GSC
ACQUISITION COMPANY
(a
development stage company)
Notes to Unaudited Condensed Consolidated Financial
Statements
Note
1 — Organization and Nature of Business Operations
GSC ACQUISITION COMPANY (a
development stage company) (the “Company”) was incorporated in Delaware on
October 26, 2006. The Company was formed to acquire through merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or other
similar business combination, one or more businesses or assets. The Company has
neither engaged in any operations nor generated any revenue from operations to
date. All activity through September 30, 2008 relates to the
formation of the Company, its initial public offering and efforts to identify
prospective target businesses described below and in Notes 3 and 7. The Company
will not generate any operating revenues until after completion of its initial
business combination. The Company generates non-operating income in the form of
dividend income on cash and cash equivalents. 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.
GSCAC
Holdings I LLC (“Holdings I”), GSCAC Holdings II LLC (“Holdings II”) and GSCAC
Merger Sub LLC (“Merger Sub”) (collectively, the “Subsidiaries”) are Delaware
limited liability companies that were formed in April 2008. The
Company owns 100% of Holdings I, which owns 100% of Holdings II, which owns 100%
of Merger Sub. As of September 30, 2008, there were no assets or
liabilities and there were no activities in any of the
subsidiaries.
The
registration statement for the Company’s initial public offering (“IPO”) was
declared effective June 25, 2007. The Company consummated the IPO on June 29,
2007 and recorded proceeds of approximately $191.5 million, net of the
underwriters’ discount and commission of $14.5 million and offering costs of
$1.0 million.
A total of approximately
$201.7 million, including $191.5 million of the net proceeds from the IPO, $4.0
million from the sale of warrants to the Company’s first stockholder (the
“Founding Stockholder”) (see Note 4) and $6.2 million of deferred underwriting
discounts and commissions, has been placed in a trust account at JPMorgan Chase
Bank, N.A., with the American Stock Transfer & Trust Company serving as
trustee. Except for a portion of the dividend income permitted to be
released to the Company, the proceeds held in trust will not be released from
the trust account until the earlier of the completion of the Company’s initial
business combination or the liquidation of the Company. Under the
terms of the investment management trust agreement, up to a total of $2.4
million of dividend income earned (net of taxes payable) may be released to the
Company, subject to availability. As of September 30, 2008, the full
$2.4 million had been released to the Company in accordance with those terms and
the balance in the trust account was approximately $203.4 million.
The
Company’s management has broad discretion with respect to the specific
application of the net proceeds of the IPO, although substantially all of the
net proceeds of the IPO are intended to be generally applied toward consummating
a business combination with an existing operating company. As used herein, a
“Target Business” shall mean one or more businesses or assets that, at the time
of the Company’s initial business combination, has a fair market value of at
least 80% of the balance in the trust account (excluding deferred underwriting
discounts of $6.2 million) described below and a “Business Combination” shall
mean the acquisition by the Company of such Target Business.
The Company’s
efforts in identifying prospective target businesses have not been limited to a
particular industry. As discussed in Note 7, the Company has identified Complete
Energy as its prospective target business.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes to Unaudited
Condensed Consolidated Financial Statements
—
(Continued)
Note
1 — Organization and Nature of Business Operations (continued)
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, including the proposed acquisition of Complete
Energy, the Company’s Founding Stockholder and four of its directors have agreed
to vote any shares of common stock they own that were issued prior to the IPO 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 IPO or in the aftermarket. The Company will
proceed with a Business Combination only if a majority of the shares of common
stock voted by the Public Stockholders are voted in favor of the Business
Combination and Public Stockholders holding not more than 20% of the shares
(minus one share) sold in the IPO vote against the Business Combination and
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 so long as such combination is approved by public
stockholders prior to June 25, 2009, the Company may combine with a different
Target Business meeting the fair market value criterion described
above.
If a Business Combination
is approved and completed, any Public Stockholder voting against a Business
Combination will be entitled to convert their stock into a pro rata share of 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 income taxes
payable by the Company thereon, and net of the dividend income earned of $2.4
million on the balance of the trust account previously released to the Company
to fund its working capital requirements. Public Stockholders who convert their
stock into their share of the trust account will continue to have the right to
exercise any Warrants they may hold. As of September 30, 2008,
4,139,999 shares of common stock may be subject to conversion for cash payments
of approximately $9.74 per share totaling approximately $40.3
million.
During the
period from July 1, 2007 to September 30, 2008, the Company earned enough
dividends to begin accreting dividend income to the common stock subject to
possible conversion. Accordingly, the Company accreted approximately
$0.7 million of dividend income, net of $0.7 million of income taxes as of
September 30, 2008.
The Company will dissolve
and promptly distribute only to its Public Stockholders the amount in the trust
account, less any income taxes payable on dividend income earned and the
dividend income earned of $2.4 million on the balance of the trust account
previously released to the Company to fund its working capital requirements,
plus any remaining net assets if the Company does not effect a Business
Combination by June 25, 2009. 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 IPO price
per Unit in the IPO (assuming no value is attributed to the Warrants contained
in the Units).
Note
2 — Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting
principals. Accordingly, they do not include all of the information
and footnotes required by U.S. generally accepted accounting principals for
complete financial statements. The accompanying unaudited condensed
consolidated interim financial statements should be read in conjunction with the
financial statements for the period ended December 31, 2006 and the financial
statements for the year ended December 31, 2007. In our opinion, all
adjustments (consisting only of normal recurring accruals) considered necessary
for fair presentation have been included. The results of operations
for the period from January 1, 2008 to September 30, 2008 are not necessarily
indicative of the results that may be expected for the full year ending December
31, 2008.
