Forward-Looking
Statements
This
report, and the information incorporated by reference in it, includes
“forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Our forward-looking statements include, but are
not limited to, statements regarding our expectations, hopes, beliefs,
intentions or strategies regarding the future. In addition, any statements that
refer to projections, forecasts or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. The words “anticipates,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,”
“project,” “should,” “would” and similar expressions may identify
forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking. Forward-looking statements in this report 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 management or
directors following a business
combination;
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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 maintain the listing of our securities on the NYSE Alternext US or an
inability to have our securities listed on the NYSE Alternext
US 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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The
forward-looking statements contained or incorporated by reference in this report
are based on our current expectations and beliefs concerning future developments
and their potential effects on us and speak only as of the date of such
statement. 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” of Part I, Item 1A of this
report. 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.
References
in this report to “we,” “us” or “our company” refer to Highlands Acquisition
Corp. References to “public stockholders” refer to purchasers of our securities
by persons, including our founders, in, or subsequent to, our initial public
offering, provided that our founders’ status as “public stockholders” shall only
exist with respect to those securities so purchased.
PART
I
ITEM
1. Business
Introduction
We were
formed on April 26, 2007, as a blank check corporation for the purpose of
acquiring, through a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination, one or more operating
businesses, which we refer to as our initial business combination. Our efforts
in identifying a prospective target business will not be limited to a particular
industry. Although we initially focused our search for a target
business in the healthcare industry, we have expanded our focus to include other
industries as well, in addition to the healthcare industry.
The
healthcare industry encompasses all healthcare service companies, including
among others, managed care companies, hospitals, healthcare system companies,
physician groups, diagnostic service companies, medical device companies and
other healthcare-related entities.
A
registration statement for our initial public offering was declared effective on
October 3, 2007. On October 9, 2007, we sold 12,000,000 units in our initial
public offering, and on October 15, 2007, the underwriters for our initial
public offering purchased an additional 1,800,000 units pursuant to an
over-allotment option. Each unit consists of one share of common stock and one
warrant. Each warrant entitles the holder to purchase one share of our common
stock at a price of $7.50 commencing on the later of our consummation of a
business combination or January 3, 2009, provided in each case that there is an
effective registration statement covering the shares of common stock underlying
the warrants in effect. The warrants expire on October 3, 2012, unless earlier
redeemed. Simultaneously with the consummation of our initial public offering,
we completed a private placement of 3,250,000 warrants, which we refer to as the
sponsors’ warrants, at a price of $1.00 per warrant, generating gross proceeds
of $3,250,000. The sponsors’ warrants were purchased by (i) Kanders &
Company, Inc., Ivy Healthcare Capital II, L.P., and Fieldpoint Capital, L.L.C.,
each of which is an affiliate of certain officers and directors of the Company;
and (ii) Robert W. Pangia, the Company’s Chief Executive Officer, Dennis W.
O’Dowd and Virgilio Rene Veloso, each of which is an existing stockholder of the
Company. The sponsors’ warrants are identical to the warrants included in the
units sold in our initial public offering except that if we call the warrants
for redemption, the sponsors’ warrants will not be redeemable by us so long as
they are held by these purchasers or their permitted transferees. The purchasers
of the sponsors’ warrants have agreed that these warrants will not be
transferred, assigned or sold by them (except in limited situations) until after
we have completed our initial business combination. In addition,
Kanders & Company, Robert W. Pangia, Ivy Healthcare Capital II, L.P., Dennis
W. O’Dowd, Virgilio Rene Veloso and Fieldpoint Capital LLC have agreed to
purchase an aggregate of 1,000,000 units, which we refer to as the co-investment
units, at a price of $10.00 per unit ($10.0 million in the aggregate) in a
private placement that will occur immediately prior to the consummation of our
initial business combination.
We
received net proceeds of approximately $131.3 million from our initial
public offering (including proceeds from the exercise by the underwriters of
their over-allotment option) and sale of the sponsors’ warrants. In
addition, the Company received approximately $3.99 million attributable to
the portion of the underwriters’ discount which has been deferred until our
consummation of a business combination. A total of $135.3 was
deposited into a trust account and will be part of the funds distributed to our
public stockholders in the event we are unable to complete a business
combination. Unless and until a business combination is consummated, the
proceeds held in the trust account will not be available to us. For a more
complete discussion of our financial information, see the sections appearing
elsewhere in this report entitled “Selected Financial Data” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
Business
Strategy
Our
efforts in identifying a prospective target business will not be limited to a
particular industry. Although we initially focused our search for
target businesses in the healthcare industry, we have expanded our focus to
include other industries as well, in addition to the healthcare industry.
Accordingly, although our management’s expertise is primarily in the healthcare
industry, if we are presented with an opportunity in another industry that would
be in our stockholders’ best interests, we may pursue that opportunity. We will
consider all potentially attractive business opportunities that we locate or are
presented to us.
We
believe the healthcare industry represents an attractive environment for our
management team to complete a business combination which will serve as a
platform for future growth. According to publicly available information from the
Centers for Medicare and Medicaid Services, or CMS, spending on healthcare in
the United States was approximately $2.1 trillion in 2006, or approximately
16.0% of the 2006 United States gross domestic product, or GDP. A
report by the CMS, Office of the Actuary National Health Statistics Group,
‘‘National Health Expenditure Projections 2007-2017’’, indicates that national
healthcare spending is projected to grow on average 6.7% per year through 2017,
when it is expected to reach nearly $4.3 trillion. As evidenced by the projected
increase in healthcare spending as a percentage of GDP from 16.0% in 2006 to an
expected 19.5% in 2017 (set forth in the same report), we anticipate that the
United States will continue to spend substantially, and at an accelerated rate,
on healthcare products and services, driven largely by demographic trends and
rapid advancement in technology.
Healthcare
Industry Trends
We
believe that the healthcare industry represents an attractive target for our
investment focus based on several key trends driving growth,
including:
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Demographic Shift to an
Elderly Population.
According to the U.S.
Census Bureau publication ‘‘65+ in the United States: 2005,’’ the size of
the elderly population, the segment with the largest per capita usage of
healthcare services, is increasing more rapidly than the rest of the
population in the United States. According to this report, due to the
aging baby boomer generation, the percentage of the U.S. population aged
65 and older is expected to grow from 12.4% in 2000 to 13.0% in 2010 and
to 19.6% by 2030. By 2050, the population segment aged 65 and older will
total approximately 80 million individuals. In addition, according to the
National Center for Health Statistics of the Centers for Disease Control
(‘‘Health, United States, 2006’’), the average life expectancy in the
United States increased from 75.4 years in 1990 to 77.8 years in 2004. We
believe that as life expectancy increases, the industry will
experience increased demand for medical products that help the elderly
maintain an active lifestyle. Those over 65 years old have generated the
highest healthcare costs compared to any other demographic group and are
expected to be a major contributor to an increasing level of expenditure
for healthcare products and
services.
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Rapid Development of New
Healthcare Technologies and Services
. New
medical devices, therapeutics and services are being developed at an
accelerated rate, driven by advancements in new biomaterials, genomics and
proteomics, and information technology. Our management believes that the
rapid pace of innovation will continue to expand the scope, practice and
delivery of medicine and, in the process, create new market entrants,
leaders and opportunities.
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Consumerism.
Our
management believes that individual consumers, once passive participants
in the healthcare process, have become increasingly proactive in recent
years, driving increased demand for services and leading to additional
spending. They are challenging health plans that deny treatments, opting
for plans that provide enhanced choices, demanding information about
providers and quality of care, demonstrating a readiness to comparison
shop on the basis of price and paying out-of-pocket for cosmetic and other
elective procedures. Our management believes that consumerism is driving
opportunity via expanded reimbursement coverage for goods and services
and, in some instances, increased willingness by consumers to pay out of
pocket for goods and services that enhance quality of
life.
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Increasing Level of Merger and
Acquisition Activity.
The mergers and
acquisitions environment in the healthcare industry remains strong, driven
by efforts to fill gaps in product pipelines, expand geographic reach,
strengthen patent positions and consolidate fragmented markets. According
to Thomson Financial, 927 transactions were completed in 2004 for an
aggregate value of $95.7 billion. In 2006, 1,049 transactions were
completed which more than doubled the aggregate value to a record $197.4
billion. Our management believes that the dynamics driving healthcare
merger and acquisition activity will continue and, therefore, the industry
will present opportunities to identify and consummate an attractive
business combination.
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However,
as indicated above, we are not restricted from consummating a business
combination in a different industry and are not required to first seek a target
business in the healthcare industry. If an opportunity outside the healthcare
industry was presented to us that we determined was in our stockholders’ best
interests, we could pursue that opportunity. Accordingly, it is possible that we
will not even consider a target business in the healthcare industry. If we
consummate a business combination in an industry other than the healthcare
industry, the foregoing favorable industry trends would not apply to us
following the business combination.
Potential
Healthcare Investment Themes
Although
we will consider target businesses across the healthcare industry, we intend to
concentrate our search for an acquisition candidate within the following target
sectors of the healthcare industry:
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Medical Devices, Products and
Healthcare Diagnostics.
Frost & Sullivan
estimates that in 2005 the United States medical device and product market
generated $80.3 billion of revenue according to ‘‘Standard & Poor’s
Healthcare Products & Supplies Survey.’’ Demographic shifts, advanced
technologies, increased investment in research and development, and the
potential to address the clinical shortcomings of drug therapeutics are
all driving growth. Large medical device companies with established
distribution networks are contributing to the demand for acquisitions of
smaller companies with innovative technologies capable of generating new
revenue streams and/or preserving existing market
share.
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Healthcare
Services. According to CMS ‘‘National Health
Expenditure Projections 2007-2017,’’ the United States spent $660.2
billion on physician and clinical, dental and other personal
services, or professional services, and an additional $177.6 billion on
nursing home and home healthcare in 2006. These levels are projected to
rise to $743.1 billion for professional services and $198.5 billion for
nursing home and home healthcare in 2008. By 2017, professional services
will account for $1.30 trillion and nursing home healthcare another $336.5
billion of U.S. healthcare spending. Although professional services
spending fell in 2005 and 2006 due to slower growth in government and
private reimbursement, over time, labor costs are projected to rise,
driven by physician and nursing supply shortages and a shift in
demographics, according to ‘‘Standard & Poor’s Managed Care Survey’’
(April 19, 2007) and ‘‘Standard & Poor’s Facilities Survey’’ (December
28, 2006). An aging population, increased specialization and decreased
exposure to Medicaid are expected to boost nursing and home healthcare
revenue.
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Competitive
Strengths
We
believe we have the following competitive strengths:
Status
as a public company
We
believe our structure will make us an attractive business combination partner to
private target businesses. As an existing public company, we offer a target
business an alternative to the traditional initial public offering through a
merger or other business combination. In this situation, the owners of the
target business would exchange their shares of stock in the target business for
shares of our stock. We believe target businesses will find this method to be
less expensive, with greater certainty of becoming a public company than the
typical initial public offering process. In an initial public offering, there
are typically expenses incurred in marketing, roadshow and public reporting
efforts that will likely not be present to the same extent in connection with a
business combination with us. Furthermore, once a proposed business combination
is approved by our stockholders and the transaction is consummated, the target
business will have effectively become public, whereas an initial public offering
is always subject to the underwriters’ ability to complete the offering, as well
as general market conditions, that could prevent the offering from occurring.
Once public, we believe the target business would have greater access to capital
and additional means of creating management incentives that are better aligned
with stockholders’ interests than it would as a private company. It can offer
further benefits by augmenting a company’s profile among potential new customers
and vendors and aid in attracting talented employees.
Notwithstanding
the foregoing, certain features of our structure may have a negative impact on
our ability to consummate a business combination, including:
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our
obligation to seek stockholder approval of our initial business
combination or obtain necessary financial information may delay the
completion of a transaction;
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our
obligation to convert into cash up to 30% of our shares of common stock
held by our public stockholders who vote against our initial business
combination and exercise their conversion rights may reduce the resources
available to us for our initial business
combination;
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our
outstanding warrants, and the future dilution they potentially represent,
may not be viewed favorably by certain target businesses;
and
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the
requirement to acquire an operating business that has a fair market value
equal to at least 80% of the balance of the trust account at the time of
the acquisition (excluding deferred underwriting discounts and commissions
of $3.99 million could require us to acquire the assets of several
operating businesses at the same time, all of which sales would be
contingent on the closings of the other sales, which could make it more
difficult to consummate our initial business
combination.
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Strong
Financial position
With a
trust account of approximately $133.2 million at December 31, 2008 (excluding
the $3.99 deferred underwriting fee and the additional $10.0 million we will
receive from the co-investment), we offer a target business a variety of options
such as providing the owners of a target business with shares in a public
company and a public means to sell such shares, providing capital for the
potential growth and expansion of its operations or strengthening its balance
sheet by having significant cash resources or reducing its debt ratio. Because
we are able to consummate a business combination using the cash proceeds of our
initial public offering and the private placement of the sponsors’ warrants and
co-investment units, our capital stock, debt or a combination of the foregoing,
we have the flexibility to use the most efficient combination that will allow us
to tailor the consideration to be paid to the target business to reflect the
needs of the parties. However, if our initial business combination requires us
to use substantially all of our cash to pay the purchase price, because we will
not know how many stockholders may exercise their conversion rights, we may
either need to reserve part of the trust account for possible payment upon their
conversion, or we may need to arrange third party financing to help fund our
initial business combination in case a larger percentage of stockholders
exercise their conversion rights than we expect. Since we have no specific
business combination under consideration, we have not taken any steps to secure
third party financing. Accordingly, our flexibility in structuring a business
combination will be subject to these contingencies.
Management
Expertise
Our
management team possesses a substantial level of healthcare industry public
market, private equity and capital raising experience as investors, operators
and managers. Collectively, our officers and directors have over 100 years of
experience in structuring, negotiating, managing and consummating merger and
acquisitions.
