional migration of a film through the movie theaters,
video/DVD,
pay-per-view,
premium cable channels, network and free cable channels and
finally syndicated TV is being challenged. The length of these
exclusivity windows is being reduced; for example, cable
companies and studios are now making some films available on
video on demand on the same day as the DVD release.
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New forms of content.
High speed internet
access and more cost-effective storage capacity solutions are
increasingly enabling consumers to view any film, television
show or peer-to-peer clip in the comfort in their own home. In
the near future, we believe that the traditional concept of a
television show or film will be challenged. Entertainment will
likely evolve into structured or unstructured forms of various
lengths that viewers can enjoy on demand on the platform of
their choice.
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Impact of technology on content creation.
New
technology and equipment is streamlining the production of
content, enabling studios to create content quicker and realize
significant cost savings. Production processes that had not
significantly changed in over 100 years are being
transformed. New high definition video cameras are approaching
the quality level of 35 millimeter cameras, which have been
traditionally used in film production. Several recent major
motion pictures, such as Collateral and Star
Wars have been shot on video. The use of digital video
instead of traditional film makes the editing, special effects,
lab development, music, graphics, titles, storage, dailies and
other processes cheaper and simpler. Digital projection at the
movie theaters can potentially save the film industry hundreds
of millions of dollars per year by eliminating the need to
deliver film physically to the theaters. Special effects and
animation processes are now mostly digitized and are
continuously becoming more efficient. New software systems have
streamlined the budgeting, scheduling, accounting and other
elements of the production process.
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Assault on intellectual property rights.
The
design, distribution, protection and consumption of all forms of
digital content are continuing to experience an unprecedented
amount of change. With the expansion of high-bandwidth Internet
infrastructure and the shift to digital media, PC-based
entertainment platforms, digital portable devices, networked
devices, Internet downloads and the proliferation of
peer-to-peer, or P2P, file sharing networks, content and
copyright owners are vulnerable to unauthorized use of their
content. Inexpensive, easy to use in-home copying devices, such
as VCRs, CD and DVD recorders, and PC based hard drive recorders
enable consumers to make unauthorized copies of video, audio and
software content. Content owners lose billions of dollars every
year to casual copying and professional or bootleg piracy and
Internet/P2P piracy. For example, according to a study prepared
by L.E.K. for the Motion Picture Association, the major
U.S. motion picture studios lost $6.1 billion to
piracy worldwide in 2005. As technological advances facilitate
digital downloads and digital copying, motion picture studios,
music labels, cable television program distributors and software
games publishers have become more concerned with protecting
their intellectual property.
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The information provided above relates to the digital media
sector. Although we expect to focus our search on businesses in
the digital media sector, our efforts in identifying prospective
target businesses will not be limited to a particular industry,
and we may seek to acquire a target business or businesses
outside of the digital media sector, at any time following the
consummation of this offering, if we believe that doing so would
be in the best interest of our stockholders. Any information
regarding the digital media sector that is included in this
prospectus would be irrelevant if we decide to consider a target
business or businesses outside of the digital media sector.
49
Business
Strategy
We have identified the following criteria that we believe are
important in evaluating prospective target businesses. While our
management intends to utilize these criteria in evaluating
business combination opportunities both in and outside of the
digital media sector, we expect that no individual criterion
will entirely determine a decision to pursue a particular
opportunity. Further, any particular business combination
opportunity which our management ultimately determines to pursue
may not meet one or more of these criteria. We have not
established specific criteria that would trigger our
consideration of businesses outside of the digital media sector.
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Growth orientation.
We will seek to acquire
companies that we expect to experience substantial growth
post-acquisition. We believe that we are well-positioned to
evaluate a companys current growth prospects and
opportunities to enhance growth post-acquisition.
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Hidden intrinsic value.
We will seek
situations where we are able to acquire target companies that
have unseen value or other characteristics that have been
disregarded by the marketplace. We intend to leverage the
operational experience and financial acumen of our team to focus
on unlocking value others may have overlooked, as a means to
generate significant growth post closing.
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Attractive return on investment.
We will seek
to identify businesses that will offer an attractive
risk-adjusted return on investment for our shareholders. We will
look to consummate an acquisition on attractive terms and to use
our corporate structure as an asset in negotiations with owners
of prospective targets. Financial returns will be evaluated
based on both organic cash flow growth potential and an ability
to create value through new initiatives such as future
acquisitions, repositioning the company, increasing investment
in new products or distribution channels and operational
restructuring. This potential upside from growth in the business
will be weighed against the downside risks inherent in the plan
and in the business.
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Outstanding management team.
We believe that
experienced, proven entrepreneurial managers working as a
complementary team are a critical component to creating and
sustaining long-term value. We will look for businesses that
have management teams with a proven track record for delivering
top line growth and bottom line profits, but, in each situation,
we will assess opportunities to improve a targets
management team and to recruit additional talent.
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Our
Competitive Strengths
We believe that we have the following competitive strengths,
which will help us consummate an attractive business combination
opportunity. However, we cannot assure you that we will be able
to locate a target business or that we will succeed in
consummating a business combination.
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Extensive track record with mergers and
acquisitions.
Our management team, including our
officers and directors, and our special advisors, have
experience in all phases of acquisition and growth financing
transactions in both the public and private markets. Notably,
Dr. Frost founded IVAX Corporation, which was sold for
$9.2 billion, including assumed debt, to Teva
Pharmaceuticals in 2006. During Dr. Frosts tenure,
IVAX consummated in excess of 50 acquisitions and divestitures
primarily in the healthcare industry. Mr. Rubin and
Dr. Uppaluri, along with Dr. Frost, were responsible
for the due diligence, structuring, negotiating and closing of
many of these acquisitions. In addition, Dr. Frost founded
Key Pharmaceuticals, which was sold to Schering-Plough in 1986
for $600 million.
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Expertise in identifying and financing emerging technology
companies.
Dr. Frost, Dr. Uppaluri and
Mr. Rubin are members of The Frost Group, a private
investment firm, which has made a number of investments in
various development stage technology companies, in the United
States and abroad, in a variety of industries other than the
digital media sector. These investments, which range from small
minority investments to controlling majority stakes, span a wide
range of cutting edge technology platforms in the areas of
pharmaceuticals, diagnostic devices, medical devices,
telecommunications, software for seismic data analysis, and new
materials for computer chips. The Frost Group not only has
expertise in identifying emerging technologies, but also has
extensive experience in taking development
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stage companies public through a reverse merger with a public
shell company. For example, in March 2007, The Frost Group
formed Opko Corp. by merging Acuity Pharmaceuticals and Froptix
Corporation into eXegenics, Inc., a public shell company. In
December 2006, members of The Frost Group invested in and
structured the acquisition of Protalix Ltd., an Israeli biotech
company, through a reverse merger with a public shell company.
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Unique deal sourcing
capabilities.
Mr. Fried has over
23 years of experience founding and operating traditional
and digital media companies, as well as producing numerous award
winning feature films. His experience in both the creative and
business aspects of the entertainment industry provides exposure
to a unique array of business opportunities and the ability to
evaluate these opportunities critically. He has developed a wide
network of relationships with executives and board members of
digital media companies, as well as influential artists and
content creators. We believe that Mr. Frieds
experience with all aspects of the entertainment industry makes
him uniquely qualified to find attractive business combination
opportunities in the digital media sector and to present those
opportunities to us.
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Management operating experience.
Our
management team has significant experience in founding,
operating and building companies in a variety of industries. We
believe that this experience provides us with a competitive
advantage in evaluating businesses and acquisition
opportunities. In addition, the members of our management team
have served as senior officers and directors of acquiring and
acquired private and public companies. This experience also
assists us in evaluating whether acquisition targets have the
resources necessary to operate as publicly traded companies.
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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 and the private placement of our
insider warrants, 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. If we engage in
a business combination with a target business using our capital
stock
and/or
debt financing as the consideration to fund the combination,
proceeds from this offering and the private placement of the
insider warrants will then be used to undertake additional
acquisitions or to fund the operations of the target business on
a post-combination basis. We may engage in a business
combination 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 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 business combination under
consideration. Neither we nor any related party have, directly
or indirectly, nor has anyone on our or any such partys
behalf, contacted any prospective target business or had any
discussions, formal or otherwise, with respect to such a
transaction. Additionally, neither we nor any of our agents or
affiliates have been approached by any candidates or
representatives of any candidates with respect to a potential
business combination transaction with us. In addition, 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 such an acquisition
candidate. As a result, we cannot assure you that we will be
able to locate a target
51
business or that we will be able to engage in a business
combination transaction with a target business on favorable
terms.
Prior to completion of a business combination, we will seek to
have all vendors, prospective target businesses or other
entities with whom we contract, which we refer to as potential
contracted parties or a potential contracted party, execute
agreements with us waiving any right, title, interest or claim
of any kind whatsoever in or to any funds held in the trust
account for the benefit of our public stockholders. Such a
waiver will apply to any kind of right, title, interest or claim
that a potential contracted party may have. In the event that a
potential contracted party refuses to execute such a waiver, we
will execute an agreement with that entity only if our
management first determines that we would be unable to obtain,
on a reasonable basis, substantially similar services or
opportunities from another entity willing to execute such a
waiver. Examples of instances where we may engage a third party
that refused to execute a waiver would be the engagement of a
third party consultant whose particular expertise or skills are
believed by management to be superior to those of other
consultants that would agree to execute a waiver or a situation
in which management does not believe it would be able to find a
provider of required services willing to provide the waiver. If
a vendor or service provider or a prospective target business
refuses to execute such a waiver, then Dr. Phillip Frost, Robert
N. Fried, Rao Uppaluri, Steven D. Rubin and Jane Hsiao will be
liable to us if and to the extent any claims by any such party
would reduce the amounts in the trust account available for
distribution to our stockholders in the event of a liquidation.
Subject to the limitations that a target business have a fair
market value of at least 80% of our net assets (excluding
deferred underwriting discounts and commissions of
$2.73 million, or $3.15 million if the over-allotment
option is exercised in full) 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. Other than the broad
guidelines described above, we have not established any specific
attributes or criteria for prospective target businesses.
Accordingly, there is no reliable basis for investors in this
offering to currently evaluate the possible merits or risks of
the target business with which we may ultimately complete a
business combination. To the extent we effect a business
combination with a company that does not have a stable history
of earnings and growth or an entity in a relatively early stage
of its development or growth, including entities without
established records of sales or earnings, we may be affected by
numerous risks inherent in the business and operations of that
company. 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 target business candidates will be brought to
our attention from various unaffiliated sources, including
investment bankers, venture capital funds, private equity funds,
leveraged buyout funds, management buyout funds and other
members of the financial community. Target businesses may be
brought to our attention by such unaffiliated sources as a
result of being solicited by us through calls, mailings or
advertisements. These sources may also introduce us to target
businesses they think we may be interested in on an unsolicited
basis. Our officers and directors as well as their affiliates
may also bring to our attention target business candidates that
they become aware of through their business contacts as a result
of formal or informal inquiries or discussions they may have, as
well as attending trade shows or conventions.
While we do not presently anticipate engaging the services of
professional firms or other individuals that specialize in
business acquisitions on any formal basis, we may engage these
firms or other individuals in the future. In addition, we may
pay fees or compensation to third parties for their efforts in
introducing us to potential target businesses that we have not
previously identified if we believe that the payment of such
fees or compensation would be in the best interest of our
stockholders. Such fees or compensation may be calculated as a
percentage of the dollar value of the transaction
and/or
may
involve monthly retainer payments. We will seek to negotiate the
lowest reasonable percentage fee consistent with the
attractiveness of the opportunity and the alternatives, if any,
that are then available to us. Payment of finders fees is
customarily tied to completion of a transaction, in which case
any such fee will be paid out of the funds held in the trust
account and released to us following the business combination.
Although it is possible that we may
52
pay finders fees in the case of an uncompleted
transaction, we consider this possibility to be remote. In no
event will we pay any of our initial stockholders, officers,
directors or special advisors, or any entity with which they are
affiliated, any finders fee, consulting fee or other
compensation for services rendered to us, prior to, or in
connection with, the consummation of a business combination
(regardless of the type of transaction that it is), other than
the monthly fee of $7,500 for office space and administrative
and support services payable to Clarity, a potential
finders or success fee to Ladenburg Thalmann &
Co. Inc., an affiliate of Dr. Frost, to the extent we enter
into an agreement with such company in connection with our
search for a target business, and repayment of non-interest
bearing loans of $200,000 in the aggregate made by certain of
our initial stockholders. In addition, our initial stockholders,
officers, directors and special advisors have agreed that
neither they, nor any of their affiliates, will accept a
finders fee, consulting fee or any similar fees from any
person or other entity in connection with the consummation of a
business combination, other than a finders or success fee
payable to Ladenburg Thalmann & Co. Inc., to the
extent the Company enters into an agreement with Ladenburg
Thalmann in connection with the Companys search for a
target business, and compensation or fees that may be received
for any services provided following such business combination.
There is no business affiliated with our initial stockholders,
officers, directors or special advisors that is currently being
considered as a potential target, but if we decide to enter into
a business combination with a target business that is affiliated
with any of our initial stockholders, officers, directors or
special advisors, we would do so only if we obtained an opinion
from an unaffiliated, independent investment banking firm that
the business combination is fair to our stockholders from a
financial perspective.
After the consummation of this offering, in connection with our
search for a target business, we may enter into an agreement
with Ladenburg Thalmann & Co. Inc., an investment
banking and securities brokerage firm and a subsidiary of
Ladenburg Thalmann Financial Services Inc., that provides for
the payment of a finders or success fee. Dr. Frost,
our Chairman of the Board, is the Chairman of the Board of
Ladenburg Thalmann Financial Services Inc. and a significant
stockholder of Ladenburg Thalmann Financial Services Inc. To
date, we have not entered into any agreements with Ladenburg
Thalmann & Co. Inc., and we have not had any
discussions with Ladenburg Thalmann & Co. Inc.
regarding potential acquisitions. In no instance will we pay
Ladenburg Thalmann & Co. Inc. a finders fee for
a referral involving a business opportunity that was brought to
the attention of Ladenburg Thalmann & Co. Inc.
initially by any of our officers, directors or special advisors,
including Dr. Frost. While Ladenburg Thalmann &
Co. Inc. may be involved in our business combination, neither
its role nor its proposed fee structure has been determined. It
is not anticipated that Dr. Frost would be directly
involved in providing any services on behalf of Ladenburg
Thalmann & Co. Inc. as part of any business
combination involving us.