The
unaudited condensed consolidated financial statements include the accounts of
the Company and its Subsidiaries. All intercompany accounts have been
eliminated in consolidation. The condensed consolidated interim
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles and all values are stated in United States
dollars.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
Note
2 — Summary of Significant Accounting Policies (continued)
Basis
of Presentation
Going
concern consideration – As indicated in the accompanying financial statements,
at September 30, 2008 the Company had unrestricted cash of $0.5
million, $0.8 million of accounts payable and $3.5 million of accrued expenses.
These costs mainly relate to the pursuit of the Company’s acquisition plans and
specifically the proposed merger with Complete Energy. There is no
assurance that the Company will successfully complete a Business Combination
with Complete Energy (or any other entity) by June 25, 2009. As a result, the
Company cannot assure that the cash available will be sufficient to cover
expenses. These factors, among others, raise substantial doubt about the
Company’s ability to continue operations as a going concern. The accompanying
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
Cash
and cash equivalents:
The Company and
its Subsidiaries consider all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Cash
and cash equivalents held in trust:
A total of approximately
$201.7 million was originally placed in a trust account at JPMorgan Chase Bank,
N.A., with the American Stock Transfer & Trust Company serving as
trustee. The trust proceeds are invested in the “JPMorgan 100% U.S.
Treasury Securities Money Market Fund.” The money market fund invests
exclusively in direct short-term obligations of the US
Treasury. Except for a portion of the dividend income permitted to be
released to the Company, the proceeds held in trust will not be released from
the trust account until the earlier of the completion of the Company’s initial
business combination or the liquidation of the Company. As of
September 30, 2008, the balance in the trust account was approximately $203.4
million, which includes approximately $4.2 million of dividend income earned
since the inception of the trust net of approximately $2.7 million of taxes
paid.
Fair
Value Measurements:
The fair
values of the Company’s financial instruments reflect the estimates of amounts
that would be received from selling an asset in an orderly transaction between
market participants at the measurement date. The fair value estimates presented
in this report are based on information available to the Company as of
September 30, 2008 and December 31, 2007.
In
accordance with Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
(“SFAS 157”), the Company applies a fair value hierarchy based on three levels
of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value. The three levels are the
following:
|
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●
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Level
1 – Quoted prices in active markets for identical assets or
liabilities.
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●
|
Level
2 – Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities,
quoted prices in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or
liabilities.
|
|
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●
|
Level
3 – Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
|
The fair
value of cash and cash equivalents held in the trust account were estimated
using Level 1 inputs and the carrying value approximates the fair value because
of their nature and respective duration. No investments were included
as Level 2 or Level 3 investments during 2008.
Income
taxes:
The
Company is taxed as a corporation for U.S. federal and state and local income
tax purposes. It accounts for income taxes in accordance with the
provisions of FASB Statement No. 109 “Accounting for Income Taxes”.
Net
income per share:
Basic net
income per share is computed by dividing net income applicable to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted net income per share is computed similar to basic net
income per share, but includes the dilutive effect of shares issued pursuant to
the Company’s outstanding warrants which are exercisable on the later of (i) the
completion of a business combination or (ii) 13 months after the consummation of
the Company’s IPO.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
Note
2 — Summary of Significant Accounting Policies (continued)
Use
of estimates:
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Organization
costs:
Organization
costs consist principally of professional fees incurred in connection with the
organization of the Company and have been expensed as incurred.
Deferred
acquisition costs:
Deferred
acquisition costs consist principally of legal and other professional fees
incurred through the consolidated balance sheet date that are related to the
proposed acquisition discussed in Note 7. Deferred acquisition costs related to
the proposed acquisition will be charged to expense if the acquisition is not
consummated or included in the allocation of purchase price should the
transaction be consummated.
Accounts
payable:
Accounts
payable are outstanding amounts owed to third parties principally for services
rendered in connection with the Company’s effort to identify a Target
Business.
Accrued
expenses:
Accrued
expenses are estimated costs incurred but not yet paid. At September
30, 2008 accrued expenses consist primarily of legal fees incurred in connection
with the Company’s proposed acquisition discussed in Note 7.
Note
3 — Initial Public Offering
On June
29, 2007, the Company sold to the public 20,700,000 units (“Units”) at a price
of $10.00. Each unit consists of one share of our common stock,
$0.001 par value, and one redeemable common stock purchase warrant
(“Warrant”).
Each Warrant entitles the
holder to purchase from the Company one share of common stock at an exercise
price of $7.50 commencing the later of the completion of a Business Combination
with a Target Business or 13 months from June 29, 2007 and expiring June 25,
2011, or earlier upon redemption or liquidation of the trust account. Holders of
the Warrants must pay the exercise price in full upon exercise of the Warrants.
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 $14.25 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 given. The terms of the Warrants
include, among other things, that (i) in no event will a Warrant holder be
entitled to receive a net cash settlement of the Warrant, and (ii) the Warrants
may expire unexercised and worthless if a prospectus relating to the common
stock to be issued upon the exercise of the warrants is not current and an
applicable registration statement is not effective prior to the expiration date
of the Warrant, and as a result purchasers of our Units will have paid the full
Unit purchase price solely for the share of common stock included in each
Unit.