Ivy Capital Partners
, the
General Partner of Ivy Healthcare Capital, L.P. and Ivy Healthcare Capital II,
L.P., which we refer to collectively as Ivy Capital Partners, is an affiliate of
each of Robert W. Pangia, our Chief Executive Officer, Russell F. Warren, M.D.,
the Chairman of our Board of Directors, and Russell F. Warren, Jr., a member of
our Board of Directors. Ivy Capital Partners is a healthcare-focused private
equity firm based in Montvale, New Jersey that invests in companies, and manages
such companies as a result of its officers’ and directors’ board positions with
such companies, within the medical device, life sciences and healthcare services
sectors, with particular experience in the orthopedic industry (which
encompasses all companies that provide orthopedic services and products such as
orthopedic implants and prostheses). We believe that Ivy Capital Partners’
in-depth knowledge of the healthcare industry increases its ability to source
and create transactions, conduct effective due diligence, recruit seasoned
management teams, partner with senior managers at its portfolio companies to
design ways of growing and improving their business, and provide access to a
network of resources that strengthen operational excellence to maximize
investment returns. Ivy Capital Partners believes that industry specialization
and knowledge improves its risk-adjusted returns by allowing the firm to
identify and capitalize upon emerging medical product and service trends. For
each of its investments, Ivy Capital Partners seeks to fully understand the
general industry and company-specific risks and opportunities by utilizing its
broad network of healthcare industry experts, investment operations and clinical
experience. This approach to due diligence reflects the firm’s conviction that
long-term value creation is dependent upon detailed industry and operational
knowledge. Ivy Capital Partners’ track record is based on the depth, breadth and
experience of its investment team. Russell F. Warren, Jr. co-founded and was the
CEO of Professional Sports Care Management, Inc., which he helped develop into
the largest chain of physical rehabilitation clinics in the New York tri-state
region. Professional Sports Care Management completed an initial public offering
in 1994 and was sold to HealthSouth in 1996. In 1997, Mr. Warren co-founded Ivy
Realty and, through numerous acquisitions, built a commercial real estate
portfolio valued in excess of $1.2 billion. From 1989 to 1996, Robert W. Pangia
served as Executive Vice President and Director of Investment Banking at Paine
Webber Incorporated, where he oversaw all of the investment bank’s mergers and
acquisitions and corporate finance activities. Mr. Pangia currently acts as a
director of Biogen Idec, a Nasdaq-listed biotechnology company, McAfee, Inc., a
New York Stock Exchange listed supplier of computer security solutions, and was
formerly a director at Icos Corporation, a biotechnology company that was
acquired by Eli Lilly and Company, and Athena Neurosciences, a research-based
pharmaceutical company. Russell F. Warren, M.D. is Surgeon-in-Chief Emeritus of
the Hospital for Special Surgery and has published over 250 peer-reviewed
scientific articles. Dr. Warren has patented a number of his inventions to treat
orthopedic conditions in the knee and shoulder and, for the past 20 years, has
served as the team doctor for the New York Giants football team. To date, Ivy
Capital Partners has funded 17 portfolio companies with four of these companies
providing liquidity opportunities for their investors.
Kanders & Company
, an
affiliate of each of Warren B. Kanders, a member of our Board of Directors,
Philip A. Baratelli, our Chief Financial Officer, and Gary M. Julien, our Vice
President of Corporate Development, is a private investment firm based in
Stamford, Connecticut, that utilizes a private equity approach to building
public companies. The firm’s public market investment strategy provides public
and private companies, either entire entities or divisions, with strategic
insights and capital for enhancing operating discipline and catalyzing long-term
growth, both organically and via carefully selected acquisition opportunities.
The firm’s principals believe that the public markets provide an ideal forum to
support growth initiatives for operating businesses. The firm has significant
experience building public companies within a variety of industries including
healthcare, aerospace and defense, industrial manufacturing and consumer
markets. Kanders & Company’s owner and President, Warren B. Kanders was,
from 1996 to Armor Holdings, Inc.’s sale to a wholly-owned subsidiary of BAE
Systems plc on July 31, 2007, Chairman, CEO and largest shareholder of the New
York Stock Exchange-listed company, Armor Holdings, Inc., a manufacturer and
supplier of military vehicles, armored vehicles and safety and survivability
products and systems serving aerospace & defense, public safety, homeland
security and commercial markets. Since 1996, Armor Holdings has grown from
approximately $11.0 million in revenue to estimated revenue of approximately
$3.5 billion in 2007, through both organic growth and the completion of over 30
acquisitions, including the $803 million acquisition of Stewart & Stevenson
Services, Inc. which closed in May 2006. In 2006, Armor Holdings was listed as
number three on FORTUNE Magazine’s ‘‘100 Fastest-Growing Companies.’’ In 2005,
Armor Holdings was awarded ‘‘Corporate/Strategic Firm of the Year’’ by The
M&A Advisor, a national award reflecting its leadership and expertise in
corporate mergers and acquisitions in the middle market. Based on the $88.00 per
share price of the BAE Systems acquisition of Armor Holdings, the performance of
Armor Holdings’ stock price during Mr. Kanders’ investment period generated a
31.4% annual rate of return, making it a leading performer among all companies
listed on the NYSE during this period in terms of stock price appreciation.
Prior to his service with Armor Holdings, from October 1992 to May 1996, Mr.
Kanders served as Founder and Vice Chairman of the Board of Benson Eyecare
Corporation, a distributor of eyecare products and services. In 1992, Benson
Eyecare Corporation was the highest performing stock in terms of stock
appreciation on the American Stock Exchange and posted positive returns every
year prior to its sale in 1996.
Established
Deal Sourcing Network
Our
management team has built and maintained a broad network of professional
contacts which we intend to utilize to identify and build a scalable
growth-oriented business. These established relationships include, among others,
healthcare industry entrepreneurs, executive officers and board members at
public and private healthcare companies, business brokers, private equity and
venture capital firms, consultants, investment bankers, attorneys, accountants
and prominent physicians and researchers at leading U.S. hospitals and private
practices. We believe this network of professional relationships will be of
significant assistance in helping us identify potential business combination
targets. However, in each of these cases, our ability to benefit from
these extensive relationships will be limited because our officers and
non-independent directors have agreed until the earliest of our consummation of
a business combination, our liquidation or until such time as he ceases to be an
officer or director of us to present to us for our consideration, prior to
presentation to any other person or entity, any business opportunity to acquire
a privately held operating business, if, and only if, (i) the target entity has
a fair market value between 80% of the balance in the trust account (excluding
deferred underwriting discounts and commissions) and $500 million, the target
entity’s principal business operations are in the healthcare industry and the
opportunity is to acquire substantially all of the assets or 50.1% or greater of
the voting securities of the target entity or (ii) the target entity’s principal
business operations are outside of the healthcare industry and the opportunity
to acquire such target entity is presented by a third party to one of our
officers or non-independent directors expressly for consideration by us. With
respect to all business opportunities, including those described in clause (i),
but excluding those described in clause (ii) above, the obligation of our
officers and non-independent directors to present a business opportunity to us
which may be reasonably required to be presented to us under Delaware law is
subject to any pre-existing fiduciary or other obligations the officer or
non-independent director may owe to another entity. Our Board of
Directors has adopted resolutions renouncing any interest in or expectancy to be
presented any business opportunity outside of those described in clauses (i) and
(ii) above (as qualified by the immediately preceding sentence) that comes to
the attention of any of our officers or non-independent directors. Neither this
agreement by our officers and non-independent directors nor the resolutions may
be amended or rescinded in any way except upon prior approval by the holders of
a majority of our outstanding shares of common stock.
In
addition, although we do not expect our independent directors to present
business opportunities to us, they may become aware of business opportunities
that may be appropriate for presentation to us. In such instances they may
determine to present these business opportunities to other entities with which
they are or may be affiliated, in addition to, or instead of, presenting them to
us.
Effecting
a Business Combination
General
We are
not presently engaged in, and we will not engage in, any operations for an
indefinite period of time. We intend to utilize the cash proceeds of our initial
public offering and the private placement of the sponsors’ warrants
and co-investment units, our capital stock, debt or a combination of the
foregoing as the consideration to be paid in a business combination. While
substantially all of the net proceeds of our initial public offering and the
private placement of the sponsors’ warrants are allocated to completing a
business combination, the proceeds are not otherwise designated for more
specific purposes. Accordingly, there is no current basis for stockholders to
evaluate the specific merits or risks of one or more target businesses. 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 our initial public offering and the private placement of the sponsors’
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 that does not require significant
additional capital but is seeking a public trading market for its shares, and
which wants to merge with an already public company to avoid the uncertainties
associated with undertaking its own public offering. These uncertainties include
time delays, compliance and governance issues, significant expense, a possible
loss of voting control, and the risk that market conditions will not be
favorable for an initial public offering at the time the offering is ready to be
sold. We may seek to effect a business combination with more than one target
business, although our limited resources may serve as a practical limitation on
our ability to do so.
We are
currently in the process of identifying and evaluating potential target
businesses for our initial business combination. We have not entered
into any definitive business combination agreement. Accordingly, we
cannot assure you that we will be able to locate or enter into a business
combination with a target business on favorable terms or at all.
We do not
anticipate consummating a business combination with an entity that is affiliated
with any of our officers, directors or founders and have not given any
consideration towards entering into such a transaction. We also do not
anticipate consummating a business combination with any entity that our
management has had discussions with regarding a possible business combination
through their other business activities or with an entity that is either a
portfolio company of, or has otherwise received a financial investment from, an
investment banking firm (or an affiliate thereof) that is affiliated with our
management team. However, we are not restricted from entering into such
transactions and may do so if we determine that such a transaction is in our
stockholders’ best interests. If we determine to enter into such a transaction,
we would only do so if we obtain an opinion from an independent investment
banking firm that is a member of the Financial Industry Regulatory Authority, or
FINRA, indicating that the business combination is fair to our public
stockholders from a financial point of view. We expect that any such opinion
would be included in our proxy soliciting materials furnished to our
stockholders in connection with the business combination, and that such
independent investment banking firm will be a consenting expert. As the opinion
will likely be addressed to our Board of Directors for their use in evaluating
the transaction, we do not anticipate that our stockholders will be entitled to
rely on such opinion. However, as the opinion will 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.
Prior to
completion of a business combination, we will seek to have all vendors
(excluding our independent registered public accountants), prospective target
businesses or other entities, which we refer to as potential contracted parties
or a potential contracted party, that we engage execute agreements with us
waiving any right, title, interest or claim of any kind in or to any monies held
in the trust account for the benefit of our public stockholders. In the event
that a potential contracted party was to refuse to execute 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 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 potential contracted party refuses
to execute a waiver, then Kanders & Company and Ivy Capital Partners will be
liable to cover the potential claims made by such party for services rendered
and goods sold, in each case to us, but only if, and to the extent, that the
claims would otherwise reduce the proceeds in the trust account payable to our
public stockholders in the event of a liquidation. However, if a potential
contracted party executes a valid and enforceable waiver, then Kanders &
Company and Ivy Capital Partners will have no liability as to any claimed
amounts owed to a contracted party.
Subject
to the requirement that a target business or businesses have a collective fair
market value of at least 80% of the balance in the trust account (excluding
deferred underwriting discounts and commissions of $3.99 million) at the time of
our initial business combination, we have virtually unrestricted flexibility in
identifying and selecting one or more prospective target businesses. Although
our management will assess the risks inherent in a particular target business
with which we may combine, we cannot assure you that this assessment will result
in our identifying all risks that a target business may encounter. Furthermore,
some of those risks may be outside of our control, meaning that we can do
nothing to control or reduce the chances that those risks will adversely impact
a target business.
Sources
of target businesses
We
anticipate that target business candidates will be brought to our attention from
various unaffiliated sources, including healthcare industry entrepreneurs,
executives and board members at public and private healthcare companies,
business brokers, private equity and venture capital firms, consultants,
investment bankers, attorneys, accountants, prominent physicians and researchers
at leading U.S. hospitals and private practices. Target businesses may be
brought to our attention by such unaffiliated sources as a result of being
solicited by us through calls, mailings or the Internet. These sources may also
introduce us to target businesses they think we may be interested in on an
unsolicited basis, since many of these sources will have read this Annual Report
on Form 10-K and know what types of businesses we are targeting. Our officers
and directors, as well as their affiliates, may also bring to our attention
target business candidates that they become aware of through their business
contacts as a result of formal or informal inquiries or discussions they may
have, as well as 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 which event we may pay a finder’s
fee, consulting fee or other compensation to be determined in an arm’s length
negotiation based on the terms of the transaction. In no event, however, will
any of our existing officers, directors or stockholders, or any entity with
which they are affiliated, be paid any finder’s fee, consulting fee or other
compensation prior to, or for any services they render in order to effectuate,
the consummation of a business combination. Our management has experience in
evaluating transactions, particularly in the healthcare industry, but will
retain advisors as necessary to assist in its due diligence and evaluation
efforts. If we become aware of a potential business combination outside of the
healthcare industry, we may determine to retain consultants and advisors with
experience in such industries to assist in the evaluation of such business
combination and in our determination of whether or not to proceed with such a
business combination.
Selection
of a target business and structuring of a business combination
Subject
to the requirement that our initial business combination be with one or more
target businesses with a collective fair market value that is at least 80% of
the balance in the trust account (excluding deferred underwriting discounts and
commissions of $3.99 million) at the time of such business combination, our
management will have virtually unrestricted flexibility in identifying and
selecting a prospective target business.
We will
seek to acquire a business whose operations can be improved and enhanced with
our capital resources and where there are significant opportunities for growth
both organically and through a targeted acquisition program. We intend to focus
our search primarily in the United States, although we will also evaluate
international investment opportunities should we find such opportunities
attractive.
We have
identified the following criteria and guidelines that we believe are important
in evaluating prospective target businesses in the healthcare industry. We will
use these criteria and guidelines in evaluating acquisition opportunities.
However, we may decide to enter into a business combination with a target
business that does not meet these criteria and guidelines.
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An
experienced management team with a proven track record of executing on its
business plan, driving revenue growth and enhancing
profitability;
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An
established company with a history of strong operating and financial
results;
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A
high-quality product offering which is or has the potential to become the
standard of care in a large, underserved and growing
market;
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A
compelling business model with clearly defined performance execution
milestones;
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A
leading market provider with sustainable competitive advantages that
cannot be easily replicated (e.g. strong patent and trade secret positions
or lowest-cost and highest quality service
providers);
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Strong
free cash flow generation with recurring revenue
streams;
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A
diversified customer and supplier
base;
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Viable
opportunities for targeted industry consolidation;
and
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Significant
potential for returns in excess of our cost of capital on our acquisition
investment.
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In
analyzing prospective target businesses outside of the healthcare industry, we
will generally use the same criteria and guidelines except for those
specifically related to the healthcare industry set forth above.
These
criteria are not intended to be exhaustive. Any evaluation relating to the
merits of a particular business combination may be based, to the extent
relevant, on the above factors as well as other considerations deemed relevant
by our management to our business objective. In evaluating a prospective target
business, we expect to conduct an extensive due diligence review which will
encompass, among other things, meetings with incumbent management and employees,
document reviews, interviews of customers and suppliers, inspection of
facilities, as well as review of financial and other information which will be
made available to us.
The time
required to select and evaluate a target business and to structure and complete
a business combination, and the costs associated with this process, are not
currently ascertainable with any degree of certainty. Any costs incurred with
respect to the identification and evaluation of a prospective target business
with which a business combination is not ultimately completed will result in our
incurring losses and will reduce the funds we can use to complete another
business combination. We will not pay any finders or consulting fees to members
of our management team, or any of their respective affiliates, for services
rendered to or in connection with a business combination.