Selection
of a Target Business and Structuring of a Business
Combination
Dr. Frost, Dr. Uppaluri and Messrs. Fried and
Rubin will supervise the process of evaluating prospective
target businesses, and we expect that they will devote
substantial time to the search for an acquisition candidate.
They will be assisted by the rest of our management team,
together with our outside attorneys, accountants and other
representatives.
Subject to the requirement that our initial business combination
must be with a target business with a fair market value of at
least 80% of our net assets (excluding deferred underwriting
discounts and commissions of $2.73 million, or
$3.15 million if the over-allotment option is exercised in
full) at the time of such acquisition, our management will have
virtually unrestricted flexibility in identifying and selecting
a prospective target business. Other than the broad guidelines
described above, we have not established any specific attributes
or criteria for prospective target businesses. In evaluating a
prospective target business in any industry, our management will
consider, among other factors, the following:
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financial condition and results of operation;
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cash flow potential;
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growth potential;
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experience and skill of management and availability of
additional personnel;
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capital requirements;
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competitive position;
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regulatory or technical barriers to entry;
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stage of development of the products, processes or services;
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security measures employed to protect technology, trademarks or
trade secrets;
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degree of current or potential market acceptance of the
products, processes or services;
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proprietary features and degree of intellectual property or
other protection of the products, processes or services;
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regulatory environment of the industry; and
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costs associated with effecting the business combination.
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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. Management will consider these criteria as a whole.
For example, one target with a balance sheet that is stronger
than another target due to the existence of higher
stockholders equity or other indicia of financial
strength, may have a less established competitive position in
its market. We cannot say in advance which criteria will be most
important when evaluating two or more potential business
combinations. 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.
The structure of a particular business combination may take the
form of a merger, capital stock exchange, asset acquisition or
other similar structure. Although we have no commitments as of
the date of this offering to issue our securities, we may issue
a substantial number of additional shares of our common stock or
preferred stock, a combination of common and preferred stock, or
debt securities, to complete a business combination.
We will endeavor to structure a business combination so as to
achieve the most favorable tax treatment to us, the target
business and its stockholders. 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 that we acquire must have a fair market
value equal to at least 80% of our net assets (excluding
deferred underwriting discounts and commissions of
$2.73 million, or $3.15 million if the over-allotment
option is exercised in full) at the time of such acquisition,
although we may acquire a target business whose fair market
value significantly exceeds 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
and/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 standards generally
accepted by the financial community, such as actual and
potential gross margins, the values of comparable businesses,
earnings and cash flow, book value and, where appropriate, upon
the advice of appraisers or other professional consultants. If
our board is not able to independently determine that the target
business has a sufficient fair market value, we will obtain an
opinion
54
from an unaffiliated, independent investment banking firm that
is a member of the Financial Industry Regulatory Authority with
respect to the satisfaction of such criterion. 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. If we obtain such an opinion, it will likely be
addressed to our board of directors for their use in evaluating
the transaction, and we do not anticipate that our stockholders
will be entitled to rely on such opinion. However, since any
such opinion would be attached to, and thoroughly described in,
our proxy soliciting materials, we believe investors will be
provided with sufficient information in order to allow them to
properly analyze the transaction. Accordingly, whether the
independent investment banking firm allows stockholders to rely
on their opinion will not be a factor in determining which firm
to hire. Other factors expected to be considered by our board of
directors in making such decision include, among others, cost,
timing and reputation of the investment bank, including its
knowledge of the target business industry. 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. To reduce potential conflicts of interest, we will
not consummate a business combination with an entity that is
affiliated with any of our initial stockholders, which includes
our officers, directors and special advisors, unless we obtain
an opinion from an unaffiliated, independent investment banking
firm that the business combination is fair to our stockholders
from a financial perspective. In the event that we obtain such
opinion, we will file it with the Securities and Exchange
Commission.
Lack
of Business Diversification
Our business combination must be with a target business or
businesses that satisfy the minimum valuation standard at the
time of such acquisition, as discussed above, although this
process may entail the simultaneous acquisitions of several
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:
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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
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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.
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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. In no instance will we acquire less than majority
voting control of a target business. However, this restriction
will not preclude a reverse merger or similar transaction where
we will acquire the target business.
Limited
Ability to Evaluate the Target Business
Management
Although we intend to closely 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 one or more
of our
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officers, directors and special advisors, including
Mr. Fried, will remain associated in some capacity with us
following a business combination (potentially as officers,
directors or consultants), 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
and/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. We will consummate a
business combination only 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 initial stockholders have agreed to vote
their respective initial shares in accordance with the majority
of the shares of common stock voted by the 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 initial 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 30% or more of the shares sold in this
offering do not both exercise their conversion rights and vote
against the business combination.
Conversion
Rights
At the time we seek stockholder approval of any business
combination, we will offer each public stockholder the right to
have such stockholders shares of common stock converted to
cash if the stockholder votes against the business combination
and the business combination is approved and completed. Our
initial stockholders will not be able to convert shares of our
common stock owned by them, directly or indirectly, whether
acquired prior to, in or after this offering (nor will they seek
appraisal rights with respect to such shares if appraisal rights
would be available to them). The actual per-share conversion
price will be equal to the amount in the trust account (a
portion of which is made up of $2,730,000 in deferred
underwriting discounts and commissions), inclusive of any
interest thereon and not previously released to us for working
capital requirements, as of two business days prior to the
proposed consummation of a business combination divided by the
number of shares of common stock sold in this offering. Without
taking into account any
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interest earned on the trust account, the initial per-share
conversion price would be approximately $7.88, or $0.12 less
than the
per-unit
offering price of $8.00. 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. The specific
procedures for conversion in connection with a stockholder vote
for a proposed initial business combination will be set forth in
the proxy statement relating to such vote.
We may require public stockholders to tender their certificates
to our transfer agent prior to the meeting or to deliver their
shares to the transfer agent electronically using the Depository
Trust Companys DWAC (Deposit/Withdrawal At Custodian)
System. We will notify investors on a current report on
Form 8-K
and in our proxy statement related to the initial business
combination if we impose this requirement. If we elect to
require physical delivery of the share certificates, we would
expect that stockholders would have to comply with the following
steps. If the shares are held in street name, stockholders must
instruct their account executive at the stockholders bank
or broker to withdraw the shares from the stockholders
account and request that a physical certificate be issued in the
stockholders name. Our transfer agent will be available to
assist with this process. No later than the day prior to the
stockholder meeting, the written instructions stating that the
stockholder wishes to convert his or her shares into a pro rata
share of the trust account and confirming that the stockholder
has held the shares since the record date and will continue to
hold them through the stockholder meeting and the closing of our
business combination must be presented to our transfer agent.
Certificates that have not been tendered in accordance with
these procedures by the day prior to the stockholder meeting
will not be converted into cash. In the event a stockholder
tenders his or her shares and decides prior to the stockholder
meeting that he or she does not want to convert his or her
shares, the stockholder may withdraw the tender. In the event
that a stockholder tenders shares and our business combination
is not completed, these shares will not be converted into cash
and the physical certificates representing these shares will be
returned to the stockholder.
If stockholders vote against our initial business combination
but do not properly exercise their conversion rights, such
stockholders will not be able to convert their shares of common
stock into cash at the conversion price. Any request for
conversion, once made, may be withdrawn at any time up to the
date of the meeting.
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 the business combination is not approved or completed for any
reason, then public stockholders voting against such business
combination will 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. Such public stockholders would
only 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 the event that such stockholders elect to vote
against a subsequent business combination that is approved by
stockholders and completed, or in connection with our
dissolution and liquidation, discussed below.
Public stockholders who convert their common stock into a pro
rata share of the trust account will be paid promptly their
conversion price following their exercise of conversion rights
and will continue to have the right to exercise any warrants
they own. The initial conversion price is approximately $7.88
per share. Since this amount is less than the $8.00 per unit
price in this offering and may be lower than the market price of
the common stock on the date of conversion, there may be a
disincentive on the part of public stockholders to exercise
their conversion rights, particularly for those stockholders who
do not sell, or receive less than an aggregate of $0.12 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 $7.88 per share. Because converting stockholders
will receive their proportionate share of deferred underwriting
compensation at the time of closing of our business combination,
the non-converting stockholders will bear the financial effect
of such payments to both the
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converting stockholders and the underwriters as a consequence of
the reduction in our net assets resulting from such distribution.
Liquidation
if No Business Combination
Our amended and restated certificate of incorporation provides
that we will continue in existence only until November 19,
2009. 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 stockholders to formally vote to approve
our dissolution and liquidation). We view the provision
terminating our corporate life by November 19, 2009 as an
obligation to our stockholders. This provision will be amended
only in connection with, and upon consummation of, our initial
business combination by such date.
If we are unable to complete a business combination by
November 19, 2009, 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 including:
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all accrued interest, net of income taxes payable on such
interest and interest income (net of taxes payable on such
interest) of up to an aggregate of $1,700,000 on the trust
account balance that has been released to us prior to such
distribution to fund our expenses relating to investigating and
selecting a target business and other working capital
requirements, including the costs of liquidation; and
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all deferred underwriting discounts and commissions,
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as well as any of our 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 initial stockholders have
waived their rights to participate in any liquidation
distribution with respect to their shares of common stock owned
by them immediately prior to this offering. 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 initial
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.
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 after payments to us for working capital and
amounts paid or accrued for taxes, the initial per-share
liquidation price would be $7.88, or $0.12 less than the per
unit offering price of $8.00. 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.
Dr. Phillip Frost, Robert N. Fried, Rao Uppaluri, Steven D.
Rubin and Jane Hsiao have agreed that they will be liable
to us if and to the extent any claims by a vendor for services
rendered or products sold to us, by a third party with which we
entered into a contractual relationship following consummation
of this offering or by a prospective target business reduce the
amounts in the trust account available for distribution to our
stockholders in the event of a liquidation, except as to any
claimed amounts owed to a third party who executed a valid and
enforceable waiver. In the event that our board of directors
determines that it is in our best interest to bring a claim
against these persons to enforce our right to obtain
indemnification from them, they will have a fiduciary obligation
to bring such a claim (it may for example not be in our best
interest to do so if the cost to bring the claim would be
greater than the anticipated amount that we would receive if we
successfully prosecuted the claim). We have questioned such
persons on
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their financial net worth and reviewed their financial
information and believe that they will be able to satisfy any
indemnification obligations that may arise. However, we cannot
assure you that they will be able to satisfy those obligations,
if they are required to do so. Accordingly, the actual per-share
liquidation price could be less than $7.88, plus interest, due
to claims of creditors. 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 $7.88 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
stockholders 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 November 19, 2009 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 third parties
we engage and prospective target businesses execute agreements
with us waiving any right, title, interest or claim of any kind
whatsoever they may have in or to any assets held in the trust
account. Such a waiver will apply to any kind of right, title,
interest or claim that a potential contracted party may have. As
a result, we believe 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.
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 in our dissolution could
be viewed under applicable debtor/creditor
and/or
bankruptcy laws as either a preferential transfer or
a fraudulent conveyance. As a result, a bankruptcy
court could seek to recover all amounts received by our
stockholders in our dissolution. Furthermore, because we intend
to distribute the proceeds held in the trust account to our
public stockholders promptly after November 19, 2009, this
may be viewed or interpreted as giving preference to our public
stockholders over any potential creditors with respect to access
to or distributions from our assets. Furthermore, our board of
directors may be viewed as having breached their fiduciary
duties to our creditors
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and/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. As of October 28, 2007,
there are approximately 60 blank check companies that have
completed initial public offerings in the United States with
more than approximately $7.8 billion of proceeds that are
seeking to carry out a business plan similar to our business
plan. Furthermore, as of October 28, 2007, there are
approximately 44 additional blank check companies that are still
in the registration process but have not completed initial
public offerings, which will have approximately
$7.2 billion of proceeds upon completion of the 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, leveraged 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:
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our obligation to seek stockholder approval of a business
combination may delay or threaten the completion of a
transaction;
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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
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our outstanding warrants, and the potential future dilution they
represent.
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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 principal executive offices at 100 North
Crescent Drive, Beverly Hills, California 90210. The cost for
this space is included in the $7,500 per-month fee that Clarity
will charge us for office space and administrative and support
services commencing on the date of this prospectus pursuant to
an agreement between us and Clarity. We believe, based on rents
and fees for similar services in the Beverly Hills, California
area, that the fee charged by Clarity is at least as favorable
as we could have obtained from any unaffiliated person. We
consider our current office space, combined with the other
office space otherwise available to our executive officers,
adequate for our current operations.
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Employees
We have three 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 the availability of suitable target
businesses to investigate, the course of negotiations with
target businesses, and the due diligence preceding and
accompanying a possible business combination. 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 spend more time on our affairs) than they would
prior to locating a suitable target business. We do not intend
to have any full time employees prior to the consummation of a
business combination.
Legal
Proceedings
We are not involved in any litigation or administrative
proceedings incidental to our business.
Periodic
Reporting and Audited Financial Statements
On or about the date on which the SEC declares effective the
registration statement, we will register 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 not acquire a target business if audited financial
statements cannot be obtained for the target business.
Additionally, 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, or reconciled to, 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.
Comparison
of this offering to those of blank check companies subject to
Rule 419
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.
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Terms of Our Offering
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Terms Under a Rule 419 Offering
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Escrow of offering proceeds
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$76,415,000 of the net offering proceeds plus the $2,400,000 we
will receive from the sale of the insider warrants will be
deposited into a trust account at JPMorgan Chase Bank,
maintained by Continental Stock Transfer & Trust Company,
acting as trustee.
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$66,960,000 of the offering proceeds would be required to be
deposited into either an escrow account with an insured
depository 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 interest in the account.
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Investment of net proceeds
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The $76,415,000 of net offering proceeds plus the $2,400,000 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
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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.
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Terms of Our Offering
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Terms Under a Rule 419 Offering
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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.
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Receipt of interest on escrowed funds
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Interest on proceeds from trust account to be paid to
stockholders is reduced by (i) any taxes paid or due on the
interest generated and, only after such taxes have been paid or
funds sufficient to pay such taxes have been set aside and (ii)
up to $1,700,000 that can be used for working capital purposes,
including the costs of our dissolution and liquidation in such
an event.
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Interest on funds in escrow account would be held for the sole
benefit of investors, unless and only after the funds held in
escrow were released to us in connection with our consummation
of a business combination.