The
Company agreed to pay the underwriters in the IPO an underwriter discount of
7.0% of the gross proceeds of the IPO. However, the underwriters have
agreed that a portion of the underwriter discount equal to 3.0% of the gross
proceeds will not be payable unless and until the Company completes a Business
Combination and have waived their right to receive such payment upon the
Company’s liquidation if it is unable to complete a Business
Combination. As of September 30, 2008, such amount is $6.2 million
which is included as deferred underwriting discount on the balance
sheet.
Note
4 — Related Party Transactions
On
November 7, 2006, the Founding Stockholder purchased 5,468,750 shares of the
Company’s common stock (“Initial Founder’s Shares”) for an aggregate purchase of
$25,000. Subsequent to the purchase of the Initial Founder’s Shares, our
Founding Stockholder sold an aggregate of 82,032 of the Initial Founder’s Shares
to three of our directors.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
Note
4 — Related Party Transactions (continued)
The
Initial Founder’s Shares are identical to those included in the Units except
that our Founding Stockholder and each transferee has agreed 1) that in
connection with the stockholder vote required to approve the Company’s initial
Business Combination, to vote the Initial Founder’s Shares in accordance with a
majority of the shares of common stock voted by the Public Stockholders and 2)
to waive its right to participate in any liquidation distribution with respect
to the Initial Founder’s Shares if a Business Combination is not consummated by
June 25, 2009.
On
November 7, 2006, the Founding Stockholder entered into a binding agreement to
purchase an aggregate of 4,000,000 Warrants at a price of $1.00 per Warrant from
the Company. The purchase was consummated on June 28, 2007. The
Warrants are identical to the Warrants contained in the Units except that they
are not redeemable for cash while held by the Founding Stockholder or its
permitted transferees and the shares of common stock issued upon exercise of
such Warrants by the Founding Stockholder or its permitted transferees will not
be registered under the Securities Act but will be subject to certain resale
registration rights. The Founding Stockholder has further agreed that it will
not sell or transfer these Warrants until completion of a Business Combination,
except in certain limited circumstances.
The
Company has agreed to pay to GSCP (NJ) Holdings, L.P., an affiliate of the
Founding Stockholder, a total of $7,500 per month for office space and general
and administrative services. Services commenced on June 25, 2007, the effective
date of the IPO, and will terminate upon the earlier of (i) the consummation of
a Business Combination, or (ii) the liquidation of the Company.
A
recapitalization was effected on May 29, 2007, in which the Company purchased
from the Founding Stockholder 1,692,968 of outstanding shares of common stock
for retirement and a total of 25,782 of outstanding shares of common stock from
three directors, in each case for the nominal consideration of
$1.00.
A
1-for
-5
stock dividend was effected on
June
25, 2007
for
holders of record as of
June
24, 2007
,
as described in Note 6.
As of
September 30, 2008, the Company had reimbursed GSCP (NJ) Holdings, L.P., a total
of $800,320 of which $386,943 was for IPO related expenses paid on the Company’s
behalf and $413,377 was for out-of-pocket expenses incurred in connection with
the Company’s efforts in identifying prospective target businesses and
consummating an initial business combination.
Note
5 — 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.
Note
6 — Common Stock
As
described in Note 4, a recapitalization was effected on May 29, 2007, in which
the Company purchased for retirement from the Founding Stockholder 1,692,968 of
outstanding shares of common stock and a total of 25,782 of outstanding shares
of common stock from three directors, in each case for nominal consideration of
$1.00.
On June
25, 2007 the Board of Directors declared a stock dividend to stockholders of
record on June 24, 2007. The stock dividend was paid on June 29,
2007. One share of Common stock was issued for each five outstanding
shares of Common Stock. All references in the accompanying financial
statements as of December 31, 2006 and for the period from October 26, 2006
(date of inception) to September 30, 2008 to the number of shares of common
stock have been retroactively restated to reflect this transaction. These
transactions were effected to ensure that the shares included in the Units sold
in the IPO represented approximately 80% of the Company’s outstanding share
capital.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
Note
7 — Proposed Business Combination
On May 9,
2008, the Company entered into an agreement and plan of merger (the “Merger
Agreement”) among the Company, Holdings I, Holdings II, Merger Sub and Complete
Energy Holdings, LLC (“Complete Energy”). The Company owns 100% of
Holdings I, which owns 100% of Holdings II, which owns 100% of Merger
Sub. Complete Energy owns and operates two natural gas-fired combined
cycle power generation facilities, the 1,022 MW La Paloma generating facility
(“La Paloma”) and the 837 MW Batesville generating facility
(“Batesville”). Pursuant to the Merger Agreement, the Company will
indirectly acquire Complete Energy by way of a merger of Merger Sub into
Complete Energy, with Complete Energy being the surviving entity and thereby
becoming an indirect subsidiary of the Company (the “Merger”).
In
connection with the Merger, each outstanding share of common stock of the
Company will be converted into one share of Class A common stock of the Company
(collectively, the “Class A Shares”). Upon consummation of the
Merger, the current owners of Complete Energy would generally receive Class B
units in Holdings I, which have economic rights similar to the Class A Shares
but no voting rights (the “Class B Units”), and an equal number of shares of
Class B common stock in the Company, which have voting rights but no economic
rights (the “Class B Shares”). In addition, the current owners of
Complete Energy would receive Class C units and Class D units in Holdings I,
which would entitle the holders to receive additional Class B Units and Class B
Shares if the Company’s stock price reaches $14.50 or $15.50 per share for 10
consecutive trading days, respectively, in each case within five years after the
closing. Each Class B Unit plus one Class B Share would be
exchangeable into one newly issued Class A Share. Certain of the
owners of Complete Energy shares may receive the non-contingent portion of their
merger consideration in the form of Class A Shares in lieu of Class B Units and
Class B Shares.