Fair
market value of target business or businesses
The
initial target business or businesses with which we combine must have a
collective fair market value equal to at least 80% of the balance in the trust
account (excluding deferred underwriting discounts and commissions of $3.99
million) at the time of the business combination. If we acquire less than 100%
of one or more target businesses in our initial business combination, the
aggregate fair market value of the portion or portions we acquire must equal at
least 80% of the balance in the trust account (excluding deferred underwriting
discounts and commissions as described above) at the time of the initial
business combination. We would acquire less than 100% of a business or
businesses if the transaction was still beneficial to our stockholders
notwithstanding the fact that we would not be acquiring the entire business or
businesses. In no event, however, will we acquire less than a controlling
interest in a target business (meaning not less than 50% of the voting
securities of the target business). We may seek to consummate a business
combination with an initial target business or businesses with a collective fair
market value in excess of 80% of the balance in the trust account. However, we
may need to obtain additional financing, in addition to the $10.0 million we
will receive from the co-investment private placement, to consummate such a
business combination and have not taken any steps to obtain any such
financing.
In
contrast to many other companies with business plans similar to ours that must
combine with one or more target businesses that have a fair market value equal
to 80% or more of the acquirer’s net assets, we will not combine with a target
business or businesses unless the fair market value of such entity or entities
meets a minimum valuation threshold of 80% of the amount in the trust account
(excluding deferred underwriting discounts and commissions of $3.99 million) at
the time of our initial business combination. We have used this criterion to
provide investors and our management team with greater certainty as to the fair
market value that a target business or businesses must have in order to qualify
for a business combination with us. The determination of net assets requires an
acquirer to have deducted all liabilities from total assets to arrive at the
balance of net assets. Given the on-going nature of legal, accounting,
stockholder meeting and other expenses that will be incurred immediately before
and at the time of a business combination, the balance of an acquirer’s total
liabilities may be difficult to ascertain at a particular point in time with a
high degree of certainty. Accordingly, we have determined to use the valuation
threshold of 80% of the amount in the trust account (excluding deferred
underwriting discounts and commissions of $3.99 million) at the time of the
initial business combination for the fair market value of the target business or
businesses with which we combine so that our management team will have greater
certainty when selecting, and our investors will have greater certainty when
voting to approve or disapprove a proposed combination with, a target business
or businesses that will meet the minimum valuation criterion for our initial
business combination.
The fair
market value of a target business or businesses will be determined by our Board
of Directors based upon one or more standards generally accepted by the
financial community (such as actual and potential sales, the values of
comparable businesses, earnings and cash flow and/or book value). 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 which is a member of
FINRA with respect to the satisfaction of such criterion. We expect that any
such opinion would be included in our proxy soliciting materials furnished to
our stockholders in connection with a business combination, and that such
independent investment banking firm will be a consenting expert. As the opinion
will likely be addressed to our Board of Directors for their use in evaluating
the transaction, we do not anticipate that our stockholders will be entitled to
rely on such opinion. However, as the opinion will 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. We will not be required to obtain an opinion
from an investment banking firm as to the fair market value of the business if
our Board of Directors independently determines that the target business or
businesses has sufficient fair market value to meet the threshold
criterion.
Lack
of business diversification
While we
may seek to effect business combinations with more than one target business, our
initial business combination must be with one or more target businesses whose
collective fair market value is at least equal to 80% of the balance in the
trust account (excluding deferred underwriting discounts and commissions of
$3.99 million) at the time of such business combination, as discussed above.
Consequently, we expect to complete only a single business combination, although
this may entail a simultaneous combination with several operating businesses at
the same time. At the time of our initial business combination, we may not be
able to acquire more than one target business because of various factors,
including complex accounting or financial reporting issues and the need to close
all of the transactions simultaneously. For example, we may need to present pro
forma financial statements reflecting the operations of several target
businesses as if they had been combined historically.
A
simultaneous combination with several target businesses also presents logistical
issues such as the need to coordinate the timing of negotiations, proxy
statement disclosure and closings. In addition, if conditions to closings with
respect to one or more of the target businesses are not satisfied, the fair
market value of the businesses, collectively, could fall below the required fair
market value threshold of 80% of the balance in the trust account (excluding
deferred underwriting discounts and commissions of $3.99 million) at the time of
the business combination.
Accordingly,
while it is possible that we may attempt to effect our initial business
combination with more than one target business, we are more likely to choose a
single target business if all other factors appear equal. This means that for an
indefinite period of time, the prospects for our success may depend entirely on
the future performance of a single business. Unlike other entities that have the
resources to complete business combinations with multiple entities in one or
several industries, it is probable that we will not have the resources to
diversify our operations and mitigate the risks of being in a single line of
business. By consummating a business combination with only a single entity, our
lack of diversification may:
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subject
us to negative economic, competitive and regulatory developments, any or
all of which may have a substantial adverse impact on the particular
industry in which we operate after a business combination,
and
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cause
us to depend on the marketing and sale of a single product or limited
number of products or services.
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If we
complete a business combination structured as a merger in which the
consideration is our stock, we would have a significant amount of cash available
to make add-on acquisitions following our initial business
combination.
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 with that
business, we cannot assure you that our assessment of the target business’
management will prove to be correct. In addition, we cannot assure you that the
future management will have the necessary skills, qualifications or abilities to
manage a public company. Furthermore, the future role of members of our
management team, if any, in the target business cannot presently be stated with
any certainty. While it is possible that one or more of our current directors
may remain associated in some capacity, whether as a director or otherwise, with
us following a business combination, we cannot assure you that any of them will
devote their full efforts to our affairs subsequent to a business combination.
Moreover, we cannot assure you that members of our management team will have
significant experience or knowledge relating to the operations of the particular
target business.
Following
a business combination, we may seek to recruit additional managers to supplement
the incumbent management of the target business. We cannot assure you that we
will have the ability to recruit additional managers, or that additional
managers will have the requisite skills, knowledge or experience necessary to
enhance the incumbent management.
Opportunity
for stockholder approval of business combination
Prior to
the completion of our initial 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
Delaware state law. In connection with our initial business combination, 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 our initial business
combination. Any vote to extend our corporate life to continue perpetually
following the consummation of our initial business combination will be taken
only if such business combination is approved. We will only consummate our
initial business combination if stockholders vote both in favor of such business
combination and our amendment to extend our corporate life.
In
connection with seeking stockholder approval of our initial 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 our initial business combination, all of
our founders, including all of our officers and directors, have agreed to vote
their founders’ common stock in accordance with the majority of the shares of
common stock voted by the public stockholders. Our founders have also agreed
that they will vote any shares they purchase in the open market in, or after,
our initial public offering in favor of our initial business combination. We
will proceed with our initial business combination only if a majority of the
shares of common stock voted by the public stockholders are voted in favor of
such business combination and an amendment to our certificate of incorporation
to provide for our perpetual existence is approved by holders of a majority of
our outstanding shares of common stock and public stockholders owning less than
30% of the shares sold in our initial public offering both vote against the
business combination and exercise their conversion rights.
Conversion
rights
At the
time we seek stockholder approval of our initial business combination, we will
offer each public stockholder the right to have their shares of common stock
converted to cash if the stockholder votes against such business combination and
such business combination is approved and completed. Our founders will not have
conversion rights with respect to any shares of common stock owned by them,
directly or indirectly, whether included in or underlying the founders’ units or
purchased by them in our initial public offering or in the aftermarket. 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 accrued interest, net of any interest income on
the trust account balance previously released to us to pay our tax obligations
and net of interest income of up to $2.1 million previously released to us to
fund our working capital requirements (calculated as of two business days prior
to the consummation of the proposed business combination), divided by the number
of shares sold in our initial public offering. The per-share conversion price
before interest would be approximately $9.77 per share, or $0.23 less than the
per-unit offering price of $10.00.
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 initial business combination at a meeting held for that purpose, but
the request will not be granted unless the stockholder votes against our initial
business combination and such business combination is approved and completed.
Additionally, we may require public stockholders, whether they are a record
holder or hold their shares in ‘‘street name,’’ to either tender their
certificates to our transfer agent at any time through the vote on our initial
business combination or to deliver their shares to the transfer agent
electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At
Custodian) System, at the holder’s option. The proxy solicitation materials that
we will furnish to stockholders in connection with the vote for a proposed
initial business combination will indicate whether we are requiring stockholders
to satisfy such certification and delivery requirements. Accordingly, a
stockholder would have from the time we send out our proxy statement through the
vote on such business combination to deliver his shares if he wishes to seek to
exercise his conversion rights. This time period varies depending on the
specific facts of each transaction. However, as the delivery process can be
accomplished by the stockholder, whether or not he is a record holder or his
shares are held in ‘‘street name,’’ in a matter of hours by simply contacting
the transfer agent or his broker and requesting delivery of his shares through
the DWAC System, we believe this time period is sufficient for an average
investor. Traditionally, in order to perfect conversion rights in connection
with a blank check company’s business combination, a holder could simply vote
against a proposed business combination and check a box on the proxy card
indicating such holder was seeking to convert. After the business combination
was approved, the company would contact such stockholder to arrange for him to
deliver his certificate to verify ownership. As a result, the stockholder then
had an ‘‘option window’’ after the consummation of the business combination
during which he could monitor the price of the stock in the market. If the price
rose above the conversion price, he could sell his shares in the open market
before actually delivering his shares to the company for cancellation. Thus, the
conversion right, to which stockholders were aware they needed to commit before
the stockholder meeting, would become a ‘‘put’’ right surviving past the
consummation of the business combination until the converting holder delivered
his certificate. The requirement for physical or electronic delivery prior to
the meeting ensures that a converting holder’s election to convert is
irrevocable once the business combination is approved.
If a
stockholder votes against our initial business combination but fails to properly
exercise his, her or its conversion rights, the stockholder will not have his,
her or its shares of common stock converted to his, her or its pro rata share of
the trust account. Any request for conversion, once made, may be withdrawn at
any time prior to the vote taken with respect to the proposed business
combination. Furthermore, if a stockholder delivers his certificate for
conversion and subsequently decides prior to the meeting not to elect
conversion, he may simply request that the transfer agent return the certificate
(physically or electronically). It is anticipated that the funds to be
distributed to stockholders entitled to convert their shares who elect
conversion will be distributed promptly after completion of our initial business
combination. Public stockholders who convert their stock into their pro rata
share of the trust account will still have the right to exercise any warrants
they still hold.
We will
not complete our proposed initial business combination if public stockholders
owning 30% or more of the shares sold in our initial public offering exercise
their conversion rights. We have set the conversion percentage at 30% in order
to reduce the likelihood that a small group of investors holding a block of our
stock will be able to stop us from completing our initial business combination
that may otherwise be approved by a majority of our public stockholders. The
conversion price will be approximately $9.77 per share plus any applicable
interest. As this amount is lower than the $10.00 per unit offering
price and it may be less than the market price of the common stock on the date
of conversion, there may be a disincentive on the part of public stockholders to
exercise their conversion rights.
If a vote
on our initial business combination is held and the business combination is not
approved, we may continue to try to consummate an initial business combination
with a different target until October 3, 2009. If our initial business
combination is not approved or completed for any reason, then public
stockholders voting against our initial business combination who exercised their
conversion rights would not be entitled to convert their shares of common stock
into a pro rata share of the aggregate amount then on deposit in the trust
account. In such case, if we have required public stockholders to tender their
certificates prior to the meeting, we will promptly return such certificates to
the tendering public stockholder. Public stockholders would be entitled to
receive their pro rata share of the aggregate amount on deposit in the trust
account only in the event that the initial business combination they voted
against was duly approved and subsequently completed, or in connection with our
liquidation.
Liquidation
if no business combination
Our
amended and restated certificate of incorporation provides that we will continue
in existence only until October 3, 2009. This provision may not be amended
except in connection with the consummation of our initial business combination.
If we have not completed a business combination by such date, our corporate
existence will cease except for the purposes of winding up our affairs and
liquidating, pursuant to Section 278 of the Delaware General Corporation Law.
This has the same effect as if our Board of Directors and stockholders had
formally voted to approve our dissolution pursuant to Section 275 of the
Delaware General Corporation Law. Accordingly, limiting our corporate existence
to a specified date as permitted by Section 102(b) (5) of the Delaware General
Corporation Law removes the necessity to comply with the formal procedures set
forth in Section 275 (which would have required our Board of Directors and
stockholders to formally vote to approve our dissolution and liquidation and to
have filed a certificate of dissolution with the Delaware Secretary of State).
Instead, we will notify the Delaware Secretary of State in writing on the
termination date that our corporate existence is ceasing, and include with such
notice payment of any franchise taxes then due to or assessable by the state. We
view this provision terminating our corporate life by October 3, 2009 as an
obligation to our stockholders and will not take any action to amend or waive
this provision to allow us to survive for a longer period of time except in
connection with the consummation of our initial business
combination.
If we are
unable to complete a business combination by October 3, 2009, as soon as
practicable thereafter, we will adopt a plan of distribution in accordance with
Section 281(b) of the Delaware General Corporation Law. Section 278 provides
that our existence will continue for at least three years after our expiration
for the purpose of prosecuting and defending suits, whether civil, criminal or
administrative, by or against us, and of enabling us gradually to settle and
close our business, to dispose of and convey our property, to discharge our
liabilities and to distribute to our stockholders any remaining assets, but not
for the purpose of continuing the business for which we were organized. Our
existence will continue automatically even beyond the three-year period for the
purpose of completing the prosecution or defense of suits begun prior to the
expiration of the three-year period, until such time as any judgments, orders or
decrees resulting from such suits are fully executed. Section 281(b) will
require us to pay or make reasonable provision for all then-existing claims and
obligations, including all contingent, conditional, or unmatured contractual
claims known to us, and to make such provision as will be reasonably likely to
be sufficient to provide compensation for any then-pending claims and for claims
that have not been made known to us or that have not arisen but that, based on
facts known to us at the time, are likely to arise or to become known to us
within 10 years after such date. Under Section 281(b), the plan of distribution
must provide for all of such claims to be paid in full or make provision for
payments to be made in full, as applicable, if there are sufficient assets. If
there are insufficient assets, the plan must provide that such claims and
obligations be paid or provided for according to their priority and, among
claims of equal priority, ratably to the extent of legally available assets. Any
remaining assets will be available for distribution to our stockholders.
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 below, we will seek to have all
vendors, service providers and prospective target businesses execute agreements
with us waiving any right, title, interest or claim of any kind they may have in
or to any monies held in the trust account. As a result, the claims that could
be made against us will be limited, thereby lessening the likelihood that any
claim would result in any liability extending to the trust. We therefore believe
that any necessary provision for creditors will be reduced and should not have a
significant impact on our ability to distribute the funds in the trust account
to our public stockholders. Nevertheless, we cannot assure you of this fact as
there is no guarantee that vendors, service providers and prospective target
businesses will execute waiver agreements. Nor is there any guarantee that, even
if they execute waiver agreements with us, they will not seek recourse against
the trust account. A court could also conclude that waiver agreements are not
legally enforceable. As a result, if we liquidate, the per-share distribution
from the trust account could be less than $9.77 due to claims or potential
claims of creditors. We will distribute to all of our public stockholders, in
proportion to their respective equity interests, an aggregate sum equal to the
amount in the trust account, inclusive of any interest and the deferred
underwriting discounts and commissions, plus any remaining net assets outside of
the trust account (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 the
assets in the trust account promptly after such date and anticipate it will take
no more than 10 business days to effectuate such distribution. Our founders have
waived their rights to participate in any liquidation distribution with respect
to their founders’ common stock. 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, Kanders & Company and Ivy Capital Partners
have agreed to advance us the funds necessary to complete such liquidation
(currently anticipated to be no more than approximately $15,000) and have agreed
not to seek repayment of such expenses.