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Limitation on Fair Value or Net Assets of Target Business
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The initial target business that we acquire must have a fair
market value equal to at least 80% of our net assets (excluding
deferred underwriting discounts and commissions of
$2.73 million, or $3.15 million if the over-allotment
option is exercised in full) at the time of such acquisition.
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We would be restricted from acquiring a target business unless
the fair value of such business or net assets to be acquired
represented at least 80% of the maximum offering proceeds.
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Trading of securities issued
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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 Lazard Capital Markets LLC
informs us of its decision to allow earlier separate trading
(based upon its assessment of the relative strengths of the
securities markets and small capitalization companies in
general, and the trading pattern of, and demand for, our
securities in particular), 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. If the over-allotment
option is exercised after our initial filing of a Form 8-K, we
will file an amendment to the
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No trading of the units or the common stock and warrants
included in the units would be permitted until the completion of
a business combination. During this period, the securities would
be held in the escrow or trust account.
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Terms of Our Offering
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Terms Under a Rule 419 Offering
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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 Lazard Capital Markets LLC has
allowed separate trading of the common stock and warrants prior
to the 90th day after the date of this prospectus.
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Exercise of the warrants
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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.
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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.
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Election to remain an investor
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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.
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A prospectus containing information required by the SEC would be
sent to each investor. Each investor would be given an
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 in 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.
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Business combination deadline
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Under the terms of 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 dissolve and liquidate.
However, if we complete a business combination
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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.
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Terms of Our Offering
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Terms Under a Rule 419 Offering
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within this time period, we will amend this provision to allow
for our perpetual existence following such business combination.
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Release of funds
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Except for (i) up to $1,700,000 we may need to fund our 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.
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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.
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Directors
and Executive Officers
Our current directors and executive officers are as follows:
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Name
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Age
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Position
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Dr. Phillip Frost, M.D.
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Chairman of the Board
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Robert N. Fried
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President, Chief Executive Officer and Director
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Rao Uppaluri
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Treasurer and Director
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Steven D. Rubin
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Secretary and Director
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Thomas E. Beier
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Director
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Shawn Gold
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Director
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David H. Moskowitz
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Director
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Dr. Phillip
Frost, M.D.
Dr. Frost has served as
our Chairman of the Board since our inception. Dr. Frost
has served as Chief Executive Officer and Chairman of the Board
of Opko Health, Inc. (formerly known as eXegenics Inc.) since
the consummation of its acquisitions of Acuity Pharmaceuticals
Inc. and Froptix Corporation on March 27, 2007. Dr. Frost
is a member of The Frost Group, a private investment firm.
Dr. Frost was named the Vice Chairman of the Board of Teva
Pharmaceutical Industries, Limited, or TEVA, in January 2006
when Teva acquired IVAX Corporation, or IVAX, for
$9.2 billion, including assumed debt. IVAX was a
multinational company engaged in the research, development,
manufacturing and marketing of branded and generic
pharmaceuticals and veterinary products. Dr. Frost had
served as Chairman of the Board and Chief Executive Officer of
IVAX since 1987. Dr. Frost was named Chairman of the Board
of Ladenburg Thalmann Financial Services Inc., an American Stock
Exchange-listed investment banking and securities brokerage
firm, in July 2006 and has been a director of Ladenburg Thalmann
Financial Services Inc. since March 2005. He serves on the Board
of Regents of the Smithsonian Institution, is a member of the
Board of Trustees of the University of Miami, is a Trustee of
each of the Scripps Research Institutes, the Miami Jewish Home
for the Aged, and the Mount Sinai Medical Center and is Co-Vice
Chairman of the Board of Governors of the American Stock
Exchange. Dr. Frost is also a director of Protalix
BioTherapeutics, Inc., an American Stock Exchange-listed biotech
pharmaceutical company, Continucare Corporation, an American
Stock Exchange-listed provider of outpatient healthcare and home
healthcare services, Northrop Grumman Corp., a New York Stock
Exchange-listed global defense and aerospace company, and
Modigene, Inc., a development stage biopharmaceutical company.
Dr. Frost owns an equity interest in the general partner
and in the limited partnership of Peregrine VC Investments II, a
private venture capital fund based in Israel that invests
primarily in early-stage Israeli technology companies, The
Florida Value Fund LLLP, a private equity fund focused on
mid-market companies in the State of Florida, and Calex Equity
Partners, LP, an equity fund with a value orientation.
Dr. Frost holds a Bachelors Degree in French
Literature from the University of Pennsylvania, and an M.D. from
the Albert Einstein College of Medicine.
Robert N. Fried.
Mr. Fried has
served as our President and Chief Executive Officer and a member
of our board of directors since our inception. Mr. Fried is
a digital media entrepreneur and accomplished film producer.
Since 1990, Mr. Fried has served as President of Fried
Films, a motion picture production company he founded in 1990.
Mr. Fried has produced or served as executive producer for
15 films, including Man of the Year and
Collateral. Mr. Frieds films have won
numerous awards, including an Academy Award for the Live Action
Short Film Session Man, the ASCAP award for
Collateral, the Christopher Award for
Rudy, and Emmy, SAG and Golden Globe awards for
Winchell. Mr. Fried has founded several digital
media companies, such as Spirit EMX, an internet video content
company, and Ideation Mobile Media, a mobile advertising company
which is unrelated to us other than through Mr. Fried.
Mr. Fried has also served as consultant to numerous
entities, advising them on studio slate financings, the
formation of independent film production companies, computer
animation, theatrical production, Internet planning and general
strategic planning and business development. He was an investor
in and served on the advisory board of WebTV Networks, Inc.,
which was sold to Microsoft Corporation for $425 million in
1997, and Intermix, Inc., owner of Myspace.com, which Intermix
sold to News Corporation for $580 million in 2005. From
November 1996
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until June 2001, Mr. Fried served as Chairman of
WhatsHotNow, Inc., or WHN, an
e-commerce
service provider to the entertainment and licensed merchandise
industries, which he founded in 1996. WHN built and managed
e-commerce
and direct response commerce operations for major media
companies, such as NBC, ABC, Fox, MTV, Comedy Central, Playboy,
TV Guide, Sony Pictures, Universal and Paramount. WHN also built
and maintained a business-to-business licensed merchandise
retail exchange that managed the online product catalogs for
over 130 licensee/manufacturers and had over 5,000 retail
members. Mr. Fried also served as Chief Executive Officer
of WHN from July 1999 until June 2001. From December 1994 until
June 1996, Mr. Fried was President and Chief Executive
Officer of Savoy Pictures, a unit of Savoy Pictures
Entertainment, Inc. Mr. Fried led the turnaround of
Savoys motion picture and television departments, which
included marketing, distribution, business affairs, creative
development and physical production. Savoy Pictures
Entertainment was sold to Silver King Communications, which is
now a part of InterActive Corp, in 1996. From 1983 to 1990,
Mr. Fried held several executive positions including
Executive Vice President in charge of Production for Columbia
Pictures, Director of Film Finance and Special Projects for
Columbia Pictures and Director of Business Development at
Twentieth Century Fox. Mr. Fried holds an M.S. from Cornell
University and an M.B.A. from the Columbia University Graduate
School of Business.
Rao Uppaluri, Ph.D.,
CFA.
Dr. Uppaluri has served as our
Treasurer and a member of our board of directors since our
inception. He has served as the Chief Financial officer of Opko
Health, Inc. (formerly known as eXegenics Inc.) since the
consummation of its acquisitions of Acuity Pharmaceuticals Inc.
and Froptix Corporation on March 27, 2007. He is also a
member of The Frost Group. Dr. Uppaluri served as the Vice
President, Strategic Planning and Treasurer of IVAX from
February 1997 until December 2006. Before joining IVAX, from
1987 to August 1996, Dr. Uppaluri was Senior Vice
President, Senior Financial Officer and Chief Investment Officer
with Intercontinental Bank, a publicly traded commercial bank in
Florida. In addition, he served in various positions, including
Senior Vice President, Chief Investment Officer and Controller,
at Peninsula Federal Savings & Loan Association, a
publicly traded Florida S&L, from October 1983 to 1987. His
prior employment, during 1974 to 1983, included engineering,
marketing and research positions with multinational companies
and research institutes in India and the United States.
Dr. Uppaluri holds a B.S. and M.S. in Engineering from
Andhra University in India and an M.B.A. and Ph.D in Finance
from Indiana University.
Steven D. Rubin.
Mr. Rubin has
served as our Secretary and a member of our board of directors
since our inception. Mr. Rubin has served as Executive Vice
President-Administration and as a director of Opko Health, Inc.
(formerly known as eXegenics Inc.) since the consummation of its
acquisitions of Acuity Pharmaceuticals Inc. and Froptix
Corporation on March 27, 2007. He is also a member of The
Frost Group. Mr. Rubin served as the Senior Vice President,
General Counsel and Secretary of IVAX from August 2001 until
September 2006. Before joining IVAX, from January 2000 to August
2001, Mr. Rubin served as the Senior Vice President,
General Counsel and Secretary of privately-held Telergy, Inc., a
provider of business telecommunications and diverse optical
network solutions. He was with the Miami law firm of Stearns
Weaver Miller Weissler Alhadeff & Sitterson from 1986
until 2000, in the Corporate and Securities Department.
Mr. Rubin was a shareholder of that firm from 1991 until
2000 and a director from 1998 until 2000. Mr. Rubin
currently serves on the board of directors of Dreams, Inc., a
vertically-integrated sports products company, and Cellular
Technical Services, Inc., which recently acquired Safestitch
LLC, a medical device company. Mr. Rubin holds a B.A. in
Economics from Tulane University and a J.D. from the University
of Florida.
Thomas E. Beier.
Mr. Beier has
served as a member of our board of directors since our
inception. Mr. Beier served as Senior Vice President of
Finance and Chief Financial Officer of IVAX from October 1997
until August 2006. From December 1996 until October 1997,
Mr. Beier served as Senior Vice President of Finance of
IVAX. Before joining IVAX, Mr. Beier served as Executive
Vice President and Chief Financial Officer of Intercontinental
Bank from 1989 until August 1996. Mr. Beier holds a B.B.A.
in Accounting from the University of Miami.
Shawn Gold.
Mr. Gold has served as
a member of our board of directors since our inception.
Mr. Gold has served as Senior Vice President of Marketing
and Content for MySpace.com since February 2006. Before joining
MySpace.com, Mr. Gold co-founded Weblogs, Inc., a publisher
of professional Internet blogs, where he served as Publisher
from November 2004 until February 2006. From August 2000 until
July 2002, Mr. Gold
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served as the President of eUniverse.com, an Internet media
company. Before joining eUniverse.com, from early 1999 until
August 2000, Mr. Gold served as Vice President of Marketing
and Communications of WHN. From 1997 until 1999, Mr. Gold
served as head of strategic planning at Rare Medium, where he
created the inaugural interactive communication strategies for
P&G, General Foods, Mattel and Nestle. From 1995 until
1997, Mr. Gold founded and served as general manager for
Icon New Medias advertising division, publishing Word.com
and Charged.com, where he created the first interstitial ads on
the web and an industry-leading advertising system based on time
rotation and contextual integration. He started developing
interactive content in 1992 as a partner with TouchTunes
Interactive, a telecommunications music marketing service in the
USA, Japan and New Zealand. Mr. Gold holds a B.S. in
Finance from Syracuse University.
David H. Moskowitz.
Mr. Moskowitz
has served as a member of our board of directors since our
inception. Mr. Moskowitz has practiced law at his firm
David H. Moskowitz & Associates since 1984 and has
practiced law for more than 40 years. Mr. Moskowitz
holds a B.S. in accounting from Pennsylvania State University,
an L.L.B. from Villanova University and a D.Phil. from Oxford
University.
Special
Advisors
We also have several advisors that will assist us in
identifying, seeking and consummating a business combination.
These are as follows:
Thomas H. Baer.
Mr. Baer has
served as a director of Medici Arts, B.V., or Medici, a
Netherlands holding company, since its creation in September
2004, and as the Vice Chairman of Medici Arts, LLC since January
2007. Medici and its subsidiaries own EuroArts Music
International and Idéale Audience, companies that produce
and acquire audiovisual content in the classical and popular
music fields and distribute libraries of audiovisual content
that it owns or licenses, and Elektrofilm, a media services
company engaged by content owners and producers to perform post
production, distribution, digital media and library services.
Before joining Medici, Mr. Baer served as a consultant to
the chairman and chief executive officer of Liberty Livewire,
predecessor to Ascent Media, a media services company, from 2000
until 2001, and as a director of Four Media Company, prior to
its acquisition by Liberty Livewire in 2000. After serving as an
Assistant United States Attorney for the Southern District of
New York from 1961 until 1966, Mr. Baer founded
Baer & McGoldrick, now Schulte, Roth and Zabel, a law
firm with offices in New York and London, where he practiced in
the litigation, corporate, mergers and acquisitions, and
entertainment fields from 1969 until 1980, first as a member of
the firm and then as counsel to the firm. Since 1983,
Mr. Baer has been active as a motion picture producer and
as an executive in the entertainment and media space in
partnership with Michael H. Steinhardt. In 1994, Steinhardt Baer
Pictures Company, of which Mr. Baer is a General Partner,
acquired a minority interest in October Films, which has since
been acquired by Universal Pictures. Since 1983, Mr. Baer
has served variously as president of Kings Road Productions and
as a contract producer at Orion Pictures Corporation and
Universal Pictures. Mr. Baer is a graduate of Tufts
University and Yale Law School.
Jarl Mohn.
Mr. Mohn, also known as
Lee Masters, currently serves as Chairman of the Board of CNET,
a on-line publisher of special interest content. Mr. Mohn
also currently serves on the board of several media companies,
including The E.W. Scripps Company, XM Satellite Radio Holdings
Inc. and MobiTV, a television programming provider for mobile
telephone companies. Mr. Mohn founded and served as
President and Chief Executive Officer of Liberty Digital, Inc.,
a publicly-traded company that invested in mid-stage interactive
television, cable networks and internet enterprises, from June
1999 until March 2002. Before joining Liberty Digital, from
January 1990 until December 1998, Mr. Mohn founded and
served as President and Chief Executive Officer of E!
Entertainment Television. From 1986 until 1990, Mr. Mohn
served as Executive Vice President and General Manager of MTV
and VH1. Prior to his career in television, Mohn enjoyed a
successful
19-year
career in radio, where he was a disc jockey, programmer, general
manager and owner of a group of radio stations.
Barry A. Porter.