The
aggregate consideration to be paid in the Merger and related transactions is
based upon a total enterprise value for Complete Energy of $1.3 billion,
comprised of $900 million for Complete Energy’s La Paloma facility and $400
million for its Batesville facility, in each case adjusted for its cash and debt
balances at closing and certain minority interests. The number of
Class B Units and Class B Shares (or Class A Shares) to be issued pursuant to
the Merger Agreement will be calculated using a price per share of the Company’s
common stock equal to the lesser of $10.00 and the average closing price per
share for the 20 trading days ending three business days before the closing of
the Merger.
The
Company intends to account for the Merger under the purchase method of
accounting in accordance with the provisions of Statement of Financial
Accounting No. 141, “Business Combination.” The Merger will be
accounted for as a reverse merger.
The Merger and
related transactions have been unanimously approved by the Company’s board of
directors and the holders of all of the membership interests in Complete Energy
that are required for such approval, but are subject to the approval of the
Company’s stockholders, including a majority of the shares of common stock of
the Company issued in its IPO. In addition, the Merger may not be
completed if holders of more than 20% of the shares sold in the IPO vote against
the merger and properly exercise their conversion rights, as set forth in the
Company’s certificate of incorporation. There can be no assurance
that the Merger will be consummated.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
Note
8 — Provision for Income Taxes
The
Company is subject to U.S. federal, state and local income taxes. The components
of the Company’s income tax provision by taxing jurisdiction for the period from
January 1, 2008 to September 30, 2008 are as follows:
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Current
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Federal
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$
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168,981
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State
& Local
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531,560
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Current
provision (benefit) for income taxes
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$
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700,541
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Deferred
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Federal
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$
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1,275
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State
& Local
|
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—
|
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Deferred
provision (benefit) for income taxes
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$
|
1,275
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Total
provision (benefit) for income taxes
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$
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701,816
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The
Company’s effective tax rate of 68.22% differs from the federal statutory rate
of 34.0% mainly due to differences relating to state and local income
taxes.
The
following is a reconciliation of the difference between the actual provision for
income taxes and the provision computed by applying the federal statutory
rate:
|
U.S.
Federal Statutory Rate
|
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34.00%
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Increase
(decrease) resulting from:
|
|
|
|
|
|
State
and Local Income Taxes, net of Federal Benefits
|
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34.10%
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Meals
and Entertainment
|
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0.12%
|
|
|
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|
|
|
|
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Effective
Tax Rate
|
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68.22%
|
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Note
9 — Recent Accounting Pronouncements
On July
13, 2006, the Financial Accounting Standards Board (“FASB”) released FASB
Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”).
FIN 48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Company’s tax returns to determine whether the tax positions are
“more-likely-than-not” of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. The Company adopted
FIN 48 as of January 1, 2007 and there was no impact on the financial statements
upon adoption.
On
September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 “Fair Value Measurements” (“FAS 157”). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. The adoption of FAS 157 by
the Company on January 1, 2008 had no material impact to its financial
statements given the development stage nature of the Company. The Company has no
investment assets or liabilities that would be classified in Level II or
III.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
Note
9 — Recent Accounting Pronouncements (continued)
In
December 2007, the FASB released Statement of Financial Accounting Standards No.
141(R), “Business Combinations” (“FAS 141R”), replacing Statement of Financial
Accounting Standards No. 141, “Business Combinations” (“FAS No.
141”). This Statement retains the fundamental requirements in FAS 141
that the acquisition method of accounting (which Statement 141 called the
purchase method) be used for all business combinations and for an acquirer to be
identified for each business combination. This Statement also
establishes principles and requirements for how the acquirer: a) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; b)
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase and c) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This Statement clarifies that
acquirers will be required to expense costs related to any
acquisitions. FAS 141(R) will apply prospectively to business
combinations for which the acquisition date is on or after fiscal years
beginning December 15, 2008. Early adoption is
prohibited. The Company has not yet evaluated the impact, if any,
that FAS 141(R) will have on its financial statements. Determination
of the ultimate effect of this pronouncement will depend on the Company’s
structure at the date of adoption.
ITEM. 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
Overview
GSC
Acquisition Company is a blank check company formed on October 26, 2006 for the
purpose of acquiring, through a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or other similar business
combination, one or more businesses or assets, which we refer to as our initial
Business Combination. We consummated our Initial Public Offering on June 29,
2007.
We
have neither engaged in any operations nor generated any revenues from
operations to date. Our entire activity since inception has been to prepare for
and consummate our IPO and thereafter to identify and investigate potential
targets for a Business Combination. We will not generate any operating revenues
until consummation of a Business Combination. We will generate non-operating
income in the form of interest and dividend income on cash and cash
equivalents.
Net
income for the period from October 26, 2006 (date of inception) to September 30,
2008 was approximately $2.5 million, which consisted of $6.9 million of dividend
income primarily from the trust account offset by $2.2 million of formation,
general and operating costs and $2.2 million of provision for income taxes. Net
income for the nine months ended September 30, 2008 was approximately $0.3
million, which consisted of $2.7 million of dividend income primarily from the
trust account offset by $1.7 million of formation, general and operating costs
and $0.7 million of provision for income taxes.