If we are
unable to complete our initial business combination and expend all of the net
proceeds of our initial public offering, other than the proceeds deposited in
the trust account, and without taking into account interest, if any, earned on
the trust account, the initial per-share liquidation price would be
approximately $9.77, or $0.23 less than the per-unit offering price of $10.00.
The per share liquidation price includes $3.99 million in deferred underwriting
discounts and commissions that would also be distributable to our public
stockholders.
The
proceeds deposited in the trust account could, however, become subject to the
claims of our creditors (which could include vendors and service providers we
have engaged to assist us in any way in connection with our search for a target
business and that are owed money by us, as well as target businesses themselves)
which could have higher priority than the claims of our public stockholders.
Kanders & Company and Ivy Capital Partners have agreed that they will be
liable to pay debts and obligations to target businesses or vendors or other
entities that are owed money by us for services rendered or contracted for or
products sold to us in excess of the net proceeds of our initial public offering
not held in the trust account but only if, and to the extent, that the claims
would otherwise reduce the amount in the trust account payable to our public
stockholders in the event of a liquidation, and only if such a vendor or
prospective target business does not execute such a valid and enforceable
waiver. We cannot assure you, however, that they would be able to satisfy those
obligations. Accordingly, the actual per-share liquidation price could be less
than $9.77, 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 approximately $9.77 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
our initial 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.
If we are
forced to file a bankruptcy case or an involuntary bankruptcy case is filed
against us which is not dismissed, any distributions received by stockholders
could be viewed under applicable debtor/creditor and/or bankruptcy laws as
either a ‘‘preferential transfer’’ or a ‘‘fraudulent conveyance.’’ As a result,
a bankruptcy court could seek to recover all amounts received by our
stockholders. Furthermore, because we intend to distribute the proceeds held in
the trust account to our public stockholders promptly after October 3, 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 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.
Amended
and Restated Certificate of Incorporation
Our
amended and restated certificate of incorporation sets forth certain
requirements and restrictions relating to our initial public offering that 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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prior
to the consummation of our initial business combination, we shall submit
the proposed business combination to our public stockholders for approval
regardless of whether the proposed business combination is of a type which
normally would require stockholder approval under the Delaware General
Corporation Law; in the event that a majority of the shares held by public
stockholders present and entitled to vote at the meeting to approve our
initial business combination are voted for the approval of the business
combination and an amendment to our certificate of incorporation to
provide for our perpetual existence is approved, we will consummate the
business combination; provided that we will not consummate the business
combination if the holders of 30% or more of the shares sold in our
initial public offering vote against the business combination and exercise
their conversion rights;
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in
the event that our initial business combination is approved and is
consummated, any public stockholder holding shares of common stock issued
in our initial public offering who voted against the business combination
may, contemporaneously with such vote, demand that we convert his, her or
its shares into cash; if so demanded, the corporation shall, promptly
after consummation of the business combination, convert such shares into
cash;
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in
the event that we do not consummate a business combination prior to
October 3, 2009, all amounts in the trust account (including deferred
underwriting discounts and commissions) plus any other net assets outside
of the trust account not used for or reserved to pay obligations and
claims or such other corporate expenses relating to or arising from our
liquidation, shall be distributed on a pro rata basis to our public
stockholders; only public stockholders shall be entitled to receive
liquidating distributions and we will pay no liquidating distributions
with respect to any other shares of capital
stock;
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a
public stockholder shall be entitled to receive distributions from the
trust account only in the event of our liquidation or in the event he, she
or it demands conversion in connection with a vote against our initial
business combination; in no other circumstances shall a public stockholder
have any right or interest of any kind in or to the trust
account;
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unless
and until we have consummated our initial business combination, we may not
consummate any other business combination, whether by merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or other
similar business combination or transaction or
otherwise;
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we
will continue in existence only until October 3, 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; we will not take any action to amend or waive this provision
to allow us to survive for a longer period of time except in connection
with the consummation of our initial business
combination;
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we
will consummate our initial business combination only if (i) our initial
business combination is approved by a majority of the votes cast by our
public shareholders at a duly held stockholders meeting, (ii) an amendment
to our amended and restated certificate of incorporation to provide for
our perpetual existence is approved by holders of a majority of our
outstanding shares of common stock, and (iii) we have confirmed that we
have sufficient cash resources to pay both (x) the consideration required
to close our initial business combination, and (y) the cash due to public
stockholders who vote against our initial business combination and who
exercise their conversion rights;
and
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the
Board of Directors may not in any event issue any securities convertible
into common stock, shares of common stock or preferred stock prior to our
initial business combination that participates in or is otherwise entitled
in any manner to any of the proceeds in the trust account or votes as a
class with the common stock on our initial business
combination.
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We view
these provisions, which are contained in Article Seventh of our amended and
restated certificate of incorporation, as obligations to our stockholders and
will not take any action to amend or waive these provisions.
Competition
In
identifying, evaluating and selecting a target business for a business
combination, we may encounter intense competition from other entities having a
business objective similar to ours including other blank check companies,
private equity groups and leveraged buyout funds, and operating businesses
seeking strategic acquisitions. Many of these entities are well established and
have extensive experience identifying and effecting business combinations
directly or through affiliates. Moreover, many of these competitors possess
greater financial, technical, human and other resources than us. Our ability to
acquire larger target businesses will be limited by our available financial
resources. This inherent limitation gives others an advantage in pursuing the
acquisition of a target business. Furthermore:
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our
obligation to seek stockholder approval of our initial business
combination or obtain necessary financial information may delay the
completion of a transaction;
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our
obligation to convert into cash up to 30% of our shares of common stock
held by our public stockholders who vote against our initial business
combination and exercise their conversion rights may reduce the resources
available to us for our initial business
combination;
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our
outstanding warrants, and the future dilution they potentially represent,
may not be viewed favorably by certain target businesses;
and
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the
requirement to acquire an operating business that has a fair market value
equal to at least 80% of the balance of the trust account at the time of
the acquisition (excluding deferred underwriting discounts and commissions
of $3.99 million) could require us to acquire the assets of several
operating businesses at the same time, all of which sales would be
contingent on the closings of the other sales, which could make it more
difficult to consummate our initial business
combination.
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Administrative
Services Agreement
We have
agreed to pay Kanders & Company, Inc., an affiliate of each of Warren B.
Kanders, a member of our board of directors, Philip A. Baratelli, our Chief
Financial Officer, and Gary M. Julien, our Vice President, Corporate
Development, and Ivy Capital Partners, an affiliate of each of Robert W. Pangia,
our Chief Executive Officer, Russell F. Warren M.D., the Chairman of our board
of directors, and Russell F. Warren, Jr., a member of our board of directors, an
aggregate monthly fee of $10,000 for office space, secretarial support and
administrative and general services. This arrangement was agreed to
by us for our benefit and is not intended to provide Messrs. Kanders, Baratelli,
Julien, Pangia, Warren, M.D. or Warren, Jr. compensation in lieu of a salary or
other remuneration. We believe such fees are at least as favorable as
we could have obtained from an unaffiliated person. Upon completion
of our initial business combination or our liquidation, we will cease paying
these monthly fees.
Facilities
We
currently maintain our executive offices at One Paragon Drive, Suite 125,
Montvale, New Jersey 07645. The cost for this office is included in
the aggregate $10,000 per-month fee described above that Ivy Capital Partners
and Kanders & Company, Inc. charge us for office space, secretarial support
and administrative and general services. We believe, based on rents
and fees for similar services in Montvale, New Jersey, that the fee charged
by Ivy Capital Partners and Kanders & Company, Inc. is at least as favorable
as we could have obtained from an unaffiliated person. We consider
our current office space adequate for our current operations.
Employees
We
currently have 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 whether a target business has been
selected for the business combination and the stage of the business combination
process the company is in. Accordingly, once management locates a suitable
target business to acquire, they will spend more time investigating such target
business and negotiating and processing the business combination (and
consequently 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 our initial business combination.
Executive
Officers of the Registrant
Pursuant
to General Instruction G(3), the information regarding our executive officers
called for by Item 401(b) of Regulation S-K is hereby included in Part I of
this Annual Report on Form 10-K.
The
executive officers of our Company as of March 14, 2008 are as
follows:
Robert W. Pangia, 57,
has
served as our Chief Executive Officer since our inception. Mr. Pangia has 30
years of experience in the investment banking and private equity businesses with
a particular emphasis on working with healthcare and technology companies. In
February 2002, Mr. Pangia co-founded Ivy Capital Partners, the General Partner
of Ivy Healthcare Capital L.P. and Ivy Healthcare Capital II L.P., to take
advantage of a pipeline of investment opportunities in the orthopedic sector of
the healthcare market. To date, Ivy Capital Partners has funded 17 portfolio
companies in the healthcare market. From 1997 to February 2003, Mr. Pangia
worked as a private merchant banker. From 1989 until 1996, Mr. Pangia worked at
PaineWebber Incorporated, a wealth management services provider where he served
as Executive Vice President and Director of Investment Banking. He also held a
number of senior management positions including; Member of the Board of
Directors of PaineWebber Incorporated, member of the firm’s executive and
operating committees and Chairman of the firm’s equity commitment committee.
From 1977 to 1986, Mr. Pangia worked as an investment banker for Kidder, Peabody
& Co. Inc., and from 1986 to 1987, Mr. Pangia was a Managing Director in the
investment banking division of Drexel Burnham Lambert. Mr. Pangia is currently
serving as a director for an Ivy portfolio company: Gentis, Inc., a
privately-held company that has developed a proprietary implant for restoring
the normal function of a degenerated intervertebral disc. In addition, Mr.
Pangia is currently a director of Biogen Idec Inc., a Nasdaq-listed
biotechnology company, and McAfee, Inc., a New York Stock Exchange listed
supplier of computer security solutions. Mr. Pangia was formerly a Director of
Icos Corporation, a biotechnology company that was acquired by Eli Lilly and
Company, Athena Neurosciences, a research-based pharmaceutical company, Ryan
Beck Corporation, a financial services firm providing investment banking and
equity research services to companies in a variety of industries, and Scandius
BioMedical, Inc., a previous portfolio company of Ivy Healthcare Capital L.P.
that was acquired by Covidien Ltd. on November 13, 2007. Mr. Pangia
received an A.B. from Brown University and an M.B.A. with distinction from the
Columbia University Graduate School of Business.
Philip A. Baratelli, 41,
has
served as our Chief Financial Officer since our inception. Since
February 2007, Mr. Baratelli has served as Chief Financial Officer for Kanders
& Company, Inc., a private investment firm principally owned and controlled
by Mr. Warren B. Kanders that makes investments in and provides consulting
services to public and private entities, and Clarus Corporation, a publicly-held
company, formerly a provider of software solutions and currently seeking to
redeploy its assets through the acquisition of a target business. From June 2001
to February 2007, Mr. Baratelli was the Corporate Controller and Treasurer of
Armor Holdings, Inc., a manufacturer and supplier of military vehicles, armored
vehicles and safety and survivability products and systems serving aerospace
& defense, public safety, homeland security and commercial markets. From
February 1998 to February 2001, Mr. Baratelli was employed by
PricewaterhouseCoopers LLP in various positions ranging from Associate to Senior
Associate. From 1991 to 1997, Mr. Baratelli worked for Barnett Banks, Inc. in
various finance and credit analysis positions. Mr. Baratelli received a Bachelor
of Science in Finance from Florida State University in 1989 and a Bachelor of
Business Administration in accounting from the University of North Florida in
1995. Mr. Baratelli is a Certified Public Accountant.
Gary M. Julien
, 39, has
served as our Vice President, Corporate Development since our
inception. Since January 2007, Mr. Julien has served as Vice
President, Corporate Development for Kanders & Company and Clarus
Corporation, where his primary responsibilities include sourcing, negotiating
and consummating acquisitions, investments and related transactions. From
January 2003 to December 2006, Mr. Julien was Vice President, Corporate
Development for Armor Holdings, Inc. where he oversaw all mergers, acquisitions
and divestitures for the company, executing 15 transactions during this period.
From March 2002 through January 2003, Mr. Julien founded and was President of
Sequent Capital Advisors, a financial advisory firm focused on secondary
transactions in the private equity and venture capital market. From 1998 to
March 2002, Mr. Julien was Director of Corporate Development for Global Crossing
Ltd., a developer and owner of a global fiber optic telecommunications network,
where he led and supported several mergers and acquisitions, joint ventures and
minority investments. Mr. Julien began his career at Turner Broadcasting and
worked at Bear Stearns in equity research while attending graduate business
school. He received a B.S. from the Newhouse School of Communications at
Syracuse University and an M.B.A. with honors from the Columbia University
Graduate School of Business.
Available
Information
Our
Internet address is www.highlandscorp.com. We make available free of charge on
or through our Internet website our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports, and the proxy statement for our annual meeting of stockholders as soon
as reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission. Forms 3, 4 and 5 filed
with respect to our equity securities under section 16(a) of the Securities
Exchange Act of 1934, as amended, are also available on our Internet website.
All of the foregoing materials are located at the ‘‘Investor Relations’’ tab.
The information found on our website shall not be deemed incorporated by
reference by any general statement incorporating by reference this report into
any filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under
such Acts.
Materials
we file with the Securities and Exchange Commission may be read and copied at
the Securities and Exchange Commission’s Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. You may obtain information on the operation of the
Securities and Exchange Commission’s Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission also maintains an Internet website that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the Securities and Exchange Commission at www.sec.gov.
In addition, you may request a copy of any such materials,
without charge, by submitting a written request to: Highlands
Acquisition Corp., c/o the Secretary, One Paragon Drive,
Suite 125, Montvale, New Jersey 07645.
Information
on our Internet website does not constitute a part of this Annual Report on Form
10-K or any of our other filings with the Securities and Exchange
Commission.
ITEM
1A. Risk Factors
RISK
FACTORS
Recent
turmoil across various sectors of the financial markets may negatively impact
the Company’s business, financial condition and/or operating
results.
Recently,
the various sectors of the credit markets and the financial services industry
have been experiencing a period of unprecedented turmoil and upheaval
characterized by the disruption in credit markets and availability of credit and
other financing, the bankruptcy, failure, collapse or sale of various financial
institutions and an unprecedented level of intervention from the United States
federal government. While the ultimate outcome of these events cannot
be predicted, they may have a material adverse effect on our ability to obtain
financing that may be necessary to effectively consummate our initial business
combination, which could have a material adverse effect on the market price of
our common stock and our business, financial condition and results of
operations. In addition, reductions in interest rates resulting from
actions by the Federal Reserve Board will result in reduced interest income to
our Company, which may have an adverse effect on our business and financial
condition.