Mr. Porter is a
co-founder and a Managing General Partner of Clarity Partners
L.P., a private equity firm focused on investments in media,
communications and business services. Claritys
transactions have included growth investments, leveraged
acquisitions and
build-ups,
joint ventures, and recapitalizations. Mr. Porter also
serves on the investment committee of Clarity China, an
affiliated private equity firm focusing on investments in the
greater China region. Before the formation of Clarity,
Mr. Porter
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was a Managing Director of Pacific Capital Group from 1993 until
1997. While at Pacific Capital Group, Mr. Porter was a
co-founder of Global Crossing, a telecommunications company, and
he served in a variety of senior executive positions at Global
Crossing from 1997 to 2000 and on that companys Board of
Directors. Before joining Pacific Capital Group, Mr. Porter
was an investment banker at Bear, Stearns & Co. Inc.
from 1986 until 1993, where he became a Senior Managing Director
and was a co-head of the media and communications practice, head
of the gaming industries group and an active participant in the
firms high-yield activities. Before joining Bear,
Stearns & Co. Inc. Mr. Porter was an attorney at
Wyman, Bautzer, Rothman, Kuchel and Silbert in Los Angeles from
1983 until 1986, where he focused on media and entertainment
matters. Mr. Porter currently serves as a director on the
board of directors of BASE Entertainment, Liberation
Entertainment and Westec InterActive. He is also involved in a
variety of community organizations and is on the Board of the
Independent School Alliance for Minority Affairs and on the
Board of Public Counsel. Mr. Porter holds a J.D. and M.B.A
from the University of California, Berkeley, and a B.S. in
Finance and Political Science from the Wharton School of
Business, University of Pennsylvania.
The special advisors set forth above are not currently
affiliated with members of management. Except for the monthly
fee of $7,500 payable to Clarity described below, we have no
formal arrangements or agreements with these advisors to provide
services to us, and they have no fiduciary obligations to
present business opportunities to us. These special advisors
will simply provide advice, introductions to potential targets,
and assistance to us, at our request, only if they are able to
do so. Nevertheless, we believe that, with their business
background and extensive contacts, they will be helpful to our
search for a target business and our consummation of a business
combination.
Each of Messrs. Baer and Mohn and Nautilus Trust dtd
9/10/99,
the
grantor trust of Mr. Porter, is one of our initial
stockholders, and each has agreed to purchase insider warrants.
See Transactions with Related Persons. They have
agreed to waive any right to receive a liquidation distribution
with respect to the initial shares, to waive any right to
exercise conversion rights with respect to any shares of our
common stock owned or to be owned by them and to vote their
initial shares in accordance with the majority of the shares of
common stock voted by our public stockholders other than our
initial stockholders. Additionally, they have agreed to place
their initial shares and the insider warrants purchased by them
into an escrow account maintained by Continental Stock
Transfer & Trust Company, acting as escrow agent,
subject to certain transfer restrictions. For a discussion of
the transfer restrictions applicable to the initial shares and
the insider warrants, please see Principal
Stockholders. In addition, all of our initial
stockholders will be entitled to registration rights pursuant to
an agreement to be signed prior to or on the effective date of
this offering. For a description of these registration rights,
please see Transactions with Related Persons.
We have agreed to pay a monthly fee of $7,500 to Clarity for
office space and administrative and support services. Barry A.
Porter is a co-founder and Managing General Partner of Clarity,
and the grantor trust of Mr. Porter, Nautilus Trust dtd
9/10/99,
is
one of our initial stockholders. This arrangement is being
agreed to by Clarity for our benefit and is not intended to
provide Mr. Porter, any member of our management team, any
other special advisor or any of our directors with compensation
in lieu of a salary or other remuneration. We believe, based on
rents and fees for similar services in the Beverly Hills,
California area, that the fee charged by Clarity is at least as
favorable as we could have obtained from any unaffiliated person.
Number
and Terms of Directors
Unless we are or become subject to any applicable limitations
under Section 2115(b) of the California Corporations Code,
upon the consummation of this offering, our board of directors
will be 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 Steven D. Rubin and Shawn Gold, will
expire at our first annual meeting of stockholders. The term of
office of the second class of directors, consisting of Rao
Uppaluri and Thomas Beier, will expire at the second annual
meeting. The term of office of the third class of directors,
consisting of Dr. Phillip Frost, Robert N. Fried and David
H. Moskowitz, will expire at the third annual meeting. To the
extent that we are or become subject to any restrictions under
Section 2115(b) of the California Corporations Code
relating to our ability to have a staggered board of directors,
all of our directors will be elected at each annual meeting of
stockholders and will hold office until the next annual meeting.
For
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a discussion of the potential application of provisions of the
California Corporations Code, please see Description of
Securities Applicability of Provisions of California
Corporate Law.
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 transaction
expertise should enable them to successfully identify and effect
an acquisition although we cannot assure you that they will, in
fact, be able to do so.
Director
Independence
Our board of directors has determined that Thomas E. Beier,
Shawn Gold and David H. Moskowitz are independent
directors as such term is defined in
Rule 10A-3
of the Exchange Act and the rules of the American Stock
Exchange. The American Stock Exchange requires that a majority
of our board must be composed of independent directors. However,
since we are listing on the American Stock Exchange in
connection with our initial public offering, we are not required
to meet this requirement until one year following our listing on
the American Stock Exchange. We intend to appoint additional
members to our Board of Directors in the future to meet the
requirement that a majority of our Board of Directors be
independent within one year of our listing on the American Stock
Exchange. 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.
Audit
Committee
Effective upon consummation of this offering, we will establish
an audit committee of the board of directors, which will consist
of Thomas E. Beier, David H. Moskowitz and Steven D. Rubin.
Under the American Stock Exchange listing standards and
applicable rules of the Securities and Exchange Commission, we
are required to have an audit committee of at least three
members, each of whom must be independent. However, since we are
listing on the American Stock Exchange in connection with our
initial public offering, we are permitted to have one
independent member at the time of listing, a majority of
independent members within 90 days of listing and all
independent members within one year. Currently, two members of
the audit committee, Messrs. Beier and Moskowitz, are
independent. We intend to replace Mr. Rubin with an
independent member within one year of our listing on the
American Stock Exchange.
The audit committees responsibilities will include:
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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;
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discussing with management and the independent auditor
significant financial reporting issues and judgments made in
connection with the preparation of our financial statements;
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discussing with management major risk assessment and risk
management policies;
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monitoring the independence of the independent auditor;
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verifying the rotation of the lead (or coordinating) audit
partner having primary responsibility for the audit and the
audit partner responsible for reviewing the audit as required by
law;
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reviewing and approving all related-party transactions,
including, but not limited to, any involvement of Ladenburg
Thalmann & Co. Inc. in our business combination;
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inquiring and discussing with management our compliance with
applicable laws and regulations;
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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;
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appointing or replacing the independent auditor;
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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
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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.
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Financial
Experts on Audit Committee
Each member of the audit committee is financially sophisticated,
as required by the American Stock Exchange listing standards. In
addition, the board of directors has determined that
Mr. Beier qualifies as an audit committee financial
expert, as defined under the applicable rules of the
Securities and Exchange Commission.
Nominating
and Corporate Governance Committee
Effective upon consummation of this offering, we will establish
a nominating and corporate governance committee of the board of
directors, which will consist of Shawn Gold, David H. Moskowitz
and Steven D. Rubin. Under the American Stock Exchange listing
standards, each member of the nominating and corporate
governance committee must be independent, with limited
exceptions. However, since we are listing on the American Stock
Exchange in connection with our initial public offering, we are
permitted to have one independent member at the time of listing,
a majority of independent members within 90 days of listing
and all independent members within one year. Currently, two
members of the nominating and corporate governance committee,
Messrs. Gold and Moskowitz, are independent. We intend to
replace Mr. Rubin with an independent member within one
year of our listing on the American Stock Exchange. The
nominating and corporate governance committee is responsible for
overseeing the selection of persons to be nominated to serve on
our board of directors. The nominating and corporate governance
committee will consider persons identified by its members,
management, stockholders, investment bankers and others.
Guidelines
for Selecting Director Nominees
The nominating and corporate governance committee will consider
a number of qualifications relating to management, leadership
experience, background, integrity and professionalism in
evaluating a persons candidacy for membership on the board
of directors. The nominating and corporate governance 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 and corporate governance
committee will not distinguish among nominees recommended by
stockholders and other persons.
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.
Executive
Compensation
No executive officer has received any cash compensation for
services rendered to us. No compensation of any kind, including
finders, consulting or other similar fees, will be paid to
any of our initial stockholders, officers, directors or special
advisors, or any of their affiliates, for any services rendered
prior to or in connection with the consummation of a business
combination, other than the monthly fee of $7,500 for office
space and administrative and support services payable to
Clarity, a potential finders or success fee to Ladenburg
Thalmann & Co. Inc., an affiliate of Dr. Frost,
to the extent we enter into an agreement with such company in
connection with our search for a target business, and repayment
of non-interest bearing loans of $200,000 in the aggregate made
by certain of our initial stockholders. However, such
individuals will be reimbursed for any out-of-pocket expenses
incurred in connection with activities on our behalf such as
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identifying potential target businesses and performing due
diligence on suitable business combinations. Our audit committee
will review and approve all reimbursements made to our initial
stockholders, officers, directors or their affiliates, and any
reimbursements made to members of our audit committee will be
reviewed and approved by our board of directors, with any
interested director abstaining from such review and approval.
Such review will encompass an analysis of the corporate purposes
advanced by such expenses and their reasonableness as compared
to similar services or products that could have been procured
from an independent third party source. There is no limit on the
total amount of these out-of-pocket expenses reimbursable by us,
provided that members of our management team will not receive
reimbursement for any out-of-pocket expenses incurred by them to
the extent that such expenses exceed the amount held outside of
the trust account (initially, approximately $250,000) and
interest income on the trust account balance, net of taxes
payable on such interest, of up to $1,700,000 that may be
released to us to fund our expenses relating to investigating
and selecting a target business and other working capital
requirements, unless a business combination is consummated.
There will be no review of the reasonableness of the expenses
other than by our audit committee and, in some cases, by our
board of directors as described above, or if such reimbursement
is challenged, by a court of competent jurisdiction.
After the consummation of a business combination, our officers,
directors and special advisors who remain associated with us in
some capacity may be paid consulting, management or other fees
from the combined company with any and all amounts being fully
disclosed to stockholders, to the extent then known, in the
proxy solicitation materials furnished to our stockholders. It
is unlikely, however, that the amount of such compensation will
be known at the time of a stockholder meeting held to consider a
business combination, as it will be up to the directors of the
post-combination business to determine executive and director
compensation.
Conflicts
of Interest
Potential investors should be aware of the following potential
conflicts of interest:
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None of our officers and directors is required to commit any
specified amount of time to our affairs and, accordingly, they
may have conflicts of interest in allocating their time among
various business activities.
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Members of our management team and our directors may become
aware of business opportunities that may be appropriate for
presentation to us as well as the other entities with which they
are or may be affiliated. Due to affiliations with other
companies, members of our management team and our directors may
have fiduciary obligations to present potential business
opportunities to those entities prior to presenting them to us
which could cause conflicts of interest. Accordingly, members of
our management team and our directors may have conflicts of
interest in determining to which entity a particular business
opportunity should be presented. For example, Dr. Frost,
Dr. Uppaluri and Mr. Rubin have fiduciary obligations that
arise as a result of their affiliation with The Frost Group and
Opko Health, Inc. While neither The Frost Group nor Opko Health,
Inc. presently intends to make acquisitions in the digital media
sector, to the extent that we consider a business combination
outside of the digital media sector, we may compete with The
Frost Group or Opko Health, Inc. in pursuing a business
combination. Additionally, Dr. Frost owns an equity
interest in the general partner and in the limited partnership
of Peregrine VC Investments II, a private venture capital fund
based in Israel that invests primarily in early-stage Israeli
technology companies, The Florida Value Fund LLLP, a
private equity fund focused on mid-market companies in the State
of Florida, and Calex Equity Partners, LP, an equity fund with a
value orientation. The investment focus of Peregrine VC
Investments II is on acquiring non-controlling interests of
companies, and the targeted aggregate capital of such fund is
$20 million. The investments of The Florida Value
Fund LLLP range between $1 million and $4 million
per company in the form of either equity or mezzanine debt. The
investment focus of Calex Equity Partners, L.P. is to maximize
total returns by taking long and short non-controlling positions
in primarily equity securities of U.S. and foreign public
companies. Accordingly, based on the investment criteria of
Peregrine VC Investments II, The Florida Value Fund LLLP
and Calex Equity Partners, LP, we do not expect to compete with
those funds in our search for a target business or businesses.
In
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71
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addition, Messrs. Fried and Gold have fiduciary duties to
Fried Films and Myspace.com, respectively. Fried Films only
acquires motion picture screenplays, and, as a result, we do not
expect to compete with such company in our search for a target
business or businesses. Because Myspace.com operates in the
digital media sector, Mr. Gold may have conflicts of
interest in determining to which entity a particular business
opportunity should be presented. To the extent that
Mr. Gold identifies a suitable business opportunity that
may be suitable for us and Myspace.com, he will honor his
pre-existing fiduciary obligations to Myspace.com. For a
description of our management teams and our
directors existing affiliations, please see the previous
section entitled Directors and Executive Officers.
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Our officers, directors and special advisors 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. Additionally, our
officers, directors and special advisors may organize, promote
or become involved with other blank check companies, including
blank check companies with a focus on the digital media sector,
either before or after our consummation of a business
combination.
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After the consummation of this offering, in connection with our
search for a target business, we may enter into an agreement
with Ladenburg Thalmann & Co. Inc., an investment
banking and securities brokerage firm and a subsidiary of
Ladenburg Thalmann Financial Services Inc., that provides for
the payment of a finders or success fee. Dr. Frost,
our Chairman of the Board, is the Chairman of the Board of
Ladenburg Thalmann Financial Services Inc. and a significant
stockholder of Ladenburg Thalmann Financial Services Inc. To
date, we have not entered into any agreements with Ladenburg
Thalmann & Co. Inc., and we have not had any
discussions with Ladenburg Thalmann & Co. Inc.
regarding potential acquisitions. In no instance will we pay
Ladenburg Thalmann & Co. Inc. a finders fee for
a referral involving a business opportunity that was brought to
the attention of Ladenburg Thalmann & Co. Inc.
initially by any of our officers, directors or special advisors,
including Dr. Frost. While Ladenburg Thalmann &
Co. Inc. may be involved in our business combination, neither
its role nor its proposed fee structure has been determined.