Net
loss for the three months ended September 30, 2008 was $0.4 million compared to
net income of $1.2 million for the corresponding interim period of the preceding
year. The primary factors that contributed to the $1.6 million
decline in income were (1) the dividends earned on the cash held in trust were
significantly lower for the three months ended September 30, 2008 due to a
substantial decline in interest rates, (2) we expensed significant costs for the
three months ended September 30, 2008 relating to due diligence activities in
connection with potential targets for our initial Business Combination and (3)
we had an income tax benefit for the three months ended September 30, 2008 due
to the net loss for the period. Net income for the three months ended
September 30, 2007 was $1.2 million which consisted of $2.3 million of dividend
income primarily from the trust account offset by $0.2 million of formation,
general and operating costs and $0.9 million of provision for income
tax. Net loss for the three months ended September 30, 2008 was $0.4
million, which consisted of $0.6 million of dividend income primarily from the
trust account offset by $1.1 million of formation, general and operating costs
and $22,589 of provision for income tax benefit.
We
have incurred substantial costs related to our proposed merger with Complete
Energy. Through September 30, 2008, we recorded approximately
$4.1 million of deferred acquisition costs. As indicated in the
accompanying financial statements, at September 30, 2008 the Company
had unrestricted cash of $530,652 and $3,548,962 in accrued expenses. These
costs mainly relate to the pursuit of the Company’s acquisition plans and
specifically the proposed merger with Complete Energy. There is no
assurance that the Company will successfully complete a Business Combination
with Complete Energy by June 25, 2009. As a result, the Company cannot assure
that the cash available will be sufficient to cover expenses.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
Business
Combination with Complete Energy Holdings, LLC
On
May 9, 2008, GSC Acquisition Company (“Company”) entered into an agreement and
plan of merger (the “Merger Agreement”) with, GSCAC Holdings I LLC (“Holdings
I”), GSCAC Holdings II LLC (“Holdings II”), GSCAC Merger Sub LLC (“Merger Sub”)
and Complete Energy Holdings, LLC (“Complete Energy”). Complete
Energy, an independent power producer, owns and operates two natural gas-fired
combined cycle power generation facilities. The 1,022 MW La Paloma generating
facility (“La Paloma”), located 110 miles northwest of Los Angeles, serves
energy-constrained California. The 837 MW Batesville generating facility
(“Batesville”), located in northern Mississippi, serves the Southeast region of
the U.S. The Company owns 100% of Holdings I, which owns 100% of Holdings II,
which owns 100% of Merger Sub. Pursuant to the Merger Agreement the
Company will indirectly acquire Complete Energy by way of a merger of Merger Sub
into Complete Energy, with Complete Energy being the surviving entity and
thereby becoming an indirect subsidiary of the Company (the “Merger”). In
connection with the proposed merger, the Company filed a preliminary proxy
statement on Schedule 14A with the Securities and Exchange Commission on July
29, 2008, which was amended on October 10, 2008.
In
connection with the Merger, each outstanding share of common stock of the
Company will be converted into one share of Class A common stock of the Company
(collectively, the “Class A Shares”). Upon consummation of the
Merger, the current owners of Complete Energy would generally receive Class B
units in Holdings I, which have economic rights similar to the Class A Shares
but no voting rights (the “Class B Units”), and an equal number of shares of
Class B common stock in the Company, which have voting rights but no economic
rights (the “Class B Shares”). In addition, the current owners of
Complete Energy would receive Class C units and Class D units in Holdings I,
which would entitle the holders to receive additional Class B Units and Class B
Shares if the Company’s stock price reaches $14.50 or $15.50 per share for 10
consecutive trading days, respectively, in each case within five years after the
closing. Each Class B Unit plus one Class B Share would be
exchangeable into one newly issued Class A Share. Certain of the
owners of Complete Energy shares may receive the non-contingent portion of their
merger consideration in the form of Class A Shares in lieu of Class B Units and
Class B Shares.
The
aggregate consideration to be paid in the Merger and related transactions is
based upon a total enterprise value for Complete Energy of $1.3 billion,
comprised of $900 million for Complete Energy’s La Paloma facility and $400
million for its Batesville facility, in each case adjusted for its cash and debt
balances at closing and certain minority interests. The number of
Class B Units and Class B Shares (or Class A Shares) to be issued pursuant to
the Merger Agreement will be calculated using a price per share of the Company’s
common stock equal to the lesser of $10.00 and the average closing price per
share for the 20 trading days ending three business days before the closing of
the Merger.
The
Company intends to account for the Merger under the purchase method of
accounting in accordance with the provisions of Statement of Financial
Accounting No. 141, “Business Combination.” The Merger will be
accounted for as a reverse merger. As such, Complete Energy is deemed
to be the acquirer in the merger for accounting purposes and, consequently, the
assets and liabilities and the historical operations that will be reflected in
the financial statements will be those of Complete Energy, recorded at its
historical cost basis.
The Merger and related
transactions have been unanimously approved by the Company’s board of directors
and the holders of all of the membership interests in Complete Energy that are
required for such approval, but are subject the approval of the Company’s
stockholders, including a majority of the shares of common stock of the Company
issued in its IPO. In addition, the Merger may not be completed if
holders of more than 20% of the sold in the IPO vote against the merger and
properly exercise their conversion rights, as set forth in the Company’s
certificate of incorporation. There can be no assurance that the
Merger will be consummated.