Our
independent registered public accountants have expressed substantial doubt as to
our ability to continue as a going concern.
Pursuant
to our amended and restated certificate of incorporation, we have until October
3, 2009 in which to complete a business combination. If we fail to
consummate a business combination within the required time frame, our corporate
existence will, in accordance with our amended and restated certificate of
incorporation, cease except for the purposes of winding up our affairs and
liquidating. The foregoing requirements are set forth in Articles
Sixth and Seventh of our amended and restated certificate of incorporation and
may not be eliminated except in connection with, and upon consummation of, a
business combination. As a result of the foregoing factors, our
independent registered public accounting firm, McGladrey & Pullen, LLP,
indicated in their report on our 2008 financial statements, that there is
substantial doubt about our ability to continue as a going concern.
We
are a recently formed development stage company with no operating history and no
revenues, and you have no basis on which to evaluate our ability to achieve our
business objective.
We are a
recently formed development stage company with limited operating
results. Because we lack an operating history, you have no basis upon
which to evaluate our ability to achieve our business objective of completing a
business combination with one or more target businesses. We have no plans,
arrangements or understandings with any prospective target business concerning a
business combination and may be unable to complete a business combination. If we
fail to complete a business combination, we will never generate any operating
revenues.
We
may not be able to consummate a business combination within the required time
frame, in which case, we would be forced to liquidate our assets.
Pursuant
to our amended and restated certificate of incorporation, we have until October
3, 2009 in which to complete a business combination. If we fail to consummate a
business combination within the required time frame, our corporate existence
will, in accordance with our amended and restated certificate of incorporation,
cease except for the purposes of winding up our affairs and liquidating. The
foregoing requirements are set forth in Articles Sixth and Seventh of our
amended and restated certificate of incorporation and may not be eliminated
except in connection with, and upon consummation of, a business combination. 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.
If
we are forced to liquidate before a business combination and distribute the
trust account, our public stockholders may receive less than $10.00 per share
and our warrants will expire worthless.
If we are
unable to complete a business combination within the required time frame and are
forced to liquidate our assets, the per-share liquidation distribution will
likely be less than $10.00 because of the expenses of our initial public
offering, our general and administrative expenses and the anticipated costs of
seeking a business combination. Furthermore, there will be no distribution with
respect to our outstanding warrants, which will expire worthless, if we
liquidate before the completion of a business combination.
If
we are unable to consummate a business combination, our public stockholders will
be forced to wait the full 24 months before receiving liquidation
distributions.
We have
24 months from October 3, 2007 in which to complete a business combination. We
have no obligation to return funds to public stockholders prior to the
expiration of such 24-month period unless we consummate a business combination
prior thereto and only then in cases where public stockholders have sought
conversion of their shares. Only after the expiration of this full time period
will public stockholders be entitled to liquidation distributions if we are
unable to complete a business combination. Accordingly, public stockholders
funds may be unavailable to them until such date.
You
will not be entitled to protections normally afforded to investors of blank
check companies.
Since the
net proceeds of our initial public offering are intended to be used to complete
a business combination with a target business that has not been identified, we
may be deemed to be a ‘‘blank check’’ company under the United States securities
laws. However, since our securities are listed on the NYSE Alternext US, a
national securities exchange, and we have net tangible assets in excess of $5.0
million because of the consummation of our initial public offering and have
filed a Current Report on Form 8-K, including an audited balance sheet
demonstrating this fact, we are exempt from rules promulgated by the SEC to
protect investors in blank check companies such as Rule 419. Accordingly, our
stockholders will not be afforded the benefits or protections of those rules
such as completely restricting the transferability of our securities, requiring
us to complete a business combination within 18 months of the effective date of
our initial registration statement and restricting the use of interest earned on
the funds held in the trust account. Because we are not subject to Rule 419, our
units were immediately tradable, we are entitled to withdraw a certain amount of
interest earned on the funds held in the trust account prior to the completion
of a business combination and we have a longer period of time to complete such a
business combination than we would if we were subject to such rule.
Because
there are numerous companies with a business plan similar to ours seeking to
effectuate a business combination and because of our limited resources and
structure, it may be more difficult for us to consummate a business
combination.
In
identifying, evaluating and selecting a target business for a business
combination, we expect to encounter intense competition from other entities
having a business objective similar to ours including other blank check
companies, private equity groups, venture capital funds, leveraged buyout funds,
and operating businesses seeking strategic acquisitions. Many of these entities
are well-established and have extensive experience identifying and effecting
business combinations directly or through affiliates. Moreover, many of these
competitors possess greater financial, technical, human and other resources than
us which will give them a competitive advantage in pursuing the acquisition of
certain target businesses. Furthermore:
• our
obligation to seek stockholder approval of our initial business combination or
obtain necessary financial information may delay the completion of a
transaction;
• our
obligation to convert into cash up to 30% minus one share of the shares of
common stock held by our public stockholders who vote against the business
combination and exercise their conversion rights may reduce the resources
available to us for a business combination;
• our
outstanding warrants, and the future dilution they potentially represent, may
not be viewed favorably by certain target businesses; and
• the
requirement to acquire an operating business that has a fair market value equal
to at least 80% of the balance of the trust account at the time of the
acquisition (excluding deferred underwriting discounts and commissions) could
require us to acquire the assets of several operating businesses at the same
time, all of which sales would be contingent on the closings of the other sales,
which could make it more difficult to consummate the business
combination.
Any of
these factors may place us at a competitive disadvantage in successfully
negotiating a business combination and, because we are subject to competition
from entities seeking to consummate a business plan similar to ours, we cannot
assure you that we will be able to effectuate a business combination within the
required time period.
If
the net proceeds of our initial public offering not being held in the trust
account plus the interest earned on the funds held in the trust account that may
be available to us are insufficient to allow us to operate for at least 24
months after the date of our initial public offering, we may be unable to
complete a business combination.
We
believe that the funds available to us outside of the trust account, plus the
interest earned on the funds held in the trust account that may be available to
us, will be sufficient to allow us to operate for at least 24 months after the
date of our initial public offering, assuming that a business combination is not
consummated during that time. However, we cannot assure you that our estimates
will be accurate. We could use a portion of the funds available to us to pay
fees to consultants to assist us with our search for a target business. We could
also use a portion of the funds as a down payment or to fund a ‘‘no-shop’’
provision (a provision in letters of intent designed to keep target businesses
from ‘‘shopping’’ around for transactions with other companies on terms more
favorable to such target businesses) with respect to a particular proposed
business combination. If we entered into a letter of intent where we paid for
the right to receive exclusivity from a target business and were subsequently
required to forfeit the funds whether as a result of our breach or otherwise),
we might not have sufficient funds to continue searching for, or conduct due
diligence with respect to, a target business.
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.
We must
conduct a due diligence investigation of the target businesses we intend to
acquire. 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 reveal all material issues that may affect a particular target business, or
that factors outside the control 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 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.
A
decline in interest rates could limit the amount available to fund our search
for a target business or businesses and complete a business combination since we
will depend on interest earned on the trust account to fund our search, to pay
our tax obligations and to complete our initial business
combination.
Of the
net proceeds of our initial public offering, only $500,000 has been made
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 of up to
$2.1 million which we will need to identify one or more target businesses and to
complete our initial business combination, as well as the funds required 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 founders to
operate or may be forced to liquidate. Our founders are under no obligation to
advance funds in such circumstances.
If
third parties bring claims against us, the proceeds held in trust could be
reduced and the per-share liquidation price received by stockholders may be less
than approximately $9.77 per share.
Our
placing of funds in the trust account may not protect those funds from third
party claims against us. Although we will seek to have all vendors and service
providers (excluding our independent registered public accountants) we
engage and prospective target businesses we negotiate with, execute agreements
with us waiving any right, title, interest or claim of any kind in or to any
monies held in the trust account for the benefit of our public stockholders,
there is no guarantee that they will execute waiver agreements. Furthermore,
there is no guarantee that, even if an entity executes a waiver agreement with
us, it will not seek recourse against the trust account. Nor is there any
guarantee that a court would uphold the validity of a waiver
agreement.
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 approximately $9.77 due to claims of
creditors. If we liquidate before the completion of a business combination and
distribute the proceeds held in the trust account to our public stockholders,
Kanders & Company and Ivy Capital Partners have agreed that they will be
liable to ensure that the proceeds in the trust account are not reduced by the
claims of target businesses or claims of vendors or other entities that are owed
money by us for services rendered or contracted for or products sold to us, but
only if a vendor or prospective target business does not execute a valid and
enforceable waiver. Because we will seek to have all vendors and prospective
target businesses execute waiver agreements with us waiving any right, title,
interest or claim of any kind they may have in or to any monies held in the
trust account, we believe the likelihood of Kanders & Company and Ivy
Capital Partners having any such obligations is minimal. Notwithstanding the
foregoing, we have reviewed their financial information and believe 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, we cannot assure you that the per-share distribution from the trust
account, if we liquidate, will not be less than approximately $9.77, plus
interest, due to such claims.
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 approximately $9.77 per share.
Our
stockholders may be held liable for claims by third parties against us to the
extent of distributions received by them.
If we are
unable to complete a business combination within the required time period, 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,
in which case we will as promptly as practicable thereafter adopt a plan of
distribution in accordance with Section 281(b) of the Delaware General
Corporation Law. Section 278 provides that our existence will continue for at
least three years after its expiration for the purpose of prosecuting and
defending suits, whether civil, criminal or administrative, by or against us,
and of enabling us gradually to settle and close our business, to dispose of and
convey our property, to discharge our liabilities and to distribute to our
stockholders any remaining assets, but not for the purpose of continuing the
business for which we were organized. Our existence will continue automatically
even beyond the three-year period for the purpose of completing the prosecution
or defense of suits begun prior to the expiration of the three-year period,
until such time as any judgments, orders or decrees resulting from such suits
are fully executed. Section 281(b) will require us to pay or make reasonable
provision for all then-existing claims and obligations, including all
contingent, conditional, or unmatured contractual claims known to us, and to
make provisions as will be reasonably likely to be sufficient to provide
compensation for any then-pending claims and for claims that have not been made
known to us or that have not arisen but that, based on facts known to us at the
time, are likely to arise or to become known to us within 10 years after the
date of dissolution. 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. 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 that we engage after the consummation of our
initial public offering (such as accountants, lawyers, investment bankers, etc.)
and potential target businesses. We intend to have all vendors that we engage
after the consummation of our initial public offering and prospective target
businesses execute agreements with us waiving any right, title, interest or
claim of any kind in or to any monies held in the trust account. Accordingly, we
believe the claims that could be made against us should be limited, thereby
lessening the likelihood that any claim would result in any liability extending
to the trust. However, we cannot assure you that we will properly assess all
claims that may be potentially brought against us. As a result, our stockholders
could potentially be liable for any claims to the extent of distributions
received by them (but no more) and any liability of our stockholders may extend
well beyond the third anniversary of the date of distribution. Accordingly, we
cannot assure you that third parties will not seek to recover from our
stockholders amounts owed to them by us.
If we are
forced to file a bankruptcy case or an involuntary bankruptcy case is filed
against us which is not dismissed, any distributions received by stockholders
could be viewed under applicable debtor/creditor and/or bankruptcy laws as
either a ‘‘preferential transfer’’ or a ‘‘fraudulent conveyance.’’ As a result,
a bankruptcy court could seek to recover all amounts received by our
stockholders. Furthermore, because we intend to distribute the proceeds held in
the trust account to our public stockholders promptly after 24 months from
October 3, 2007, 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 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.
An
effective registration statement may not be in place when a warrant holder
desires to exercise warrants, thus precluding such warrant holder from being
able to exercise warrants and causing the warrants to expire
worthless.
No
warrant will be exercisable and we will not be obligated to issue shares of
common stock unless, at the time a holder seeks to exercise a warrant, we have a
registration statement under the Securities Act in effect covering the shares of
common stock issuable upon the exercise of the warrants and a current prospectus
relating to the common stock. Under the terms of the warrant agreement, we have
agreed to use our best efforts to have a registration statement in effect
covering shares of common stock issuable upon exercise of the warrants as of the
date the warrants become exercisable and to maintain a current prospectus
relating to 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. We will not be required to net cash settle the warrants if we do not
maintain a current prospectus. In such event, the warrants held by public
stockholders may have no value, the market for such warrants may be limited,
such warrants may expire worthless and, as a result, an investor may have paid
the full unit price solely for the shares of common stock included in the
units.
A
warrant holder will only be able to exercise a warrant if the issuance of common
stock upon the 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 an exercise has been
registered or qualified or deemed to be exempt under the securities laws of the
state of residence of the holder of the warrants. At the time that the warrants
become exercisable, we expect to continue to be listed on a national securities
exchange, which would provide an exemption from registration in every state.
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.
If the common stock issuable upon exercise of the warrant is not qualified or
exempt from qualification in the jurisdictions in which the holders of the
warrants reside, the warrants may be deprived of any value, the market for the
warrants may be limited and they may expire worthless if they cannot be
sold.
We
have been advised that certain provisions contained in our amended and restated
certificate of incorporation may not be enforceable under Delaware law. This
could reduce or eliminate the protection afforded to our stockholders by such
provisions.