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The initial shares and insider warrants owned by our initial
stockholders, which includes our officers, directors and special
advisors, will be released from escrow only if a business
combination is successfully completed. In addition, the insider
warrants purchased by our initial stockholders and any warrants
which our initial stockholders may purchase in this offering or
in the aftermarket will expire worthless if an initial business
combination is not consummated. Additionally, our initial
stockholders will not receive liquidation distributions with
respect to any of their initial shares. For the foregoing
reasons, our board of directors may have a conflict of interest
in determining whether a particular target business is
appropriate for us and our stockholders.
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Our officers and directors may have a conflict of interest with
respect to evaluating a particular business combination if the
retention or resignation of any such officers and directors were
included by a target business as a condition to any agreement
with respect to an initial business combination. Additionally,
our officers and directors may enter into employment or
consulting agreements with us in connection with a business
combination pursuant to which they may be entitled to
compensation for any services provided following such business
combination. The personal and financial interests of our
officers and directors may influence their motivation in
identifying and selecting a target business.
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The ability of the holders of our insider warrants to exercise
the insider warrants on a cashless basis if we call such
warrants for redemption may cause a conflict of interest in
determining when to call the warrants for redemption as they
would potentially be able to avoid any negative price pressure
on the price of the warrants and common stock due to the
redemption through a cashless exercise.
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Our initial stockholders, officers, directors and special
advisors 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.
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Our special advisors have no fiduciary obligations to us.
Therefore, they have no obligation to present business
opportunities to us at all and will only do so if they believe
it will not violate any fiduciary obligations they have. For a
description of our special advisors existing affiliations,
please see the previous section entitled Special
Advisors.
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72
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:
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the corporation could financially undertake the opportunity;
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the opportunity is within the corporations line of
business; and
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it would not be fair to the corporation and its stockholders for
the opportunity not to be brought to the attention of the
corporation.
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Accordingly, as a result of multiple business affiliations, our
officers and directors may have similar legal obligations
relating to presenting business opportunities to multiple
entities. In addition, conflicts of interest may arise when our
board evaluates a particular business opportunity. We cannot
assure you that any of the above mentioned conflicts will be
resolved in our favor.
Each of our officers, directors and special advisors has, or may
come to have, to a certain degree, other fiduciary obligations.
Members of our management team, our directors and our special
advisors have fiduciary obligations to other companies on whose
board of directors they presently sit, or may have obligations
to companies whose board of directors they may join in the
future. To the extent that they identify business opportunities
that may be suitable for us or other companies on whose board of
directors they may sit, our officers, directors and special
advisors will honor those fiduciary obligations. Accordingly,
they may not present opportunities to us that come to their
attention in the performance of their duties as directors of
such other entities unless the other companies have declined to
accept such opportunities or clearly lack the resources to take
advantage of such opportunities. See
Management Directors and Executive
Officers and Management Special
Advisors.
In order to minimize potential conflicts of interest which may
arise from multiple corporate affiliations, each of our officers
and directors has agreed, until the earliest of a business
combination, our liquidation or such time as he ceases to be an
officer or a director, to present to us 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 initial stockholders, which includes our
officers, directors and special advisors, have agreed to vote
their respective shares of common stock which were owned prior
to this offering 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 their initial shares. Any common
stock acquired by our initial 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 initial
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.
In the event we consider a target business affiliated with a
member of our board of directors, we would establish a special
committee consisting of disinterested members of our board of
directors to oversee the negotiations with such affiliated
entity and evaluate and vote upon the business combination. 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 initial stockholders, which includes
our officers, directors and special advisors, unless we obtain
an opinion from an unaffiliated, independent investment banking
firm that the business combination is fair to our stockholders
from a financial perspective. Accordingly, to the extent any of
our initial stockholders are affiliated with an entity that is a
portfolio company of, or that has received a financial
investment from, any company that is affiliated with our initial
stockholders, we would not consummate a business combination
with such entity unless we obtained an opinion from an
unaffiliated, independent investment banking firm that the
business combination is fair to our stockholders from a
financial perspective. We currently do not anticipate entering
into a business combination with an entity affiliated with our
management team or our initial stockholders.
In no event will we pay any of our initial stockholders,
officers, directors or special advisors, or any entity with
which they are affiliated, any finders fee, consulting fee
or other compensation for services rendered to us, prior to, or
in connection with, the consummation of a business combination
(regardless of the
73
type of transaction that it is), other than the monthly fee of
$7,500 for office space and administrative and support services
payable to Clarity, a potential finders or success fee to
Ladenburg Thalmann & Co. Inc., an affiliate of
Dr. Frost, to the extent we enter into an agreement with
such company in connection with our search for a target
business, and repayment of non-interest bearing loans of
$200,000 in the aggregate made by certain of our initial
stockholders. In addition, our initial stockholders, officers,
directors and special advisors have agreed that neither they,
nor any of their affiliates, will accept a finders fee,
consulting fee or any similar fees from any person or other
entity in connection with the consummation of a business
combination, other than a finders or success fee payable
to Ladenburg Thalmann & Co. Inc., to the extent the
Company enters into an agreement with Ladenburg Thalmann in
connection with the Companys search for a target business,
and compensation or fees that may be received for any services
provided following such business combination.
74
The following table sets forth information regarding the
beneficial ownership of our common stock as of October 29,
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 or entities listed below purchase units
offered by this prospectus), by:
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each person known by us to be the beneficial owner of more than
5% of our outstanding shares of common stock;
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each of our officers and directors; and
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all our officers and directors as a group.
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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.
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Prior to Offering
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After Offering
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and Private Placement
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and Private Placement(2)(3)
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Amount and
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Approximate
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Amount and
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Approximate
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Nature of
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Percentage of
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Nature of
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Percentage of
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Name and Address of Beneficial
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Beneficial
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Outstanding
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Beneficial
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Outstanding
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Owner(1)
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Ownership
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Common Stock
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Ownership
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Common Stock
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Officers and Directors
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Dr. Phillip Frost, M.D.(4)
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1,359,000
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54.4
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%
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1,359,000
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10.9
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%
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Robert N. Fried
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617,500
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24.7
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%
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617,500
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4.9
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%
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Rao Uppaluri
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154,500
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6.2
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%
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154,500
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1.2
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%
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Steven D. Rubin
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154,500
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6.2
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%
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154,500
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1.2
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%
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Thomas E. Beier
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10,000
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*
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10,000
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*
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Shawn Gold
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10,000
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*
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10,000
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*
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David H. Moskowitz
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10,000
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*
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10,000
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*
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All directors and executive officers as a group (7 individuals)
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2,315,500
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92.6
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%
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2,315,500
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18.5
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%
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5% Holders
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Frost Gamma Investments Trust(5)
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1,359,000
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54.4
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%
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1,359,000
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10.9
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%
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Jane Hsiao
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154,500
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6.2
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%
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154,500
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1.2
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%
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*
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Less than 1.0%
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(1)
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Unless otherwise indicated, the business address of each of the
individuals is 100 North Crescent Drive, Beverly Hills,
California 90210.
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(2)
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Does not reflect 2,400,000 shares of common stock issuable
upon exercise of warrants held by certain of our initial
stockholders, which are not exercisable until the later of our
completion of a business combination and one year from the date
of this prospectus.
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(3)
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Does not reflect the 250,000 units which may be purchased by
certain of our initial stockholders in this offering.
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(4)
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The number of shares beneficially owned by Dr. Frost
includes shares of common stock beneficially owned by Frost
Gamma Investments Trust, of which Frost Gamma Limited
Partnership is the sole and exclusive beneficiary.
Dr. Frost is one of two limited partners of Frost Gamma
Limited Partnership. The general partner of Frost Gamma Limited
Partnership is Frost Gamma, Inc. and the sole shareholder of
Frost Gamma, Inc. is Frost-Nevada Corporation. Dr. Frost is
also the sole shareholder of Frost-Nevada Corporation.
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(5)
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The business address of Frost Gamma Investments Trust is 4400
Biscayne Blvd., Suite 1500, Miami, Florida 33137. Frost
Gamma Limited Partnership is the sole and exclusive beneficiary
of Frost Gamma Investments Trust. Dr. Frost is one of two
limited partners of Frost Gamma Limited Partnership. The general
partner of Frost Gamma Limited Partnership is Frost Gamma, Inc.
and the sole shareholder of Frost Gamma, Inc. is Frost-Nevada
Corporation. Dr. Frost is also the sole shareholder of
Frost-Nevada Corporation.
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75
Immediately after this offering, and assuming the purchase by
certain of our initial stockholders of 250,000 units in this
offering, our initial stockholders will own an aggregate of 22%
of the then issued and outstanding shares of our common stock.
Because of the ownership block held by our initial 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 a business
combination.
Our initial stockholders have agreed to purchase 2,400,000
warrants, each exercisable for one share of our common stock, at
a purchase price of $1.00 per warrant, in a private placement
that will occur simultaneously with the consummation of this
offering. The insider warrants will be identical to the warrants
included in the units being offered by this prospectus except
that if we call the warrants for redemption, the insider
warrants will be exercisable on a cashless basis so long as they
are still held by our initial stockholders or their affiliates.
The insider warrants were priced in relation to prices paid by
insider purchasers of other similar blank check companies for
comparable warrants of such other blank check companies offered
on similar terms.
On or prior to the date of this prospectus, all of our initial
stockholders will place the initial shares and the insider
warrants into an escrow account maintained by Continental Stock
Transfer & Trust Company, acting as escrow agent.
The initial shares will not be released from escrow until one
year after the consummation of a business combination, or
earlier if, following a business combination, we engage in a
subsequent transaction resulting in our stockholders having the
right to exchange their shares for cash or other securities or
if we liquidate and dissolve. The insider warrants will not be
released from escrow until 90 days after the completion of
our business combination. Except as described below, the initial
shares and the insider warrants will not be transferable during
the applicable escrow period.
Our initial stockholders are permitted, subject to applicable
securities laws, to transfer all or a portion of the initial
shares and insider warrants held by them to members of our
management team, our employees and other persons or entities
affiliated with members of our management team and employees. In
addition, our initial stockholders may transfer the initial
shares and insider warrants held by them in certain other
limited circumstances, such as to immediate family members and
to trusts for estate planning purposes, and any entity holding
initial shares or insider warrants may transfer such securities
to persons or entities controlling, controlled by, or under
common control with such entity, or to any stockholder, member,
partner or limited partner of such entity. Transferees receiving
initial shares or insider warrants must agree to be subject to
the transfer restrictions described above. Additionally,
transferees receiving initial shares must agree to waive any
right to receive a liquidation distribution with respect to the
initial shares in the event of our liquidation, to waive any
right to exercise conversion rights with respect to the initial
shares and to vote the initial shares in accordance with the
majority of the shares of common stock voted by our public
stockholders other than our initial stockholders.
During the escrow period applicable to the initial shares, our
initial stockholders will retain their 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 initial stockholders will receive any
portion of the liquidation proceeds with respect to their
initial shares.
Certain of our initial stockholders have indicated that they may
purchase up to 250,000 units in this offering at a price equal
to the public offering price of $8.00 per unit (for an aggregate
purchase price of $2,000,000). If such initial stockholders
purchase such units from the underwriters, we will receive the
entire aggregate gross proceeds from this purchase and the
underwriters will not receive any underwriting discounts or
commissions on these units. If our initial stockholders do not
purchase such units, they will be sold to the public.
76
TRANSACTIONS
WITH RELATED PERSONS
On June 12, 2007, in connection with the formation of our
company, we issued 2,500,000 shares of our common stock to
our initial stockholders for $0.01 per share or a total of
$25,000. Additionally, our initial stockholders have agreed to
purchase warrants exercisable for 2,400,000 shares of our
common stock, for $1.00 per warrant or a total of $2,400,000, in
a private placement that will occur simultaneously with the
consummation of this offering. The table below sets forth the
number of initial shares purchased and the number of insider
warrants to be purchased by each of our initial stockholders.
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Number of
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Number of
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Name
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Initial Shares
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Insider Warrants
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Frost Gamma Investments Trust(1)
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1,359,000
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1,320,000
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Robert N. Fried
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|
617,500
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550,000
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|
Rao Uppaluri
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|
|
154,500
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|
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|
150,000
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|
Steven D. Rubin
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|
|
154,500
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|
|
|
150,000
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|
Jane Hsiao
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|
|
154,500
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|
|
|
150,000
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|
Thomas E. Beier
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|
|
10,000
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|
|
|
5,000
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|
Shawn Gold
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|
|
10,000
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|
|
|
5,000
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|
David H. Moskowitz
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|
|
10,000
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|
|
|
5,000
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|
Thomas H. Baer
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|
|
10,000
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|
|
|
5,000
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|
Jarl Mohn
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|
|
10,000
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|
|
|
30,000
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|
Nautilus Trust dtd 9/10/99(2)
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|
|
10,000
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|
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|
30,000
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|
|
|
|
|
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|
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|
Total
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|
2,500,000
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|
|
|
2,400,000
|
|
|
|
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|
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|
(1)
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|
The beneficiary of Frost Gamma Investments Trust is an entity
controlled by Dr. Phillip Frost, M.D.
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|
(2)
|
|
Nautilus Trust dtd 9/10/99 is the grantor trust of Barry A.
Porter.
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The proceeds from the sale of the insider warrants will be
deposited in the trust account pending our completion of a
business combination. The insider warrants will be identical to
the warrants included in the units being offered by this
prospectus except that if we call the warrants for redemption,
the insider warrants will be exercisable on a cashless basis so
long as such warrants are held by our initial stockholders or
their affiliates. Our initial stockholders have agreed that the
insider warrants will not be sold or transferred by them until
90 days after we have completed a business combination,
provided however that transfers can be made to certain permitted
transferees who agree in writing to be bound by such transfer
restrictions. Accordingly, the insider warrants will be placed
in escrow and will not be released until 90 days after the
completion of a business combination. Lazard Capital Markets LLC
has no intention of waiving these restrictions.
The holders of the 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 will be entitled to make up to two
demands that we register such securities. As the initial shares
will be released from escrow one year after the consummation of
a business combination, our initial stockholders will be able to
make a demand for registration of the resale of their initial
shares at any time commencing nine months after the consummation
of a business combination. Additionally, our initial
stockholders will be able to elect to exercise these
registration rights with respect to the insider warrants (and
underlying securities) at any time after we consummate a
business combination. In addition, the holders will 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.