Off-Balance
Sheet Arrangements
We
have not entered into any off-balance sheet financing arrangements and have not
established any special purpose entities. We have not guaranteed any debt or
commitments of other entities or entered into any options on non-financial
assets.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
Liquidity
and Capital Resources
A total of
approximately $201.7 million, including $191.5 million of the net proceeds from
the IPO, $4.0 million from the sale of warrants to the Founding Stockholder and
$6.2 million of deferred underwriting discounts and commissions, was placed in
trust, except for $50,000 that was made available to us for working capital
needs. We expect that most of the proceeds held in the trust account
will be used as consideration to pay the sellers of a Target Business or
businesses with which we ultimately complete our initial Business
Combination. We expect to use substantially all of the net proceeds
of this IPO not held in the trust account to pay expenses in locating and
acquiring a Target Business, including identifying and evaluating prospective
acquisition candidates, selecting the Target Business, and structuring,
negotiating and consummating our initial Business Combination. To the extent
that shares of our capital stock or debt financing is used in whole or in part
as consideration to effect our initial Business Combination, any proceeds
remaining held in the trust account as well as any other net proceeds not
expended will be made available for general corporate purposes, including to
finance the operations of the combined business. We intend to focus
on potential target businesses with valuations greater than or equal to 80% of
the amount held in the trust account (excluding deferred underwriting discounts
and commissions of $6.2 million). We believe that the funds placed in
trust, together with other available funds, including from the issuance of
additional equity and/or the issuance of debt, would support the acquisition of
such a Target Business. Such debt securities may include a long term debt
facility, a high-yield notes offering or mezzanine debt financing, and depending
upon the business of the target company, inventory, receivable or other secured
asset-based financing. The need for and mix of additional equity and/or debt
would depend on many factors. The proposed funding for any such Business
Combination would be disclosed in the proxy statement relating to the required
shareholder approval.
As of
September 30, 2008, approximately $203.4 million was held in
trust.
|
Net
proceeds from our initial public offering and private placement of
warrants placed in trust
|
|
$
|
195,485,000
|
|
|
Deferred
underwriters’ discounts and commissions
|
|
|
6,210,000
|
|
|
Total
interest received to date for investments held in trust
account
|
|
|
6,853,846
|
|
|
Less
total interest disbursed to us for working capital through
September 30, 2008
|
|
|
(2,400,000
|
)
|
|
Less
total taxes paid through September 30, 2008
|
|
|
(2,701,224
|
)
|
|
|
|
|
|
|
|
Total
funds held in trust account at September 30, 2008
|
|
$
|
203,447,622
|
|
We have
incurred, and expect to continue to incur, substantial costs related to our
proposed merger with Complete Energy. As of September 30, 2008,
we had approximately $0.5 million of unrestricted cash available for completing
our merger with Complete Energy for payment of approximately $3.5 million of
accrued expenses and for general corporate purposes. As a result, we cannot
assure you that the cash we have available will be sufficient to cover our
expenses. Deferred acquisition costs associated with the proposed merger were
approximately $4.1 million as of September 30, 2008.
We may
need to obtain additional financing either to consummate our initial Business
Combination or because we become obligated to convert into cash a significant
number of shares of public stockholders voting against our initial Business
Combination, in which case we may issue additional securities or incur debt in
connection with such Business Combination. Following our initial Business
Combination, if cash on hand is insufficient, we may need to obtain additional
financing in order to meet our working capital needs and satisfy our other
obligations.
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk.
Market
risk is a broad term for the risk of economic loss due to adverse changes in the
fair value of a financial instrument. These changes may be the result of various
factors, including interest rates, foreign exchange rates, commodity prices
and/or equity prices. $197.7 million of the net IPO proceeds (which
includes $6.2 million of the proceeds attributable to the underwriters’ deferred
discount from the IPO) has been placed in a trust account at JPMorgan Chase
Bank, N.A., with the American Stock Transfer & Trust Company as trustee. As
of September 30, 2008, the balance of the trust account was $203.4 million. The
proceeds held in trust will only be invested in U.S. government securities
having a maturity of 180 days or less or in money market funds which invest
principally in either short-term securities issued or guaranteed by the United
States having the highest rating from a recognized credit rating agency or tax
exempt municipal bonds issued by governmental entities located within the United
States or otherwise meeting the conditions under Rule 2a-7 under the Investment
Company Act.
Thus, we
are currently subject to market risk primarily through the effect of changes in
interest rates on short-term government securities and other highly rated
money-market instruments. We do not believe that the effect of other changes,
such as foreign exchange rates, commodity prices and/or equity prices currently
pose significant market risk for us.
We have
not engaged in any hedging activities since our inception. We do not currently
expect to engage in any hedging activities.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
ITEM
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
We
evaluated the effectiveness of our disclosure controls and procedures, as
defined in the Exchange Act, as of the end of the period covered by this
Quarterly Report on Form 10-Q. Peter Frank, our Chief Executive
Officer and Principal Accounting and Financial Officer as well as a Director,
participated in this evaluation. Based upon that evaluation, Mr. Frank concluded
that our disclosure controls and procedures were effective as of the end of the
period covered by the report.