Our
amended and restated certificate of incorporation contains certain requirements
and restrictions that will apply to us until the consummation of our initial
business combination. Specifically, our amended and restated certificate of
incorporation provides, among other things, that:
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prior
to the consummation of any business combination, we shall submit the
business combination to our public stockholders for approval regardless of
whether the business combination is of a type which normally would require
stockholder approval under the Delaware General Corporation
Law; in the event that a majority of the shares held by public
stockholders present and entitled to vote at the meeting to approve the
business combination are voted for the approval of the business
combination and an amendment to our certificate of incorporation to
provide for our perpetual existence is approved we will consummate the
business combination; provided that we will not consummate any business
combination if the holders of 30% or more of the shares sold in our
initial public offering vote against the business combination and exercise
their conversion rights;
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upon
consummation of our initial public offering, we delivered, or cause to be
delivered, for deposit into the trust account $134,830,000, comprised of
(i) $131,580,000 of the net proceeds, including $3,990,000 in
deferred underwriting discounts and commissions, and (ii) $3,250,000 of
the proceeds from our issuance and sale in a private placement of
3,250,000 sponsors’ warrants issued to certain of our officers and
directors or affiliates of our officers and
directors;
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in
the event that a business combination is approved and is consummated, any
public stockholder holding shares of common stock issued in our initial
public offering who voted against the business combination may,
contemporaneously with such vote, demand that we convert his, her or its
shares into cash; if so demanded, we shall, promptly after consummation of
the business combination, convert such shares into
cash;
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in
the event that we do not consummate a business combination within the
required time period, all amounts in the trust account (including deferred
underwriting discounts and commissions) plus any other net assets outside
of the trust account not used for or reserved to pay obligations and
claims or other corporate expenses relating to or arising from our
liquidation, shall be distributed on a pro rata basis to our public
stockholders; only public stockholders shall be entitled to receive
liquidating distributions and we will pay no liquidating distributions
with respect to any other shares of capital
stock;
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a
public stockholder shall be entitled to receive distributions from the
trust account only in the event of our liquidation or in the event he, she
or it demands conversion in connection with a vote against a business
combination; in no other circumstances shall a public stockholder have any
right or interest of any kind in or to the trust
account;
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unless
and until we have consummated an initial business combination, we may not
consummate any other business combination, whether by merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or other
similar business combination or transaction or
otherwise;
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we
will continue in existence only until October 3, 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; we will not take any action to amend or waive this provision
to allow us to survive for a longer period of time except in connection
with the consummation of our initial business
combination;
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we
will consummate our initial business combination only if (i) the initial
business combination is approved by a majority of votes cast by our public
shareholders at a duly held stockholders meeting, (ii) an amendment to our
amended and restated certificate of incorporation to provide for our
perpetual existence is approved by holders of a majority of our
outstanding shares of common stock, and (iii) we have confirmed that we
have sufficient cash resources to pay both (x) the consideration required
to close our initial business combination, and (y) the cash due to public
stockholders who vote against the business combination and who exercise
their conversion rights; and
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our
Board of Directors may not in any event issue any securities convertible
into common stock, shares of common stock or preferred stock prior to an
initial business combination that participates in or is otherwise entitled
in any manner to any of the proceeds in the trust account or votes as a
class with the common stock on an initial business
combination.
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Our
amended and restated certificate of incorporation provides that until the
consummation of our initial business combination, the above requirements and
restrictions will not be amended. We have been advised that such provisions
limiting our ability to amend our certificate of incorporation may not be
enforceable under Delaware law. Accordingly, if an amendment were proposed and
approved, it could reduce or eliminate the protection afforded to our public
stockholders by these requirements and restrictions. However, we view these
provisions as obligations to our stockholders and have agreed not to take any
action to amend or waive these provisions.
Since
we have not yet selected a particular industry or target business with which to
complete a business combination, you will be unable to currently ascertain the
merits or risks of the industry or business in which we may ultimately
operate.
Although
we intend to focus our search for target businesses in the healthcare industry,
we may consummate a business combination with a company in any industry and are
not limited to any particular type of business. 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. 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 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 securities will not ultimately prove to be less
favorable to our stockholders than a direct investment, if an opportunity were
available, in a target business.
Your
only opportunity to evaluate and affect the investment decision regarding a
potential business combination will be limited to voting for or against the
business combination submitted to our stockholders for approval.
Your only
opportunity to evaluate and affect the investment decision regarding a potential
business combination will be limited to voting for or against the business
combination submitted to our stockholders for approval. In addition, a proposal
that you vote against could still be approved if a sufficient number of public
stockholders vote for the proposed business combination. Alternatively, a
proposal that you vote for could still be rejected if a sufficient number of
public stockholders vote against the proposed business combination.
We
may not seek an opinion from an unaffiliated third party as to the fair market
value of the target business we acquire or that the price we are paying for the
business is fair to our stockholders from a financial point of
view.
We may
not seek an opinion from an unaffiliated third party that the target business we
select has a fair market value in excess of at least 80% of the balance in the
trust account (excluding deferred underwriting discounts and commissions). We
are only required to obtain an opinion if (i) our Board of Directors is not able
to independently determine that the target business has a sufficient fair market
value to meet the threshold criterion or (ii) we are acquiring a target business
that is an affiliate of a member of our management team. We are also not
required to obtain an opinion from an unaffiliated third party indicating that
the price we are paying is fair to our stockholders from a financial point of
view unless the target is affiliated with our officers, directors, founders or
their affiliates. If no opinion is obtained, our stockholders will be relying on
the judgment of our Board of Directors.
We
may issue shares of our capital stock or debt securities to complete a business
combination. Issuance of our capital stock would reduce the equity interest of
our stockholders and may cause a change in control of our ownership, while the
issuance of debt securities may have a significant impact on our ability to
utilize our available cash.
Our
amended and restated certificate of incorporation authorizes the issuance of up
to 50,000,000 shares of common stock, par value $.0001 per share, and 1,000,000
shares of preferred stock, par value $.0001 per share. There are
12,250,000 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, including the founders’ warrants and
sponsors’ warrants but without taking into account the 1,000,000 co-investment
units) and all of the 1,000,000 shares of preferred stock available for
issuance. We may issue a substantial number of additional shares of our common
or preferred stock, or a combination of common and preferred stock, to complete
a business combination. The issuance of additional shares of our common stock or
any number of shares of our preferred stock:
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may
significantly reduce the equity interest of our
stockholders;
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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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may
cause a change in control if a substantial number of our shares of common
stock are issued, which may affect, among other things, our ability to use
our net operating loss carry forwards, if any, and could result in the
resignation or removal of our present officers and
directors;
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may,
in certain circumstances, have the effect of delaying or preventing a
change of control of us; and
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may
adversely affect prevailing market prices 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 revenues after a business
combination are insufficient to repay 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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our
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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The value
of your investment in us may decline if any of these events occur.
Resources
could be wasted in researching acquisitions that are not consummated, which
could materially adversely affect subsequent attempts to locate and acquire or
merge with another business.
It is
anticipated that the investigation of each specific target business and the
negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys and others. If a
decision is made not to complete a specific business combination, the costs
incurred up to that point for the proposed transaction likely would not be
recoverable. Furthermore, even if an agreement is reached relating to a specific
target business, we may fail to consummate the business combination for any
number of reasons including those beyond our control, such as that public
stockholders owning 30% or more of our shares vote against the business
combination and opt to have us convert their shares for a pro rata share of the
trust account even if a majority of our stockholders approve the business
combination. Any such event will result in a loss to us of the related costs
incurred which could materially adversely affect subsequent attempts to locate
and acquire or merge with another business.
Our
ability to successfully effect a business combination will be totally dependent
upon the efforts and time commitments of our management team, and our ability to
be successful after a business combination may be dependent upon the efforts of
our management team and key personnel who may join us following a business
combination.
Our
ability to successfully effect a business combination is dependent upon the
efforts of our management team. We believe that our success depends on the
continued service and time commitments of these individuals, at least until we
have consummated a business combination. We cannot assure you that these
individuals will remain with, or devote sufficient time to, us for the immediate
or foreseeable future. In addition, these individuals are engaged in, or
anticipate, in the future, becoming engaged in, several other business endeavors
and none of them is required to commit any specified amount of time to our
affairs. If the other business endeavors of these individuals require them to
devote substantial amounts of time, it could limit their ability to devote time
to our affairs, including the time necessary to identify potential business
combinations and monitor the related due diligence, and could have a negative
impact on our ability to consummate a business combination. We cannot assure you
that any conflicts of interest that these individuals may have in allocating
management time among various business activities, including identifying
potential business combinations and monitoring the related due diligence, will
be resolved in our favor. We do not have employment agreements with, or key-man
insurance on the life of, any of our officers. The unexpected loss of the
services of one or more members of our management team could have a detrimental
effect on us.
The role
of our management team and key personnel from the target business cannot
presently be ascertained. Although some of our management team may remain with
the target business in senior management or advisory positions following a
business combination, it is likely that some or all of the management of the
target business will remain in place. While we intend to closely scrutinize any
individuals we engage after a business combination, we cannot assure you that
our assessment of these individuals will prove to be correct. These individuals
may be unfamiliar with the requirements of operating a public company which
could cause us to have to expend time and resources helping them become familiar
with such requirements. This could be expensive and time-consuming and could
lead to various regulatory issues which may adversely affect our
operations.
Our
key personnel may negotiate employment or consulting agreements in connection
with a particular business combination. These agreements may provide for them to
receive compensation following a business combination and as a result, may cause
them to have conflicts of interest in determining whether a particular business
combination is the most advantageous.
Our key
personnel will be able to remain with the company after the consummation of a
business combination only if they are able to negotiate employment or consulting
agreements in connection with the business combination. Such negotiations would
take place simultaneously with the negotiation of the business combination and
could provide for such individuals to receive compensation in the form of cash
payments and/or our securities for services they would render to the company
after the consummation of the business combination. The personal and financial
interests of such individuals may influence their motivation in identifying and
selecting a target business. However, we believe the ability of such individuals
to remain with the company after the consummation of a business combination will
not be the determining factor in our decision as to whether or not we will
proceed with any potential business combination.
Some
of our officers and directors are now, and our other officers and directors may
in the future become, affiliated with entities engaged in business activities
similar to those conducted by us and accordingly, have or may have fiduciary or
other obligations to these other entities which could create conflicts of
interest, including in determining to which entity a particular business
opportunity should be presented.
Some of
our officers and directors are currently affiliated with entities engaged in
business activities similar to those intended to be conducted by us, including
Clarus Corporation, a publicly traded company with no current operating
business, net operating loss carryforwards of approximately $225 million and
approximately $86 million of cash and cash equivalents. Additionally, our
officers and directors may in the future become affiliated with entities,
including, among others, ‘‘blank check’’ companies, public companies, hedge
funds, private equity funds, venture capital funds and other investment vehicles
and capital pools, which may be engaged in business activities similar to those
conducted by us. In order to minimize potential conflicts of interest which may
arise from multiple corporate affiliations, our officers and directors have
agreed, pursuant to agreements with us and Citigroup Global Markets Inc., that
they will not organize or become involved in any other blank check company with
a focus on acquiring a target business in the healthcare industry until we
consummate our initial business combination. Notwithstanding the foregoing, our
officers and directors are not restricted from (i) investing in, or acquiring,
directly or indirectly, the securities of any company listed on a national
securities exchange (including, without limitation, NASDAQ), even if such
company is engaged in the healthcare industry, (ii) organizing, promoting or
becoming involved with blank check companies that do not have a focus of
acquiring a target business in the healthcare industry or (iii) organizing,
promoting or becoming involved with other investment vehicles having a business
plan of acquiring a healthcare business with which they do not have a
pre-existing disclosed relationship. Accordingly, there may be circumstances
where a potential target business may be presented to another entity prior to
its presentation to us, which could have a negative impact on our ability to
successfully consummate a business combination.
The
obligation of our officers and directors to present a business opportunity to us
which may be reasonably required to be presented to us under Delaware law is
limited and may be subject to pre-existing fiduciary or other obligations that
our officers and directors may owe to other companies. Consequently, we cannot
assure you that our officers and directors will ever present a business
combination opportunity to us.
In order
to minimize potential conflicts of interest which may arise from multiple
affiliations, our officers and non-independent directors have agreed, until the
earliest of our consummation of a business combination, our liquidation or until
such time as he ceases to be a director or officer, to present to us for our
consideration, prior to presentation to any other person or entity, any business
opportunity to acquire a privately held operating business, if, and only if (i)
the target entity has a fair market value between 80% of the balance in the
trust account (excluding deferred underwriting discounts and commissions) and
$500 million, the target entity’s principal business operations are in the
healthcare industry and the opportunity is to acquire substantially all of the
assets or 50.1% or greater of the voting securities of the target entity or (ii)
the target entity’s principal business operations are outside of the healthcare
industry and the opportunity to acquire such target entity is presented by a
third party to one of our officers or non-independent directors expressly for
consideration by us. With respect to all business opportunities, including those
described in clause (i), but excluding those described in clause (ii) above, the
obligation of our officers and non-independent directors to present a business
opportunity to us which may be reasonably required to be presented to us under
Delaware law is subject to any pre-existing fiduciary or other obligations that
the officer or non-independent director may owe to another entity. Our Board of
Directors has adopted resolutions renouncing any interest in or expectancy to be
presented any business opportunity outside of those described in clauses (i) and
(ii) above (as qualified by the immediately preceding sentence) that comes to
the attention of any of our officers or non-independent directors. Neither this
agreement by our officers and non-independent directors nor the resolutions may
be amended or rescinded in any way except upon prior approval by the holders of
a majority of our outstanding shares of common stock.
Certain
of our officers and non-independent directors are executive officers and/or
directors of other companies. As a result, with respect to all business
opportunities, including those described in clause (i), but excluding those
described in clause (ii) above, the obligation of our officers and
non-independent directors to present a business opportunity to us which may be
reasonably required to be presented to us under Delaware law is subject to the
pre-existing fiduciary or other obligations that our officers and
non-independent directors may owe to such other companies. Consequently, we
cannot assure you that our officers and non-independent directors will ever
present a business combination opportunity to us.
In
addition, although we do not expect our independent directors to present
business opportunities to us, they may become aware of business opportunities
that may be appropriate for presentation to us. In such instances they may
determine to present these business opportunities to other entities with which
they are or may be affiliated, in addition to, or instead of, presenting them to
us.
The
founders have waived their rights to participate in liquidation distributions
with respect to the founders’ common stock and founders’ warrants and sponsors’
warrants 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.
The
founders have waived their right to receive distributions with respect to the
founders’ common stock upon our liquidation if we are unable to consummate a
business combination. Accordingly, the founders’ common stock and founders’
warrants, as well as the sponsors’ warrants, and any other warrants purchased by
our officers or directors will be worthless if we do not consummate a business
combination. The personal and financial interests of our directors and officers
who own founders’ common stock or warrants (or are affiliated with owners of
these securities) may influence their motivation in timely identifying and
selecting a target business and completing a business combination. Consequently,
our directors’ and officers’ discretion in identifying and selecting a suitable
target business may result in a conflict of interest when determining whether
the terms, conditions and timing of a particular business combination are
appropriate and in our stockholders’ best interest.
The
NYSE Alternext US 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.
Our
securities are listed on the NYSE Alternext US, a national securities exchange,
however we cannot assure you that our securities will continue to be listed on
the NYSE Alternext US in the future prior to a business combination.
Additionally, in connection with our business combination, it is likely that the
NYSE Alternext US 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
NYSE Alternext US 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;
and
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a
decreased ability to issue additional securities or obtain additional
financing in the future.
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We
may only be able to complete one business combination with the proceeds of our
initial public offering and the private placement of the sponsors’ warrants,
which will cause us to be solely dependent on a single business which may have a
limited number of products or services.
Our
business combination must be with one or more target businesses having an
aggregate fair market value of at least 80% of the balance in the trust account
(excluding deferred underwriting discounts and commissions) at the time of such
acquisition. However, we may not be able to acquire more than one target
business because of various factors, including the existence of complex
accounting issues and the requirement that we prepare and file pro forma
financial statements with the SEC that present operating results and the
financial condition of several target businesses as if they had been operated on
a combined basis. By consummating a business combination with only a single
entity, our lack of diversification may subject us to numerous economic,
competitive and regulatory developments. Further, we would not be able to
diversify our operations or benefit from the possible spreading of risks or
offsetting of losses, unlike other entities which may have the resources to
complete several business combinations in different industries or different
areas of a single industry. Accordingly, the prospects for our success may
be:
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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 we determine to simultaneously acquire several businesses and such businesses
are owned by different sellers, we will need for each of the sellers to agree
that our purchase of its business is contingent on the simultaneous closings of
the other business combinations, which may make it more difficult for us, and
delay our ability, to complete the business combination. With multiple business
combinations, we could also face additional risks, including additional burdens
and costs with respect to possible multiple negotiations and due diligence
investigations (if there are multiple sellers) and the additional risks
associated with the subsequent assimilation of the operations and services or
products of the acquired companies in a single operating business. If we are
unable to adequately address these risks, it could negatively impact our
profitability and results of operations.