We have agreed to pay Clarity a monthly fee of $7,500 for office
space and administrative and support services. Barry A. Porter,
one of our special advisors, is a co-founder and Managing
General Partner of Clarity, and the grantor trust of
Mr. Porter, Nautilus Trust dtd
9/10/99,
is
one of our initial stockholders. This
77
arrangement is being agreed to by Clarity for our benefit and is
not intended to provide Mr. Porter, any member of our
management team, any other special advisor or any of our
directors with compensation in lieu of a salary or other
remuneration. We believe, based on rents and fees for similar
services in the Beverly Hills, California area, that the fee
charged by Clarity is at least as favorable as we could have
obtained from any unaffiliated person.
Frost Gamma Investments Trust, Robert N. Fried, Rao Uppaluri,
Steven D. Rubin and Jane Hsiao have agreed to loan a total of
$200,000 to us for the payment of offering expenses. The loans
bear no interest and are due on the earlier of June 12,
2008 or the consummation of this offering. The loans will be
repaid out of the proceeds of this offering available to us for
payment of offering expenses.
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. Our audit committee will review and approve all
reimbursements made to our initial stockholders, officers,
directors or their affiliates, and any reimbursements made to
members of our audit committee will be reviewed and approved by
our board of directors, with any interested director abstaining
from such review and approval. Such review will encompass an
analysis of the corporate purposes advanced by such expenses and
their reasonableness as compared to similar services or products
that could have been procured from an independent third party
source. There is no limit on the total amount of out-of-pocket
expenses reimbursable by us, provided that members of our
management team will not receive reimbursement for any
out-of-pocket expenses incurred by them to the extent that such
expenses exceed the amount held outside of the trust account
(initially, approximately $250,000) and interest income on the
trust account balance, net of taxes payable on such interest, of
up to $1,700,000 that may be released to us to fund our expenses
relating to investigating and selecting a target business and
other working capital requirements, unless a business
combination is consummated. Additionally, there will be no
review of the reasonableness of the expenses other than by our
audit committee and, in some cases, by our board of directors as
described above, or if such reimbursement is challenged, by a
court of competent jurisdiction.
No compensation of any kind, including finders, consulting
or other similar fees, will be paid to any of our initial
stockholders, officers, directors or special advisors, or any of
their affiliates, for any services rendered prior to or in
connection with the consummation of a business combination,
other than the monthly fee of $7,500 for office space and
administrative and support services referred to above, a
potential finders or success fee to Ladenburg
Thalmann & Co. Inc., an affiliate of Dr. Frost,
to the extent we enter into an agreement with such company in
connection with our search for a target business, and repayment
of non-interest bearing loans of $200,000 in the aggregate made
by certain of our initial stockholders.
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 disinterested independent
directors 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 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.
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DESCRIPTION
OF SECURITIES
General
As of the consummation of this offering, we will be authorized
to issue 50,000,000 shares of common stock, par value
$0.0001 per share, and 1,000,000 shares of preferred stock,
par value $0.0001 per share. As of the date of this prospectus,
2,500,000 shares of common stock are outstanding, held by
11 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 Lazard Capital Markets LLC informs us of its
decision to allow earlier separate trading (based upon its
assessment of the relative strengths of the securities markets
and small capitalization companies in general and the trading
pattern of, and demand for, our securities in particular),
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 Lazard Capital Markets LLC 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 initial stockholders, which includes our officers,
directors and special advisors, 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 initial stockholders,
officers and directors. Additionally, our initial 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.
Unless we are or become subject to any applicable limitations
under Section 2115(b) of the California Corporations Code,
upon the consummation of this offering, our board of directors
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. 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. To the
extent that we are or become subject to any provisions of the
California Corporations Code which would require cumulative
voting, then we will allow our stockholders to cumulate their
votes in accordance with applicable law. For a discussion of the
potential application of provisions of the California
Corporations Code, please see Applicability of Provisions
of California Corporate Law below.
As required by our amended and restated certificate of
incorporation, if we do not consummate a business combination by
November 19, 2009, 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
79
stockholders are entitled to share ratably in the aggregate
amount then on deposit in the trust account, before payment of
deferred underwriting discounts and commissions and including
any interest earned on their pro rata portion of the trust
account, net of taxes payable on such interest, and net of
interest income, net of taxes payable on such interest, of up to
$1,700,000 of the interest income on the trust account balance
released to us as described above to fund our working capital
requirements and pay any of our tax obligations, and any net
assets remaining available for distribution to them after
payment of liabilities. Our initial stockholders have waived
their rights to participate in any liquidation 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
As of the consummation of this offering, our amended and
restated certificate of incorporation will authorize 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. Each warrant entitles the
registered holder to purchase one share of our common stock at a
price of $6.00 per share, subject to adjustment as discussed
below, at any time commencing on the later of:
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the completion of a business combination; and
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one year from the date of this prospectus.
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The warrants will expire four years from the date of this
prospectus at 5:00 p.m., New York City time.
Once the warrants become exercisable, we may call the warrants
for redemption (including any of the insider warrants and any
outstanding warrants issued upon exercise of the unit purchase
option issued to Lazard Capital Markets LLC), without the
consent of the underwriters,
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in whole and not in part,
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at a price of $0.01 per warrant,
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upon not less than 30 days prior written notice of
redemption, and
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if, and only if, the last sale price of the common stock equals
or exceeds $11.50 per share (appropriately adjusted for any
stock split, reverse stock split, stock dividend or other
reclassification or combination of our common stock) for any 20
trading days within a 30 trading day period ending three
business days before we send the notice of redemption,
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provided
that we have an effective registration statement
under the Securities Act covering the shares of common stock
issuable upon exercise of the warrants and a current prospectus
relating to them is available throughout the 30 day notice of
redemption period.
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 holders 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 degree of liquidity to cushion the market reaction to
our redemption call.
If we call the warrants for redemption as described above, we
have agreed to allow our initial stockholders, or their
affiliates, to exercise the insider warrants on a cashless
basis. If the holders take advantage of this option, they
would pay the exercise price by surrendering their insider
warrants for the net value of the warrants in shares of common
stock based on the fair market value of our common stock. For
purposes of the cashless exercise feature, fair market value
means the average reported last sale price of the common stock
for the 10 trading days ending on the third trading day prior to
the date on which the notice of redemption is sent to holders of
warrants. Accordingly, if a holder surrendered insider warrants
exercisable for 100 shares of our common stock at an
exercise price of $6.00 per share, and the fair market value of
our common stock was $10.00, then the net value of the warrant
would be $400 (the difference between the fair market value and
the exercise price multiplied by the number of shares underlying
the warrants), and such holder would receive 40 shares (the
net value of the warrants divided by the fair market value of
our common stock). The reason that we have agreed that the
insider warrants will be exercisable on a cashless basis so long
as they are held by our initial stockholders or their affiliates
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 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 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. You should review
a copy of the warrant agreement, which has been filed as an
exhibit to the registration statement of which this prospectus
is a part, for a complete description of the terms and
conditions applicable to the warrants.
The exercise price and number of shares of common stock issuable
on exercise of the warrants may be adjusted in certain
circumstances including in the event of a stock dividend, 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 at any time after they become
exercisable 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, in cash or by certified or
official bank check payable to us, for the number of warrants
being exercised. The warrant holders do not have the rights or
privileges of holders of common stock and any voting rights
until they exercise their warrants and receive shares of common
stock. After the issuance of shares of common stock upon
exercise of the warrants, each holder will be entitled to one
vote for each share held of record on all matters to be voted on
by stockholders.
No warrants will be exercisable and we will not be obligated to
issue shares of common stock unless, at the time a holder seeks
to exercise such warrant, a prospectus relating to the common
stock issuable upon exercise of the warrants is current and the
common stock has been registered or qualified or deemed to be
81
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. If the warrants expire worthless, this would
mean that a person who paid $8.00 for a unit in our initial
public and who did not sell the warrants included in the unit
would have effectively paid $8.00 for one ordinary share.
Because the warrants will not be exercisable without an
effective registration statement covering the shares underlying
the warrants, we will not call the warrants for redemption
unless there is an effective registration statement in place.
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.
The insider warrants to be purchased by our initial stockholders
will be identical to the warrants included in the units being
offered by this prospectus except that if we call the warrants
for redemption, the insider warrants will be exercisable on a
cashless basis so long as they are still held by our initial
stockholders or their affiliates. The insider warrants will be
purchased separately and not in combination with the common
stock or in the form of units. Our initial stockholders have
agreed that the insider warrants will not be sold or transferred
by them until 90 days after we have completed a business
combination, provided however that transfers can be made to
certain permitted transferees who agree in writing to be bound
by such transfer restrictions. Accordingly, the insider warrants
will be placed in escrow and will not be released until
90 days after the completion of a business combination.
The proceeds from the sale of the insider warrants will be added
to the proceeds from this offering to be held in the trust
account pending our completion of one or more business
combinations. If we do not complete one of more business
combinations that meet the criteria described in this
prospectus, then the $2,400,000 purchase price of the insider
warrants will become part of the liquidating distribution to our
public stockholders, and the insider warrants will expire
worthless.
Purchase
Option
We have agreed to sell to the representative of the underwriters
an option to purchase up to a total of 500,000 units at
$10.00 per unit. The units issuable upon exercise of this option
are identical to those offered by this prospectus, except that
each of the warrants issued as part of such units will entitle
the holder to purchase one share of our common stock at a price
of $7.00.
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.
Applicability
of Provisions of California Corporate Law
Although we are incorporated in Delaware, we may be subject to
Section 2115(b) of the California Corporations Code, which
imposes various requirements of California corporate law on
non-California
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corporations if such corporations have characteristics of
ownership and operations indicating significant contacts with
the State of California. Public companies listed or qualified
for trading on a recognized national securities exchange, such
as the New York Stock Exchange, American Stock Exchange or the
Nasdaq National Market, are generally exempt from
Section 2115(b). Although we have applied to have our units
listed on the American Stock Exchange, we cannot assure you that
our securities will be listed or will continue to be listed on
the American Stock Exchange. Among the key provisions of
California corporate law that may apply to us is the right of
our stockholders to cumulate votes in the election of directors,
limitations on the effectiveness of supermajority voting
provisions contained in a corporations charter documents
and limitations on a corporations ability to have a
staggered board of directors.
In May 2005, the Delaware Supreme Court in
Vantage Point
Venture Partners 1996 v. Examen, Inc.
held that
Section 2115(b) violates the Delaware internal affairs
doctrine, which provides that only the State of Delaware has the
authority to regulate a Delaware corporations internal
affairs, and thus Section 2115(b) does not apply to
Delaware corporations. If followed by California courts, this
ruling would mean that the cumulative voting requirements and
other sections of the California Corporations Code do not apply
to us. To the extent that we are or become subject to any
provisions of the California Corporations Code which would
require cumulative voting, then we will allow our stockholders
to cumulate their votes in accordance with applicable law. If we
allow our stockholders to cumulate their votes in the election
of directors, they will be entitled to as many votes as shall
equal the number of shares of common stock held by them
multiplied by the number of directors to be elected, and they
will be permitted to cast all of their votes for a single
nominee or to distribute their votes among two or more nominees.
Additionally, certain provisions of California law limit the
effectiveness of supermajority voting provisions and these
provisions may also apply to us as a result of
Section 2115(b). In addition, if we are or become subject
to any restrictions under Section 2115(b) of the California
Corporations Code relating to our ability to have a staggered
board of directors, then all our directors will be elected at
each annual meeting of stockholders and will hold office until
the next annual meeting.
Our
Transfer Agent and Warrant Agent
The transfer agent for our securities and warrant agent for our
warrants is Continental Stock Transfer &
Trust Company, 17 Battery Place, New York, New York 10004.
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 IDI.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 IDI and
IDI.WS, respectively.
Certain
Anti-takeover Provisions of Delaware Law and our Amended and
Restated Certificate of Incorporation and Bylaws
Upon the closing of this offering, we will be governed by the
provisions of Section 203 of the Delaware General
Corporation Law, which generally has an anti-takeover effect for
transactions not approved in advance by our board of directors.
This may discourage takeover attempts that might result in
payment of a premium over the market price for the shares of
common stock held by stockholders. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in
a business combination with an interested
stockholder for a three-year period following the time
that such stockholder becomes an interested stockholder, unless
the business combination is approved in a prescribed manner. A
business combination, under Section 203,
includes, among other things, a merger, asset or stock sale or
other transaction resulting in a financial benefit to the
interested stockholder. An interested stockholder is
a person who, together with affiliates and associates, owns, or
did own within three years prior to the determination of
interested stockholder status, 15% or more of the
corporations voting stock.
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Under Section 203, a business combination between a
corporation and an interested stockholder is prohibited unless
it satisfies one of the following conditions:
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before the stockholder became interested, the board of directors
approved either the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder; or
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upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the voting stock
outstanding, shares owned by persons who are directors and also
officers, and employee stock plans, in some instances; or
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at or after the time the stockholder became interested, the
business combination was approved by the board of directors of
the corporation and authorized at an annual or special meeting
of the stockholders by the affirmative vote of at least
two-thirds of the outstanding voting stock which is not owned by
the interested stockholder.
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Staggered
Board of Directors
Unless we are or become subject to any applicable limitations
under Section 2115(b) of the California Corporations Code,
upon the consummation of this offering, our board of directors
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. As a result, in most circumstances,
a person can gain control of our board only by successfully
engaging in a proxy contest at two or more annual meetings.
Stockholder
Action; Special Meeting of Stockholders
Our amended and restated certificate of incorporation provides
that our stockholders will not be able to take any action by
written consent subsequent to the consummation of this offering,
but will only be able to take action at duly called annual or
special meetings of stockholders. Our bylaws further provide
that special meetings of our stockholders may only be called by
our board of directors with a majority vote of our board of
directors, by our Chairman or Chief Executive Officer and will
be called by our President or Secretary upon the written request
of the holders of a majority of the outstanding shares of our
common stock.
Advance
Notice Requirements for Stockholder Proposals and Director
Nominations
Our bylaws provide that stockholders seeking to bring business
before our annual meeting of stockholders, or to nominate
candidates for election as directors at our annual meeting of
stockholders, must provide timely notice of their intent in
writing. To be timely, a stockholders notice will need to
be delivered to our principal executive offices not less than
90 days nor more than 120 days prior to the first
anniversary of the preceding years annual meeting of
stockholders. For the first annual meeting of stockholders after
the closing of this offering, a stockholders notice shall
be timely if delivered to our principal executive offices not
later than the 10th day following the day on which public
announcement of the date of our annual meeting of stockholders
is first made or sent by us. Our bylaws also specify certain
requirements as to the form and content of a stockholders
meeting. These provisions may preclude our stockholders from
bringing matters before our annual meeting of stockholders or
from making nominations for directors at our annual meeting of
stockholders.