Changes
in Internal Controls over Financial Reporting
As
a result of the evaluation completed by Mr. Frank, we have concluded that there
were no changes during the fiscal quarter ended September 30, 2008 in our
internal controls over financial reporting, which have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.
PART
II — OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM
1A. Risk Factors.
We operate in an
environment that involves a number of significant risks and
uncertainties. Other than the Risk Factors disclosed in our
preliminary proxy statement on Schedule 14A filed with the Securities and
Exchange Commission on July 29, 2008, as amended on October 10, 2008, which are
incorporated herein by reference (including any amendment thereto), there have
been no material changes in our risk factors disclosed in our Annual Repot on
Form 10-K for the year ended December 31, 2007.
ITEM
2. Unregistered Sales of Equity Securities and Use of Proceeds.
On
November 7, 2006, our Founding Stockholder purchased 5,468,750 shares of our
common stock (“Initial Founder’s Shares”) for an aggregate purchase price of
$25,000.
On
November 7, 2006, our Founding Stockholder entered into a binding agreement, as
amended on May 25, 2007, to purchase an aggregate of 4,000,000 Warrants at a
price of $1.00 per Warrant from us. The purchase was consummated on June 28,
2007. The sales of the securities to our Founding Stockholder were exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public
offering. In each such transaction, the Founding Stockholder
represented its intention at such time to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were or, at the time of issuance of physical
certificates, will be affixed to the instruments representing such securities
issued or to be issued in such transactions.
On
December 12, 2006, our Founding Stockholder sold an aggregate of 82,032 of the
Initial Founder’s Shares to three of our directors at that time, Messrs.
Goodwin, McKinnon and Mueller, after appointment of such directors. The private
sales by our Founding Stockholder to our outside directors, who are
sophisticated buyers, were made in reliance on exemptions available for private
sales under the Securities Act, as our Founding Stockholder was neither the
issuer nor a dealer. There were no sales to any other individuals and there was
no general solicitation. In an effort to ensure that the sales were made in
private transactions, the purchase agreements imposed transfer restrictions on
the securities, and the buyers provided written representations that indicated
they were acquiring the securities for their own account for investment and not
with a view towards, or for resale in connection with, any public sale or
distribution. Appropriate legends were affixed to the instruments representing
the securities issued in such transactions.
On May 29,
2007, a recapitalization was effected in which we purchased from the Founding
Stockholder 1,692,968 of outstanding shares of common stock for retirement and a
total of 25,782 of outstanding shares of common stock from three of our
directors, in each case for the nominal consideration of $1.00.
On June
25, 2007, our board of directors declared a stock dividend to stockholders of
record on June 24, 2007. The stock dividend was paid on June 29,
2007. One share of common stock was issued for each five outstanding
shares of Common Stock. All references in the accompanying financial
statements as of December 31, 2006 and for the period from October 26, 2006
(date of inception) to September 30, 2008 to the number of shares of common
stock have been retroactively restated to reflect this transaction.
GSC
ACQUISITION COMPANY
(a
development stage company)
Notes
to Unaudited Condensed Consolidated Financial Statements —
(Continued)
A
registration statement for our IPO was declared effective on June 25, 2007. The
registration statement related to a proposed maximum aggregate offering of
17,250,000 Units (consisting of 17,250,000 shares of Common Stock and 17,250,000
Warrants) for a proposed maximum aggregate offering price of $172.5 million. On
June 25, 2007, in accordance with Rule 462(b), we increased the number of Units
being registered by 3,450,000, to 20,700,000 Units (consisting of 20,700,000
shares of Common Stock and 20,700,000 Warrants) for a proposed maximum aggregate
offering price of $207.0 million. The underwriter for our IPO was Citigroup
Global Markets Inc., acting as sole book running manager and representative of
Ladenburg Thalmann & Co. Inc. and I-Bankers Securities, Inc. (together, the
“Underwriters”).
On June
29, 2007, the net proceeds from (i) the sale of 20,700,000 units in our IPO
(including the Underwriters’ over-allotment option), after deducting
approximately $14.5 million and $1.0 million to be applied to underwriting
discounts and offering expenses, respectively, plus approximately $6.2 million
of deferred underwriting discounts and (ii) the sale of 4,000,000 warrants to
our Founding Stockholder for a purchase price of $4.0 million, was approximately
$201.7 million. All of these net proceeds were placed in trust, except for
$50,000 that was used for working capital.
On October 5, 2007 our
Founding Stockholder repurchased 22,500 shares from Mr. Edward A. Mueller in
connection with his resignation from our board of directors effective as of
October 3, 2007. The private purchase by our Founding Stockholder was
made in reliance on exemptions available for private sales under the
Securities Act.
As of September 30, 2008,
we had incurred an aggregate of approximately $1.1 million in organizational and
offering related expenses (excluding underwriters discount and commissions),
which have been paid out of the proceeds of our IPO not held in trust and our
withdrawal of interest earned on the funds held in trust. Up to $2.4
million of dividend income earned on the funds held in trust may be released to
us, all of which had been released as of September 30, 2008, for the following
purposes:
|
|
•
|
|
payment
of premiums associated with our directors and officers liability
insurance;
|
|
|
|
|
|
|
|
•
|
|
expenses
for due diligence and investigation of prospective Target
Businesses;
|
|
|
|
|
|
|
|
•
|
|
legal
and accounting fees relating to our SEC reporting obligations and general
corporate matters; and
|
|
|
|
|
|
|
|
•
|
|
miscellaneous
expenses.
|
On June 24, 2008, our
Founding Stockholder agreed to transfer to each of Richard W. Detweiler and
Daniel R. Sebastian 5,000 shares of the Company’s common stock, subject to
consummation by the Company of its initial business combination, expiration of
transfer restrictions applicable to such common stock and certain other terms
and conditions.