We
will likely seek to effect our initial business combination with one or more
privately-held companies, which may present certain challenges to us including
the lack of available information about these companies.
In
pursuing our acquisition strategy, we will likely seek to effect our initial
business combination with one or more privately-held companies. By definition,
very little public information exists about these companies, and we could be
required to make our decision on whether to pursue a potential initial business
combination on the basis of limited information.
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 founders or Mr. Kanders with respect to the shares of
common stock underlying the 500,000 units his affiliate purchased in
our initial public offering) 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. A public
stockholder must both vote against the business combination and then exercise
his, her or its conversion rights to receive a pro rata portion of the aggregate
amount then on deposit in 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 conversion, or we may need to arrange third party
financing to help fund our business combination in case a larger percentage of
public stockholders exercise their conversion rights than we expect. Since we
have no specific business combination under consideration, we have not taken any
steps to secure third party financing. Therefore, we may not be able to
consummate a business combination that requires us to use all of the funds held
in the trust account as part of the purchase price, or we may end up having a
leverage ratio that is not optimal for our business combination. This may limit
our ability to effectuate the most attractive business combination available to
us.
We
may proceed with a business combination even if public stockholders owning
4,139,999 of the shares sold in our initial public offering exercise their
conversion rights. This requirement may make it easier for us to have a business
combination approved over stockholder dissent.
We may
proceed with a business combination as long as public stockholders owning less
than 30% of the shares sold in our initial public offering both vote against the
business combination and exercise their conversion rights. Accordingly, public
stockholders holding up to 4,139,999
shares of our common
stock may both vote against the business combination and exercise their
conversion rights and we could still consummate a proposed business combination.
We have set the conversion percentage at 30% in order to reduce the likelihood
that a small group of stockholders holding a 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. However, this may have the effect of
making it easier for us to have a business combination approved over a
stockholder dissent. While there are a few other offerings similar to ours which
include conversion provisions greater than 20%, the 20% threshold is common for
offerings similar to ours. Because we permit a larger number of stockholders to
exercise their conversion rights, it will reduce the requirement to consummate
an initial business combination with a target business which you may vote
against, making it easier for us to have a business combination approved over
stockholder dissent, 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 larger
percentage of stockholders exercise their conversion rights than we expect.
Additionally, even if our business combination does not require us to use
substantially all of our cash to pay the purchase price, if a significant number
of stockholders exercise their conversion rights, we will have less cash
available to use in furthering our business plans following a business
combination and may need to arrange third party financing. We have not taken any
steps to secure third party financing for either situation. We cannot assure you
that we will be able to obtain such third party financing on terms favorable to
us or at all.
Our
founders, including our officers and directors, control a substantial interest
in us and thus may influence certain actions requiring a stockholder
vote.
Our
founders (including all of our officers and directors) collectively own
approximately 22.7% of our issued and outstanding shares of common
stock. None of our founders, officers, directors or their affiliates
has indicated any intention to purchase additional units or shares of common
stock from persons in the open market or in private transactions. However, if a
significant number of stockholders vote, or indicate an intention to vote,
against a proposed business combination, our founders, officers, directors or
their affiliates could make such purchases in the open market or in private
transactions in order to influence the vote. In addition, Kanders & Company
and Robert W. Pangia, Ivy Healthcare Capital II, L.P., Dennis O’Dowd,
Virgilio Rene Veloso and Fieldpoint Capital LLC, (collectively referred to as
the “Ivy Affiliates”) have agreed to purchase 1,000,000 units from us in a
private placement that will occur immediately prior to the consummation of our
initial business combination. The holders of these units may vote the shares of
common stock included therein in any manner they choose (except they have agreed
to vote such shares in favor of our initial business combination in connection
with a vote on our proposed initial business combination). Accordingly, they may
be able to effectively influence the outcome of all matters requiring approval
by our stockholders, including the election of directors and approval of
significant corporate transactions other than approval of our initial business
combination.
Warren B.
Kanders, Russell F. Warren, Jr., two members of our Board of Directors, and our
founders have entered into a stockholders agreement that will continue to be in
effect for a period of three years after our initial business combination. If a
party to the agreement or an affiliate thereof is nominated to serve as a
director, all of the parties to the agreement have agreed to vote in favor of
the nominee. Since the parties to the agreement currently hold or have voting
control over approximately 23% of our outstanding common stock, and will be
purchasing the co-investment units, these parties will have significant
influence in electing our directors.
Our Board
of Directors is and will be divided into three classes, each of which will
generally serve for a term of three years with only one class of directors being
elected in each year. If there is an annual meeting of our stockholders to elect
new directors prior to the consummation of a business combination, as a
consequence of our ‘‘staggered’’ Board of Directors, only a minority of the
Board of Directors will be considered for election and our founders, because of
their ownership position, will have considerable influence regarding the
outcome. Accordingly, our founders will continue to exert control at least until
the consummation of a business combination.
Our
outstanding warrants may have an adverse effect on the market price of our
common stock and make it more difficult to effect a business
combination.
We have
issued warrants to purchase 13,800,000 shares of common stock as part of the
units sold in our initial public offering. We also have sold the founders’
warrants as part of the founders’ units to purchase 3,450,000 shares of common
stock, the sponsors’ warrants to purchase 3,250,000 shares of common stock and
may sell 1,000,000 co-investment units, which include 1,000,000 co-investment
warrants to purchase 1,000,000 shares of common stock. To the extent we issue
shares of common stock to effect a business combination, the potential for the
issuance of a substantial number of additional shares upon exercise of these
warrants could make us a less attractive acquisition vehicle in the eyes of a
target business. These warrants, 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
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 a sale, of the shares underlying the warrants could have an
adverse effect on the market price for our securities or on our ability to
obtain future financing. If and to the extent these warrants are exercised, you
may experience a substantial dilution of your holdings.
If
our founders or the purchasers of the sponsors’ warrants or co-investment units
exercise their registration rights, it may have an adverse effect on the market
price of our common stock and the existence of these rights may make it more
difficult to effect a business combination.
Our
founders are entitled to demand that we register the resale of the founders’
common stock and warrants at any time commencing 30 days after we consummate a
business combination. Additionally, purchasers of the sponsors’ warrants are
entitled to demand that we register the resale of their warrants and underlying
shares of common stock at any time commencing 30 days after we consummate a
business combination. The purchasers of the co-investment units are entitled to
demand that we register the resale of their co-investment units and underlying
securities at any time commencing 30 days after we consummate a business
combination. We will bear the cost of registering these securities. If such
individuals exercise their registration rights with respect to all of their
securities, then there will be an additional 4,450,000 shares of common stock
and 7,700,000 warrants (as well as 7,700,000 shares of common stock underlying
the warrants) eligible for trading in the public market. The presence of these
additional securities 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
negative effect the exercise of such rights may have on the trading market for
our common stock.
If
we effect a business combination with a company located outside of the United
States, we would be subject to a variety of additional risks that may negatively
impact our operations.
We may
effect a business combination with a company located outside of the United
States. If we did, we would be subject to any special considerations or risks
associated with companies operating in the target business’ home jurisdiction,
including any of the following:
|
•
|
rules
and regulations or currency conversion or corporate withholding taxes on
individuals;
|
|
•
|
tariffs
and trade barriers;
|
|
•
|
regulations
related to customs and import/export
matters;
|
|
•
|
tax
issues, such as tax law changes and variations in tax laws as compared to
the United States;
|
|
•
|
currency
fluctuations and exchange controls;
|
|
•
|
challenges
in collecting accounts receivable;
|
|
•
|
cultural
and language differences;
|
|
•
|
employment
regulations;
|
|
•
|
crime,
strikes, riots, civil disturbances, terrorist attacks and wars;
and
|
|
•
|
deterioration
of political relations with the United
States.
|
We cannot
assure you that we would be able to adequately address these additional risks.
If we were unable to do so, our operations might suffer.
If
we effect a business combination with a company located outside of the United
States, the laws applicable to such company will likely govern all of our
material agreements and we may not be able to enforce our legal
rights.
If we
effect a business combination with a company located outside of the United
States, the laws of the country in which such company operates will govern
almost all of the material agreements relating to its operations. We cannot
assure you that the target business will be able to enforce any of its material
agreements or that remedies will be available in this new jurisdiction. The
system of laws and the enforcement of existing laws in such jurisdiction may not
be as certain in implementation and interpretation as in the United States. The
inability to enforce or obtain a remedy under any of our future agreements could
result in a significant loss of business, business opportunities or capital.
Additionally, if we acquire a company located outside of the United States, it
is likely that substantially all of our assets would be located outside of the
United States and some of our officers and directors might reside outside of the
United States. As a result, it may not be possible for investors in the United
States to enforce their legal rights, to effect service of process upon our
directors or officers or to enforce judgments of United States courts predicated
upon civil liabilities and criminal penalties of our directors and officers
under Federal securities laws.
If
we are deemed to be an investment company, we may be required to institute
burdensome compliance requirements and our activities may be restricted, which
may make it difficult for us to complete a business combination.
A company
that, among other things, is or holds itself out as being engaged primarily, or
proposes to engage primarily, in the business of investing, reinvesting, owning,
trading or holding certain types of securities would be deemed an investment
company under the Investment Company Act of 1940. Since we will invest the
proceeds held in the trust account, it is possible that we could be deemed an
investment company. Notwithstanding the foregoing, we do not believe that our
anticipated principal activities will subject us to the Investment Company Act
of 1940. To this end, the proceeds held in trust may be invested by the trustee
only in United States ‘‘government securities’’ within the meaning of Section
2(a)(16) of the Investment Company Act of 1940 having a maturity of 180 days or
less or in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act of 1940. By restricting the
investment of the proceeds to these instruments, we intend to meet the
requirements for the exemption provided in Rule 3a-1 promulgated under the
Investment Company Act of 1940.
If we are
nevertheless deemed to be an investment company under the Investment Company Act
of 1940, we may be subject to certain restrictions that may make it more
difficult for us to complete a business combination, including:
|
•
|
restrictions
on the nature of our investments;
and
|
|
•
|
restrictions
on the issuance of securities.
|
In
addition, we may have imposed upon us certain burdensome requirements,
including:
|
•
|
registration
as an investment company;
|
|
•
|
adoption
of a specific form of corporate structure;
and
|
|
•
|
reporting,
record keeping, voting, proxy, compliance policies and procedures and
disclosure requirements and other rules and
regulations.
|
Compliance
with these additional regulatory burdens would require additional expense for
which we have not allotted.
Because
we must furnish our stockholders with target business financial statements, we
may not be able to complete a business combination with some prospective target
businesses.
We will
provide stockholders with audited financial statements of the prospective target
business as part of the proxy solicitation materials sent to stockholders to
assist them in assessing the target business. In all likelihood, these financial
statements will need to be prepared in accordance with United States generally
accepted accounting principles. We cannot assure you that any particular target
business identified by us as a potential acquisition candidate will have
financial statements prepared in accordance with United States generally
accepted accounting principles or that the potential target business will be
able to prepare its financial statements in accordance with United States
generally accepted accounting principles. To the extent that this requirement
cannot be met, we may not be able to acquire the proposed target business. These
financial statement requirements may limit the pool of potential target
businesses with which we may combine.
Compliance
with the Sarbanes-Oxley Act of 2002 will require substantial financial and
management resources and may increase the time and costs of completing an
acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on
our system of internal controls and requires that we have such system of
internal controls audited beginning with this report. If we fail to
maintain the adequacy of our internal controls, we could be subject to
regulatory scrutiny, civil or criminal penalties and/or stockholder litigation.
Any inability to provide reliable financial reports could harm our business.
Section 404 of the Sarbanes-Oxley Act also requires that our independent
registered public accounting firm report on management’s evaluation of our
system of internal controls. A target company may not be in compliance with the
provisions of the Sarbanes-Oxley Act regarding adequacy of their internal
controls. The development of the internal controls of any such entity to achieve
compliance with the Sarbanes-Oxley Act may increase the time and costs necessary
to complete any such acquisition. Furthermore, any failure to implement required
new or improved controls, or difficulties encountered in the implementation of
adequate controls over our financial processes and reporting in the future,
could harm our operating results or cause us to fail to meet our reporting
obligations. Inferior internal controls could also cause investors to lose
confidence in our reported financial information, which could have a negative
effect on the trading price of our stock.
Risks
Related to the Healthcare Industry
Business
combinations with companies with operations in the healthcare industry entail
special considerations and risks. If we are successful in completing a business
combination with a target business with operations in the healthcare industry,
we will be subject to, and possibly adversely affected by, the following
risks:
The
healthcare industry’s highly competitive market and our inability to compete
effectively could adversely affect our business prospects and results of
operations.
Our
target businesses may operate in highly competitive markets against both large
and small companies. Our target business may not be able to offer products
similar to, or more desirable than, those of our competitors or at a price
comparable to that of our competitors. Compared to our target business, many of
the competitors may have:
• greater
financial and other resources;
• more
widely accepted products;
• a
larger number of endorsements from healthcare professionals;
• a
larger product portfolio;
• superior
ability to maintain new product flow;
• greater
research and development and technical capabilities;
• patent
portfolios that may present an obstacle to the conduct of our
business;
• stronger
name recognition;
• larger
sales and distribution networks; and
• international
manufacturing facilities that enable them to avoid the transportation costs and
foreign import duties associated with shipping our products manufactured in the
United States to international customers.
Accordingly,
we may be at a competitive disadvantage with respect to our competitors. These
factors may materially impair our ability to develop and sell our products
following our business combination.
If
our target business cannot develop or license new products or product
enhancements or find new applications for existing products, we will not remain
competitive.
Companies
operating in the healthcare market must continually develop innovative new
products before the competition renders those products obsolete. Our success and
our ability to increase revenues following a business combination will depend,
in part, on our ability to develop, license, acquire and distribute new and
innovative products, enhance our existing products with new technology and find
new applications for our existing products. However, we may not be successful in
developing or introducing new products, enhancing existing products or finding
new applications for our existing products. We also may not be successful in
manufacturing, marketing and distributing products in a cost-effective manner,
establishing relationships with marketing partners, obtaining coverage and
satisfactory reimbursement for our future products or product enhancements or
obtaining required regulatory clearances and approvals in a timely fashion or at
all. If we fail to keep pace with continued new product innovation or
enhancement or fail to successfully commercialize our new or enhanced products,
our competitive position, financial condition and results of operations could be
materially and adversely affected.