Authorized
but Unissued Shares
Our authorized but unissued shares of common stock and preferred
stock are available for future issuances without stockholder
approval and could be utilized for a variety of corporate
purposes, including future offerings to raise additional
capital, acquisitions and employee benefit plans. The existence
of authorized but unissued and unreserved common stock and
preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest,
tender offer, merger or otherwise.
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Removal
of Directors
Our bylaws provide that a director on our board of directors may
be removed from office only for cause and only by the
affirmative vote of the holders of a majority of the shares then
entitled to vote at an election of our directors.
Limitation
on Liability and Indemnification of Directors and
Officers
Our amended and restated certificate of incorporation provides
that our directors and officers will be indemnified by us to the
fullest extent authorized by Delaware law as it now exists or
may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with their service
for or on our behalf. In addition, our amended and restated
certificate of incorporation provides that our directors will
not be personally liable for monetary damages to us for breaches
of their fiduciary duty as directors, unless they violated their
duty of loyalty to us or our stockholders, acted in bad faith,
knowingly or intentionally violated the law, authorized unlawful
payments of dividends, unlawful stock purchases or unlawful
redemptions, or derived an improper personal benefit from their
actions as directors.
Our bylaws also will permit us to secure insurance on behalf of
any officer, director or employee for any liability arising out
of his or her actions, regardless of whether Delaware law would
permit indemnification. We will purchase a policy of
directors and officers liability insurance that
insures members of our management team against the cost of
defense, settlement or payment of a judgment in some
circumstances and insures us against our obligations to
indemnify the directors and officers.
These provisions may discourage stockholders from bringing a
lawsuit against our directors for breach of their fiduciary
duty. These provisions also may have the effect of reducing the
likelihood of derivative litigation against directors and
officers, even though such an action, if successful, might
otherwise benefit us and our stockholders. Furthermore, a
stockholders investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against
directors and officers pursuant to these indemnification
provisions. We believe that these provisions, the insurance and
the indemnity agreements are necessary to attract and retain
talented and experienced directors and officers.
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.
Shares
Eligible for Future Sale
Immediately after this offering, we will have
12,500,000 shares of common stock outstanding, or
14,000,000, shares if the over-allotment option is exercised in
full. Of these shares, the 10,000,000 shares sold in this
offering, or 11,500,000 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. 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 the 2,500,000 shares of common stock
included in the initial shares will be placed in escrow. Such
shares will not be transferable for a period of one year
following our consummation of a business combination and will be
released prior to that date only upon a subsequent transaction
resulting in our stockholders having the right to exchange their
shares for cash or other securities, provided however that
transfers can be made to certain permitted transferees who agree
in writing to be bound by such transfer restrictions.
Additionally, our initial stockholders have agreed that the
insider warrants will not be sold or transferred by them until
90 days after we have completed a business combination,
provided however that transfers can be made to certain permitted
transferees who agree in writing to be bound by such transfer
restrictions. Such insider warrants will be placed in escrow and
will not be released until 90 days after we have completed
a business combination.
85
Rule 144
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 125,000 shares immediately after this
offering (or 140,000 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 our affiliate at the
time of a sale and has not been our affiliate during the
preceding three months, 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 all of such 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 the 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 will be entitled to make up to two
demands that we register such securities. As the initial shares
will be released from escrow one year after the consummation of
a business combination, our initial stockholders will be able to
make a demand for registration of the resale of their initial
shares at any time commencing nine months after the consummation
of a business combination. Additionally, our initial
stockholders will be able to elect to exercise these
registration rights with respect to the insider warrants (and
underlying securities) at any time after we consummate a
business combination. In addition, the holders will 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.
86
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 Lazard Capital Markets LLC is acting as representative,
have individually agreed to purchase on a firm commitment basis
the number of units set forth opposite their respective name
below:
|
|
|
|
|
Underwriters
|
|
Number of Units
|
|
|
Lazard Capital Markets LLC
|
|
|
7,000,000
|
|
EarlyBirdCapital, Inc.
|
|
|
3,000,000
|
|
|
|
|
|
|
Total
|
|
|
10,000,000
|
|
Lazard Frères & Co. LLC referred this transaction to
Lazard Capital Markets LLC and will receive a referral fee from
Lazard Capital Markets LLC in connection therewith.
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 $0.17 per unit.
Prior to this offering there has been no public market for any
of our securities. The public offering price of the units, the
terms of the warrants, the size of this offering and the amount
to be placed in the trust account were the results of a
negotiation between the underwriters and us. In determining the
terms of this offering, our management considered a number of
factors, including:
|
|
|
|
|
the history and prospects of companies whose principal business
is the acquisition of other companies;
|
|
|
|
prior offerings of similar blank check companies;
|
|
|
|
our prospects for acquiring one or more businesses at attractive
values given the restrictions placed on our company and other
similar blank check companies;
|
|
|
|
practical issues such as trying to remain the below the size at
which we will be competing directly with large private equity
firms and underwriters for target businesses;
|
|
|
|
our capital structure;
|
|
|
|
an assessment of our management and their experience in
identifying operating companies;
|
|
|
|
general conditions of the securities markets at the time of the
offering and the anticipated reception of the securities markets
to this offering; and
|
|
|
|
other factors as were deemed relevant.
|
However, although these factors were considered, the
determination of the terms of this offering was more arbitrary
than would typically be the case if we were an operating
company. In addition, because we have not identified any
potential target businesses, managements assessment of the
financial requirements necessary to complete a business
combination may prove to be inaccurate, in which case we may not
have sufficient funds to consummate a business combination and
we would be forced to either find additional financing or
liquidate, or we may have too great an amount in the trust
account to identify a target business having a fair market value
of at least 80% of our net assets.
Over-Allotment
Option
We have granted to the representative of the underwriters 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
87
discounts, up to an aggregate of 1,500,000 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 of the underwriters may
exercise the over-allotment option if it sells more units than
the total number set forth above.
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. In addition, this
information assumes that certain of our initial stockholders
purchase 250,000 units in this offering. The underwriters will
not receive any underwriting discounts or commissions on these
units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Unit
|
|
|
Without Option
|
|
|
With Option
|
|
|
Public offering price
|
|
$
|
8.00
|
|
|
$
|
80,000,000
|
|
|
$
|
92,000,000
|
|
Underwriting discount(1)
|
|
$
|
0.56
|
|
|
$
|
5,460,000
|
|
|
$
|
6,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds before expenses(2)
|
|
$
|
7.44
|
|
|
$
|
74,540,000
|
|
|
$
|
85,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
$2,730,000 of the underwriting discounts, or $3,150,000 if the
over-allotment option is exercised in full, will not be payable
unless and until we complete a business combination. The
underwriters have waived their right to receive such payment
upon our liquidation if we are unable to complete a business
combination.
|
|
(2)
|
|
The offering expenses are estimated at $605,000.
|
|
|
|
No discounts or commissions will be paid on the sale of the
insider warrants.
|
Purchase
Option
We have agreed to sell to the representative, for $100, an
option to purchase up to a total of 500,000 units. The
units issuable upon exercise of this option are identical to
those offered by this prospectus, except that each of the
warrants issued as part of such units will entitle the holder to
purchase one share of our common stock at a price of $7.00. 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 $2.1 million (approximately $4.30 per Unit
underlying such option) using a Black-Scholes option-pricing
model. The fair value of the option granted to the
representative is estimated as of the date of grant using the
following assumptions: (1) expected volatility of 68.9%,
(2) risk-free interest rate of 5.02% and (3) expected
life of five years. The option, the 500,000 units
underlying the option, the 500,000 shares of common stock
and the 500,000 warrants included in such units, and the
500,000 shares of common stock underlying such warrants,
have been deemed compensation by the Financial Industry
Regulatory Authority (the FINRA) and are therefore
subject to a
180-day
lock-up
pursuant to Rule 2710(g)(1) of the NASD Conduct Rules.
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 dealer 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. We will have
no obligation to net cash settle the exercise of the purchase
option or the warrants underlying the purchase option. The
holder of the purchase option will not be entitled to exercise
the purchase option or the warrants underlying the purchase
option unless a registration statement covering the securities
underlying the purchase option is effective or an
88
exemption from registration is available. If the holder is
unable to exercise the purchase option or underlying warrants,
the purchase option or warrants, as applicable, will expire
worthless.
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.
Regulatory
Restrictions on Purchase of Securities
Rules of the SEC may limit the ability of the underwriter to bid
for or purchase our units before the distribution of the units
is completed. The distribution of the units in this offering
will be completed once all the units have been sold, all
stabilizing transactions have been completed and all penalty
bids have either been reclaimed or withdrawn. 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 underwriters
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 selected dealer when the units
originally sold by the selected dealer is purchased in a
stabilizing or syndicate covering transaction to cover short
positions.
|
Stabilization and covering transactions may cause the price of
our securities to be higher than it 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.
Other
Terms
Although we are not under any contractual obligation to engage
any of the underwriters to provide any services for us after
this offering, and have no present intent to do so, any of the
underwriters may, among other things, introduce us to potential
target businesses or assist us in raising additional capital, as
needs may arise in the future. If any of the underwriters
provide services to us after this offering, we may pay such
underwriter fair and reasonable fees that would be determined at
that time in an arms length negotiation; provided that no
agreement will be entered into with any of the underwriters and
no fees for such services will be paid to any of the
underwriters prior to the date which is 90 days after the
date of this prospectus, unless the FINRA determines that such
payment would not be deemed underwriters 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 underwriters may be
required to make in this respect.
89
The validity of the securities offered in this prospectus is
being passed upon for us by Akerman Senterfitt, Miami, Florida.
Mintz Levin Cohn Ferris Glovesky & Popeo, P.C.,
New York, New York, is acting as counsel for the underwriter in
this offering.
The financial statements included in this prospectus and in the
registration statement have been audited by Rothstein,
Kass & Company, P.C., independent registered
public accounting firm, as of September 30, 2007 and for
the period from June 1, 2007 (date of inception) through
September 30, 2007 as set forth in their report appearing
elsewhere in this prospectus and in the registration statement.
The financial statements are included in reliance upon their
report given upon the authority of Rothstein, Kass &
Company, P.C. as experts in auditing and accounting.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on
Form S-1,
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 SECs 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.
90
IDEATION
ACQUISITION CORP.
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Ideation Acquisition Corp.
We have audited the accompanying balance sheet of Ideation
Acquisition Corp. (a corporation in the development stage) (the
Company) as of September 30, 2007, and the
related statements of operations, changes in stockholders
equity, and cash flows for the period from June 1, 2007
(Inception) to September 30, 2007. These financial
statements are the responsibility of the Companys
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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Ideation Acquisition Corp. (a corporation in the development
stage) as of September 30, 2007 and the results of its
operations and its cash flows for the period June 1, 2007
(Inception) to September 30, 2007, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ Rothstein,
Kass & Company, P.C.
Roseland, New Jersey
October 30, 2007
F-2
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
September 30, 2007
|
|
|
|
|
Assets
|
Current assets, cash
|
|
$
|
181,820
|
|
Other assets, deferred offering costs
|
|
|
295,455
|
|
|
|
|
|
|
Total assets
|
|
$
|
477,275
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Current liabilities:
|
|
|
|
|
Accrued expenses
|
|
$
|
257,365
|
|
Notes payable to stockholders
|
|
|
200,000
|
|
|
|
|
|
|
Total current liabilities
|
|
|
457,365
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
Stockholders equity
:
|
|
|
|
|
Preferred Stock, $0.0001 par value, 1,000,000 shares
authorized; none issued and outstanding
|
|
|
0
|
|
Common Stock, $0.0001 par value, 50,000,000 shares
authorized; 2,500,000 shares issued and outstanding
|
|
|
250
|
|
Additional paid-in capital
|
|
|
24,750
|
|
Deficit accumulated during the development stage
|
|
|
(5,090
|
)
|
|
|
|
|
|
Total stockholders equity
|
|
|
19,910
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
477,275
|
|
|
|
|
|
|
(See accompanying notes to financial statements)
F-3
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
For the period from June 1, 2007 (Inception) to
September 30, 2007
|
|
|
|
|
Formation and operating costs
|
|
$
|
5,090
|
|
|
|
|
|
|
Net loss
|
|
$
|
5,090
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and
diluted
|
|
|
2,381,609
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
(See accompanying notes to financial statements)
F-4
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
Statement of Stockholders Equity
For the period from June 1, 2007 (Inception) to
September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During the
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Equity
|
|
|
Common shares issued to founders
|
|
|
2,500,000
|
|
|
$
|
250
|
|
|
$
|
24,750
|
|
|
|
|
|
|
$
|
25,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,090
|
)
|
|
|
(5,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
|
2,500,000
|
|
|
$
|
250
|
|
|
$
|
24,750
|
|
|
$
|
(5,090
|
)
|
|
$
|
19,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(See accompanying notes to financial statements)
F-5
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
For the period from June 1, 2007 (Inception) to
September 30, 2007
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net loss
|
|
$
|
(5,090
|
)
|
Adjustments to reconcile net loss to net cash from operating
activities:
|
|
|
|
|
Increase in cash attributable to change in accrued expenses
|
|
|
7,365
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,275
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from notes payable to stockholders
|
|
|
200,000
|
|
Common shares issued to founders
|
|
|
25,000
|
|
Deferred offering costs
|
|
|
(45,455
|
)
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
179,545
|
|
|
|
|
|
|
Net increase in cash
|
|
|
181,820
|
|
|
|
|
|
|
Cash beginning of period
|
|
|
|
|
Cash end of period
|
|
$
|
181,820
|
|
|
|
|
|
|
Supplemental disclosures of non-cash financing activities:
|
|
|
|
|
Accrued and deferred offering costs
|
|
$
|
250,000
|
|
|
|
|
|
|
(See accompanying notes to financial statements)
F-6
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
|
|
Note 1
|
Organization
and Nature of Business Operations
|
Ideation Acquisition Corp. (a corporation in the development
stage) (the Company) was incorporated in Delaware on
June 1, 2007. The Company was formed to acquire through a
merger, stock exchange, asset acquisition or similar business
combination a currently unidentified business or businesses. The
Company is considered to be in the development stage as defined
in Statement of Financial Accounting Standards (SFAS)
No. 7, Accounting and Reporting By Development Stage
Enterprises, and is subject to the risks associated with
activities of development stage companies.