As of
September 30, 2008, approximately $203.4 million was held in a trust
account. We intend to use $195.5 million of such funds to consummate
our initial Business Combination as described in more detail under Part I, Item
2, Management’s Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.
ITEM 3. Defaults upon Senior Securities.
Not
applicable.
ITEM 4. Submission of Matters to a Vote of the Security
Holders.
On
June 22, 2007, in connection with our IPO, by unanimous written consent, our
stockholders approved the adoption of an Amended and Restated Certificate of
Incorporation, which was adopted on June 26, 2007.
ITEM 5. Other Information.
None.
ITEM
6. Exhibits.
|
|
|
|
|
2.1
|
|
|
Agreement and Pla
n of Merger, dated as of May 9, 2008, by and among
GSC Acquisition Company, GSCAC Holdings I LLC, GSCAC Holdings II LLC,
GSCAC Merger Sub LLC and Complete Energy Holdings, LLC
(1)
|
|
2.1
|
|
|
Merger Consideration Calculation
(2)
|
|
3.1
|
|
|
Certificate
of Amended and Restated Certificate of Incorporation
(3)
|
|
3.2
|
|
|
Form
of Bylaws
(4)
|
|
4.1
|
|
|
Specimen
Unit Certificate
(4)
|
|
4.2
|
|
|
Specimen
Common Stock Certificate
(4)
|
|
4.3
|
|
|
Form
of Warrant Agreement between the Company and American Stock Transfer &
Trust Company
(4)
|
|
4.4
|
|
|
Form
of Warrant Certificate
(4)
|
|
10.1
|
|
|
Consent, Exchange and Preemptive Rights Agreement,
dated as of May 9, 2008, by and among CEH/La Paloma Holding Company, LLC,
Complete Energy Holdings, LLC, Lori A. Cuervo, Hugh A. Tarpley and Peter
J. Dailey, GSC A
cquisition Company,
GSCAC Holdings I LLC, GSCAC Holdings II LLC, GSCAC Merger Sub LLC, TCW
Asset Management Company and the Note Holders and Option Holders party
thereto (5)
|
|
10.2
|
|
|
Employment Agreement, dated as of May 9, 2008, by
and among CEP Opera
ting Company LLC,
GSC Acquisition Company and Hugh A. Tarpley (6)
|
|
10.3
|
|
|
Employment Agreement, dated as of May 9, 2008, by
and among CEP Operating Company LLC, GSC Acquisition Company and Lori A.
Cuervo (7)
|
|
10.4
|
|
|
CEH Unitholder Consent and Release
Agreement
, dated as of May 9, 2008,
by and among Lori A. Cuervo, Hugh A. Tarpley and Peter J. Dailey, Complete
Energy Holdings LLC and GSC Acquisition Company
(8)
|
|
10.5
|
|
|
Amendment to Registration Rights Agreement, dated
as of May 9, 2008, by and among GSC Acquisitio
n Company, GSC Secondary Interest Fund, LLC, James
K. Goodwin and
Richard
A. McKinnon (9)
|
|
10.6
|
|
|
Non-Solicitation and Confidentiality Agreement
dated as of May 9, 2008 between GSC Acquisition Company and Peter J.
Dailey (10)
|
|
31.1
|
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes- Oxley Act of
2002
|
|
31.2
|
|
|
Certification
of President Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
32.1
|
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
(1)
|
Incorporated by
reference to exhibit 2.1 of the Company’s current report on Form 8-K filed
on May 12, 2008.
|
|
(2)
|
Incorporated by
reference to exhibit 2.2 of the Company’s current report on Form 8-K filed
on May 12, 2008.
|
|
(3)
|
Incorporated by
reference to exhibit 1.1 of the Company’s current report on Form 8-K filed
on July 2, 2007.
|
|
(4)
|
Incorporated by
reference to the Company’s Registration Statement on Form S-1
(Registration No. 333-138832), which was declared effective on June 25,
2007.
|
|
(5)
|
Incorporated by
reference to exhibit 10.3 to the Company’s current report on Form 8-K
filed on May 12, 2008.
|
|
(6)
|
Incorporated by
reference to exhibit 10.4 to the Company’s current report on Form 8-K
filed on May 12, 2008.
|
|
(7)
|
Incorporated by
reference to exhibit 10.5 to the Company’s current report on Form 8-K
filed on May 12, 2008.
|
|
(8)
|
Incorporated by
reference to exhibit 10.6 to the Company’s current report on Form 8-K
filed on May 12, 2008.
|
|
(9)
|
Incorporated by
reference to exhibit 10.7 to the Company’s current report on Form 8-K
filed on May 12, 2008.
|
|
(10)
|
Incorporated by
reference to exhibit 10.8 to the Company’s current report on Form 8-K
filed on May 12, 2008.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
GSC
ACQUISITION COMPANY
|
|
|
|
|
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November
11, 2008
|
By:
|
/s/ Peter
Frank
|
|
|
|
|
Name:
|
Peter
Frank
|
|
|
|
|
Title:
|
Chief
Executive Officer and Principal Accounting and Financial
Officer
|
|