At September 30, 2007, the Company had not commenced any
operations. All activity through September 30, 2007 relates
to the Companys formation and the proposed public offering
described below. Following such offering, the Company will not
generate any operating revenues until after completion of its
initial business combination, at the earliest. The Company will
generate non-operating income in the form of interest income on
cash and cash equivalents after such offering. The Company has
selected December 31 as its fiscal year end.
The Companys management has broad discretion with respect
to the specific application of the net proceeds of a Proposed
Offering of Units (as defined in Note 3) (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 (or acquisition
of) a Target Business (Business Combination). As
used herein, Target Business shall mean one or more
businesses that at the time of the Companys initial
Business Combination has a fair market value of at least 80% of
the Companys net assets (all of the Companys assets,
including the funds then held in the trust account, less the
Companys liabilities (excluding deferred underwriting
discounts and commissions of approximately $2.73 million,
or approximately $3.15 million if the over-allotment option
is exercised in full, described below)). Furthermore, there is
no assurance that the Company will be able to successfully
effect a Business Combination.
The Companys efforts in identifying a prospective Target
Business will not be limited to particular companies; however it
expects to focus on businesses in the digital media sector,
which encompasses companies that emphasize the use of digital
technology to create, distribute or service others that create
or distribute content for various platforms including online,
mobile, satellite, television, cable, radio, print, film, video
games and software.
Upon closing of the Proposed Offering, approximately 98% of the
gross proceeds of the Proposed Offering will be placed in a
trust account and invested in United States government
securities within the meaning of Section 2(a)(16) of
the Investment Company Act of 1940, as amended (Investment
Company Act), having a maturity of 180 days or less,
or in money market funds selected by the Company meeting certain
conditions under
Rule 2a-7
promulgated under the Investment Company Act, until the earlier
of (i) the consummation of the Companys first
Business Combination or (ii) the liquidation of the
Company. The proceeds in the trust account will include
$2.73 million of the gross proceeds representing deferred
underwriting discounts and commissions that will be released to
the underwriters on completion of a Business Combination. The
remaining proceeds outside of the trust account may be used to
pay for business, legal and accounting due diligence on
prospective acquisitions and continuing general and
administrative expenses.
The Company will seek stockholder approval before it will effect
any Business Combination, even if the Business Combination would
not ordinarily require stockholder approval under applicable
state law. In connection with the stockholder vote required to
approve any Business Combination, all of the Companys
existing stockholders (Initial Stockholders) 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.
Public Stockholders is defined as the holders of
common stock sold as part of the Units in the Proposed Offering
or in the aftermarket. The Company will proceed with a Business
Combination only
F-7
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL
STATEMENTS (Continued)
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
the Public Offering exercise their conversion rights. If a
majority of the shares of common stock voted by the Public
Stockholders are not voted in favor of a proposed initial
Business Combination but 24 months has not yet passed since
closing of the Proposed Offering the Company may combine with
another Target Business meeting the fair market value criterion
described above.
Public Stockholders voting against a Business Combination will
be entitled to convert their stock into a pro rata share of the
total amount on deposit in the trust account, before payment of
underwriting discounts and commissions and including any
interest earned on their portion of the trust account net of
income taxes payable thereon, and net of any interest income of
up to $1.7 million on the balance of the trust account
previously released to the Company, if a Business Combination is
approved and completed.
The Companys 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. If the Company has not completed a Business
Combination by such date, its corporate existence will cease
except for the purposes of winding up its affairs and it will
liquidate. In the event of liquidation, it is likely that the
per share value of the residual assets remaining available for
distribution (including trust account 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 3).
|
|
Note 2
|
Summary
of Significant Accounting Policies
|
Basis
of presentation
The financial statements of the Company are presented in
U.S. dollars in conformity with accounting principles
generally accepted in the United States of America
(U.S. GAAP).
Development
Stage Company
The Company complies with the reporting requirements of
SFAS No. 7, Accounting and Reporting by
Development Stage Enterprises.
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of
cash. The Company may maintain deposits in federally insured
financial institutions in excess of federally insured limits.
However, management believes the Company is not exposed to
significant credit risk due to the financial position of the
depository institutions in which those deposits are held.
Fair
Value of Financial Instruments
The fair values of the Companys assets and liabilities
that qualify as financial instruments under
SFAS No. 107, Disclosures about Fair Value of
Financial Instrument, approximate their carrying amounts
presented in the accompanying balance sheet.
Deferred
Offering Costs
The Company complies with the requirements of the SEC Staff
Accounting Bulletin (SAB) Topic 5A
Expenses of Offering. Deferred offering costs
consist principally of legal fees incurred through the balance
sheet date that are related to the Proposed Offering and that
will be charged to capital upon the receipt of the proposed
public offering proceeds or expensed if the offering is not
completed.
F-8
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL
STATEMENTS (Continued)
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.
Net
Loss per Common Share
The Company complies with accounting and disclosure requirements
of SFAS No. 128, Earnings Per Share. Loss
per share is computed by dividing net loss by the weighted
average number of common shares outstanding for 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 and
disclosure of contingent 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.
Income
Taxes
The Company complies with the Financial Accounting Standards
Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109
(FIN 48), which provides criteria for the
recognition, measurement, presentation and disclosure of
uncertain tax position. A tax benefit from an uncertain position
may be recognized only if it is more likely than not
that the position is sustainable based on its technical merits.
Deferred income taxes are provided for the differences between
the bases of assets and liabilities for financial reporting and
income tax purposes. A valuation allowance is established when
necessary to reduce deferred tax assets to the amount expected
to be realized.
The Company has not begun its trade or business for
U.S. tax purposes. Accordingly, it could not yet recognize
losses for expenditures. As a result a deferred tax asset of
approximately $2,000 was established for the book loss recorded
as well as a fully offsetting valuation allowance.
The effective tax rate differs from the statutory tax rate due
to the establishment of the valuation allowance.
New
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. This Statement defines fair
value, establishes a framework for measuring fair value in
generally accepted accounting principles, expands disclosures
about fair value measurements and applies under other accounting
pronouncements that require or permit fair value measurements.
SFAS No. 157 does not require any new fair value
measurements. However, the FASB anticipates that for some
entities, the application of SFAS No. 157 will change
current practice.
SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007,
which for the Company would be its fiscal year beginning
January 1, 2008. The Company is currently evaluating the
impact of SFAS No. 157 but does not expect that it
will have a material impact on its financial statements.
F-9
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL
STATEMENTS (Continued)
In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
(SAB 108). SAB 108 provides guidance on
how prior year misstatements should be considered when
quantifying misstatements in the current year financial
statements. The SAB requires registrants to quantify
misstatements using both a balance sheet and an income statement
approach and evaluate whether either approach results in
quantifying a misstatement that, when all relevant quantitative
and qualitative factors are considered, is material.
SAB 108 does not change the guidance in SAB 99,
Materiality, when evaluating the materiality of
misstatements. SAB 108 is effective for fiscal years ending
after November 15, 2006. Upon initial application,
SAB 108 permits a one-time cumulative effect adjustment to
beginning retained earnings. The Company is currently evaluating
the potential impact, if any, that the adoption of SAB 108
will have on its financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities. This Statement permits entities to choose to
measure many financial instruments at fair value. Unrealized
gains and losses on items for which the fair value option has
been elected are reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15,
2007. The Company is currently assessing the impact of
SFAS No. 159 on its financial position and results of
operations.
|
|
Note 3
|
Proposed
Public Offering
|
The Proposed Offering calls for the Company to offer for public
sale 10,000,000 units (Units) at a price of
$8.00 per unit. Each Unit consists of one share of the
Companys common stock, $0.0001 par value, and one
Redeemable Common Stock Purchase Warrant (Warrant).
Each Warrant will entitle the holder to purchase from the
Company one share of common stock at an exercise price of $6.00
commencing on the later of the completion of a Business
Combination with a Target Business and one year from the
effective date of the Proposed Offering and expiring four years
from the effective date of the Proposed Offering, unless earlier
redeemed. The Warrants will be redeemable at a price of $0.01
per Warrant upon 30 days notice after the Warrants
become 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
business day prior to the date on which notice of redemption is
sent. 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 shall 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.
|
|
Note 4
|
Related
Party Transactions
|
Between June 1, 2007 and September 30, 2007, the
Company issued 2,500,000 shares (Initial
Shares) of common stock to the Initial Stockholders for
$0.01 per share or a total of $25,000.
The Company issued unsecured promissory notes totaling $200,000
to its Initial Stockholders, on June 12, 2007. The notes
are non-interest bearing and are payable on the earlier of
June 12, 2008 or the consummation of the Proposed Offering
by the Company. Due to the short-term nature of the notes, the
fair value of the notes approximated their carrying amounts at
$200,000.
The Company has agreed to pay $7,500 per month for office space
and general and administrative services. The office space is
being leased from Clarity Partners, L.P. Barry A. Porter, one of
our special
F-10
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL
STATEMENTS (Continued)
advisors, is a co-founder and Managing General Partner of
Clarity Partners, L.P., and the grantor trust of
Mr. Porter, Nautilus Trust dtd
9/10/99,
is
one of our initial stockholders. Services will commence on the
effective date of the Proposed Offering and will terminate upon
the earlier of (i) the consummation of a Business
Combination or (ii) the liquidation of the Company.
The Initial Stockholders have agreed to purchase warrants
(Insider Warrants) exercisable for
2,400,000 shares of common stock at a purchase price of
$1.00 per warrant concurrently with the closing of the Proposed
Offering at a price of $1.00 per Insider Warrant directly from
the Company and not as part of the Proposed Offering. All of the
proceeds from this private placement will be placed in a trust
account until a business combination has been consummated. The
Insider Warrants will be identical to the Warrants included in
the Units being offered in the Proposed Offering except that if
the Company calls the Warrants for redemption, the Insider
Warrants may be exercisable on a cashless basis so
long as such securities are held by the Initial Stockholders or
their affiliates. Additionally, our Initial Stockholders have
agreed that the Insider Warrants will not be sold or transferred
by them until after the Company has completed a Business
Combination. The Company believes based on a review of the
trading prices of the public warrants of other blank check
companies similar to the Company, that the purchase price of
$1.00 per Insider Warrant would be not less than the approximate
fair value of such warrants on the date of issuance. Therefore,
the Company believes it will not record stock-based compensation
expense upon the sale of the Insider Warrants. However, the
actual fair value of the Insider Warrant and any stock-based
compensation expense will be determined on the date of issuance.
The holders of the Initial Shares, 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 a majority of these securities will be entitled to make up to
two demands that we register such securities. The holders of a
majority of the Initial Shares will be able to make a demand for
registration of the resale of their Initial Shares at any time
commencing nine months after the consummation of a business
combination. The holders of a majority of the Insider Warrants
(or underlying securities) will be able to elect to exercise
these registration rights with respect to the Insider Warrants
(or underlying securities) at any time after the Company
consummates a business combination. In addition, such holders
will have certain piggy-back registration rights on
registration statements filed subsequent to the date on which
such securities are released from escrow. On or prior to the
date of this prospectus, the Initial Stockholders will place the
initial shares and the insider warrants into an escrow account
maintained by Continental Stock Transfer &
Trust Company, acting as escrow agent. The Initial Shares
will not be released from escrow until one year after the
consummation of a Business Combination, or earlier if, following
a Business Combination, the Company engages in a subsequent
transaction resulting in the Companys stockholders having
the right to exchange their shares for cash or other securities
or if the Company liquidates and dissolves. The Insider Warrants
will not be released from escrow until 90 days after the
completion of a Business Combination. The Company will bear the
expenses incurred in connection with the filing of any such
registration statements.
|
|
Note 5
|
Commitments
and contingencies
|
The Company has agreed to pay Lazard Capital Markets LLC as the
representative for the underwriters, 7% of the gross proceeds
from the Proposed Offering, 3.5% of which is payable at closing
and 3.5% which is payable upon consummation of a business
combination.
In addition to the previously described fee, Lazard Capital
Markets LLC has been granted a
45-day
option to purchase up to 1,500,000 Units (over and above the
10,000,000 Units referred to above) solely to cover
over-allotments, if any. The over-allotment will be used only to
cover the net syndicate short position resulting from the
initial distribution.
F-11
IDEATION
ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL
STATEMENTS (Continued)
The Company has also agreed to sell to Lazard Capital Markets
LLC, for $100, as additional compensation, an option to purchase
up to a total of 500,000 Units for $10.00 per Unit. The Units
issuable upon exercise of this option are identical to those
offered in the Proposed Offering; however the Warrants will
entitle the holder to purchase from the Company one share of
common stock at an exercise price of $7.00 per share. The
purchase option and its underlying securities have been
registered under the registration statement.
The sale of this option will be accounted for as an equity
transaction. Accordingly, there will be no net effect on the
Companys financial position or results of operations,
except for the recording of the $100 proceeds from the sale. The
Company has determined, based upon a Black-Scholes model, that
the most recent fair market value of the option is approximately
$2.1 million, using an expected life of five years,
volatility of 68.9% and a risk-free interest rate of 5.02%.
Because the units do not have a trading history, the volatility
factor is based on information currently available to
management. The volatility factor of 68.9% is the average
volatility of ten sample blank check companies that have
completed a business combination and have at least two years of
trading history. The Companys management believes that
this volatility is a reasonable benchmark, given the uncertainty
of the industry of the Target Business, to use in estimating the
expected volatility for its common stock.
The purchase option may be exercised for cash or on a
cashless basis, at the holders option, such
that the holder may use the appreciated value of the purchase
option (the difference between the exercise prices of the
purchase option and the underlying Warrants and the market price
of the Units and underlying securities) to exercise the purchase
option without the payment of any cash. The Company will have no
obligation to net cash settle the exercise of the purchase
option or the Warrants underlying the purchase option. The
holder of the purchase option will not be entitled to exercise
the purchase option or the Warrants underlying the purchase
option unless a registration statement covering the securities
underlying the purchase option is effective or an exemption from
a registration is available. If the holder is unable to exercise
the purchase option or the underlying Warrants, the purchase
option or Warrants, as applicable, will expire worthless.
F-12
Until December 14, 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.
$80,000,000
Ideation Acquisition
Corp.
10,000,000 Units
PROSPECTUS
Lazard
Capital Markets
EarlyBirdCapital,
Inc.
November 19, 2007