In
addition, if any of our new or enhanced products contain undetected errors or
defects, especially when first introduced, or if new applications that we
develop for existing products do not work as planned, our ability to market
these and other products could be substantially delayed, and we could ultimately
become subject to product liability litigation, resulting in lost revenues,
potential damage to our reputation and/or delays in regulatory clearance. In
addition, obtaining approval and acceptance of our products by physicians,
physical therapists and other professionals that recommend and prescribe our
products could be adversely affected.
Sales
revenue may decline if third-party distributors and independent sales
representatives do not dedicate a sufficient level of marketing energy and focus
to the products produced by our target business.
Companies
in the healthcare industry often utilize third-party distributors and
independent sales representatives to distribute product. These third-party
distributors and independent sales representatives maintain the relationships
with the hospitals, doctors, and other healthcare professionals that purchase,
use and recommend the use of products and services. Some of the independent
sales representatives that sell our target business’ product may also sell our
competitors’ products. These sales representatives may not dedicate the
necessary effort to market and sell our products. If we fail to attract and
retain third-party distributors and skilled independent sales representatives or
fail to adequately train and monitor the efforts of the third-party distributors
and sales representatives that market and sell our products, or if our existing
third-party distributors and independent sales representatives choose not to
carry our products, our results of operations and future growth could be
adversely affected.
If
we are required to obtain governmental approval of our products, the production
of our products could be delayed and we could be required to engage in a lengthy
and expensive approval process that may not ultimately be
successful.
Unanticipated
problems may arise in connection with the development of new products or
technologies, and many such efforts may ultimately be unsuccessful. In addition,
the testing or marketing of products may require obtaining government approvals,
which may be a lengthy and expensive process with an uncertain outcome. Delays
in commercializing products may result in the need to seek additional capital,
potentially diluting the interests of investors. These various factors may
result in abrupt advances and declines in the price of our securities and, in
some cases, may have a broad effect on the prices of securities of companies in
the healthcare industry generally.
Healthcare
reform, managed care and buying groups have exerted downward pressure on the
prices of healthcare products and services.
Healthcare
reform and the healthcare industry’s response to rising costs have resulted in a
significant expansion of managed care organizations and buying groups. This
growth of managed care and the advent of buying groups in the United States has
caused a shift toward coverage and payments based on more cost-effective
treatment alternatives. Buying groups enter into preferred supplier arrangements
with one or more manufacturers of medical products in return for price discounts
to members of these buying groups. Our target business’ failure to obtain new
preferred supplier commitments from major group purchasing organizations or its
failure to retain existing preferred supplier commitments could adversely affect
the company’s sales and profitability.
Healthcare
products are subject to recalls even after receiving FDA or foreign regulatory
clearance or approval.
Products
and therapeutics are subject to ongoing reporting regulations that require
companies to report to the FDA or similar governmental authorities in other
countries if a product causes, or contributes to, death or serious injury, or if
it malfunctions and would be likely to cause, or contribute to, death or serious
injury if the malfunction were to recur. The FDA and similar governmental
authorities in other countries have the authority to require a company to recall
its product in the event of material deficiencies or defects. In addition,
companies with a defective product may voluntarily recall their product even in
the absence of government intervention. Any recall would divert managerial and
financial resources and could harm our target business’ reputation with its
customers and with the healthcare professionals that use, prescribe and
recommend our products. Our target business could have product recalls that
result in significant costs to us in the future, and such recalls could have a
material adverse effect on our business.
Companies
who lose patent protection or inadvertently reveal trade secrets may lose market
share to competitors and may not be able to operate profitably.
Companies
in the healthcare industry rely upon a combination of patents, trade secrets,
copyrights, trademarks, license agreements and contractual provisions to
establish and protect the intellectual property rights in their products and the
processes for the development, manufacture and marketing of their products. If
non-patented trade secrets are revealed to the public, our competitors could
utilize the information to create their own products that incorporate our target
business’ intellectual property. In addition, our target business’ patents could
be circumvented, invalidated or declared unenforceable. Any proceedings before
the U.S. Patent and Trademark Office could result in adverse decisions as to the
priority of our inventions and the narrowing or invalidation of claims in issued
patents. We could also incur substantial costs in any such proceedings. In
addition, our target business may hold patent and other intellectual property
licenses from third parties for some of our business’ products and on
technologies that are necessary in the design and manufacture of some of our
business’ products. The loss of such licenses could prevent us from
manufacturing, marketing and selling these products, which could have a material
adverse effect on our business.
Patent
litigation may affect a healthcare company’s operational and financial results
even if the company ultimately prevails.
Litigation
involving patents and other intellectual property rights is common in the
healthcare industry, and healthcare companies have used intellectual property
litigation in an attempt to gain a competitive advantage. Our target business
may become a party to lawsuits involving patents or other intellectual property.
Such litigation is costly and time consuming. If our target business loses any
of these proceedings, a court or a similar foreign governing body could
invalidate or render unenforceable our owned or licensed patents, require us to
pay significant damages, seek licenses and/or pay ongoing royalties to third
parties, require us to redesign our products, or prevent us from manufacturing,
using or selling our products, any of which would have a material adverse effect
on our business and results of operations and financial condition.
Our
target business may expand into new markets through the development of new
products and our expansion may not be successful.
Our
target business may attempt to expand into new markets through the development
of new product applications based on the company’s existing specialized
technology and design capabilities. These efforts could require it to make
substantial investments, including significant research, development,
engineering and capital expenditures for new, expanded or improved manufacturing
facilities which would divert resources from other aspects of its business.
Expansion into new markets may be costly and may not result in any benefit to
our target business. Specific risks in connection with expanding into new
markets include the failure of customers in new markets to accept our products
and price competition in new markets. Such expansion efforts into new markets
could be unsuccessful.
Consolidation
in the healthcare industry could have an adverse effect on our revenues and
results of operations.
Many
healthcare companies are consolidating to create larger companies. As the
healthcare industry consolidates, competition to provide products and services
to industry participants will become more intense. In addition, many of our
potential target business’ customers are also consolidating, and these customers
and other industry participants may try to use their purchasing power to
negotiate price concessions or reductions for the products that our target
business manufactures and markets. If our target business is forced to reduce
its prices because of consolidation in the healthcare industry, the company’s
revenues could decrease, and its business, financial condition and results of
operations could be adversely affected.
Companies
in the healthcare industry are often subject to environmental and health and
safety requirements, and may be liable for contamination or other harm caused by
hazardous materials that they use.
Companies
in the healthcare industry often utilize hazardous materials to manufacture
their products. These materials are subject to federal, state, local and foreign
environmental requirements, including regulations governing the use,
manufacture, handling, storage and disposal of hazardous materials and related
occupational health and safety regulations. Our target business could incur
liability as a result of any contamination or injury and could also be held
responsible for costs relating to any contamination of its facilities and
third-party waste disposal sites. Our target business could incur significant
expenses in the future relating to any failure to comply with environmental
laws. Any such future expenses or liability could have a material adverse effect
on our financial condition. The enactment of stricter laws or regulations, the
stricter interpretation of existing laws and regulations or the requirement to
undertake the investigation or remediation of currently unknown environmental
contamination at our target company’s business or third party sites might
require it to make additional expenditures, which could be
material.
Changes
in government regulation of health insurance could negatively affect our
business prospects.
Several
states have recently enacted or are considering legislative initiatives intended
to provide healthcare insurance for all individuals. Similarly, members of the
federal government and major political parties have announced an intention to
make healthcare insurance reform a part of their respective platforms. It is too
early to understand the specific provisions that are being proposed or assess
the likelihood that they will be enacted. Nonetheless, there may be legislative
or regulatory changes at the state or federal level that could negatively affect
(i) our ability to make an acquisition or (ii) after an acquisition, the
business prospects of such an acquisition. If we are unable to comply with
governmental regulations affecting the healthcare industry, it could negatively
affect our operations.
There is
extensive government regulation of certain healthcare businesses as well as
various proposals at the federal government level to reform the healthcare
system. Changes to the existing regulatory framework and/or implementation of
various reform initiatives could adversely affect certain sections of the
healthcare industry or the healthcare industry as a whole. If we are unable to
adhere to these requirements, it could result in the imposition of penalties and
fines against us, and could also result in the imposition of restrictions on our
business and operations. Furthermore, the costs of compliance also could have a
material adverse effect on our profitability and operations.
ITEM
1B. Unresolved Staff Comments
None.
ITEM
2. Properties
We
currently maintain our executive offices at One Paragon Drive, Suite 125,
Montvale, New Jersey 07645. The cost for this office is included in
the aggregate $10,000 per-month fee described above that Ivy Capital Partners
and Kanders & Company, Inc. charge us for office space, secretarial support
and administrative and general services. We believe, based on rents
and fees for similar services in Montvale, New Jersey, that the fee charged by
Ivy Capital Partners and Kanders & Company, Inc. is at least as
favorable as we could have obtained from an unaffiliated person. We consider our
current office space adequate for our current operations.
ITEM
3. Legal Proceedings
There are
no material legal proceedings pending nor, to our knowledge, threatened against
us.
ITEM
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the quarter ended December 31,
2008.
PART
II
ITEM
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Our
equity securities trade on the NYSE Alternext US (f/k/a the American Stock
Exchange). Each of our units consists of one share of common stock and one
warrant and trades on the NYSE Alternext US under the symbol “HIA.U.” On October
17, 2007, the warrants and common stock underlying our units began to trade
separately on the NYSE Alternext US under the symbols “HIA.WS” and “HIA,”
respectively. Each warrant entitles the holder to purchase one share of our
common stock at a price of $7.50 commencing on the later of our consummation of
a business combination or January 3, 2009, provided in each case that there is
an effective registration statement covering the shares of common stock
underlying the warrants in effect. The warrants expire on October 3, 2012,
unless earlier redeemed.
The
following table sets forth, for the indicated periods, the range of high and low
sales prices for our units, common stock and warrants as reported on the NYSE
Alternext US. Prior to October 9, 2007, there was no established public trading
market for our securities.
|
Quarter
Ended
|
|
Units
|
|
|
Common
Stock
|
|
|
Warrants
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Calendar
Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter (through March 6, 2009)
|
|
$
|
9.56
|
|
|
$
|
9.25
|
|
|
$
|
9.54
|
|
|
$
|
9.20
|
|
|
$
|
0.10
|
|
|
$
|
0.01
|
|
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
9.82
|
|
|
$
|
9.36
|
|
|
$
|
9.12
|
|
|
$
|
9.00
|
|
|
$
|
0.77
|
|
|
$
|
0.42
|
|
|
Second
Quarter
|
|
$
|
9.91
|
|
|
$
|
9.40
|
|
|
$
|
9.35
|
|
|
$
|
9.00
|
|
|
$
|
0.45
|
|
|
$
|
0.30
|
|
|
Third
Quarter
|
|
$
|
9.85
|
|
|
$
|
9.40
|
|
|
$
|
9.44
|
|
|
|
9.00
|
|
|
$
|
0.40
|
|
|
$
|
0.28
|
|
|
Fourth
Quarter
|
|
$
|
9.40
|
|
|
$
|
8.70
|
|
|
$
|
9.22
|
|
|
$
|
8.66
|
|
|
$
|
0.25
|
|
|
$
|
0.02
|
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
10.07
|
|
|
$
|
9.66
|
|
|
$
|
9.20
|
|
|
$
|
8.96
|
|
|
$
|
1.00
|
|
|
$
|
0.70
|
|
Performance
Graph
Set forth
below is a line graph comparing the yearly percentage change in the cumulative
total stockholder return on our common stock to the cumulative total return of
the Dow Jones Industrial Average Index and the S&P 500 Index for the period
commencing on October 18, 2007 and ending on December 31, 2008 (the “Measuring
Period”). The graph assumes that the value of the investment in our
common stock and each index was $100 on October 18, 2007. The yearly
change in cumulative total return is measured by dividing (1) the sum of (i) the
cumulative amount of dividends for the Measuring Period, assuming dividend
reinvestment, and (ii) the change in share price between the beginning and end
of the Measuring Period, by (2) the share price at the beginning of the
Measuring Period.
|
|
|
10/18/07
|
|
|
12/31/07
|
|
|
03/31/08
|
|
|
06/30/08
|
|
|
09/30/08
|
|
|
12/31/08
|
|
|
Highlands
|
|
|
100.00
|
|
|
|
100.55
|
|
|
|
100.33
|
|
|
|
101.66
|
|
|
|
99.45
|
|
|
|
101.88
|
|
|
S&P
500
|
|
|
100.00
|
|
|
|
95.34
|
|
|
|
85.89
|
|
|
|
83.11
|
|
|
|
75.63
|
|
|
|
58.65
|
|
|
Dow
Jones
|
|
|
100.00
|
|
|
|
95.51
|
|
|
|
88.29
|
|
|
|
81.72
|
|
|
|
78.12
|
|
|
|
63.19
|
|
Stockholders
On March
3, 2009, there were approximately 1 holders of record of our units,
approximately 12 holders of record of our warrants and approximately 11 holders
of record of our common stock. Such numbers do not include beneficial
owners holding shares, warrants or units through nominee names.
Dividends
Except
for the .15-for-1 stock dividend that was effected on July 16, 2007 and the
.20-for-1 stock dividend that was effected on October 3, 2007, we have not paid
any dividends on our common stock to date and we do not intend to pay cash
dividends prior to the consummation of a business combination. After we complete
a business combination, the payment of dividends will depend on our revenues and
earnings, if any, capital requirements and general financial condition. The
payment of dividends after a business combination will be within the discretion
of our then-board of directors. Our board of directors currently intends to
retain any earnings for use in our business operations and, accordingly, we do
not anticipate the board declaring any dividends in the foreseeable
future.
Recent
Sales of Unregistered Securities
None.
Recent
Purchases of Our Registered Equity Securities
We did
not purchase any shares of our common stock during the Company’s fourth quarter
of 2008.
Securities
Authorized for Issuance Under Equity Compensation Plans
We have
no compensation plans under which equity securities are authorized for
issuance.
Use
of Proceeds from our Initial Public Offering
On
October 9, 2007, we closed our initial public offering of 12,000,000 units with
each unit consisting of one share of common stock and one warrant, each to
purchase one share of our common stock at a price of $7.50 per share. On October
15, 2007 the underwriters purchased an additional 1,800,000 units pursuant to an
over-allotment option. All of the units registered were sold at an offering
price of $10.00 per unit and generated gross proceeds of $138,000,000. The
securities sold in our initial public offering were registered under the
Securities Act of 1933 on a registration statement on Form S-1 (No. 333-143599).
The SEC declared the registration statement effective on October 3, 2007.
Citigroup Global Market Inc. and William Smith Securities, acted as underwriters
of the offering.
We
received net proceeds of approximately $131.3 million from our initial
public offering (including proceeds from the exercise by the underwriters of
their over-allotment option) and sale of the sponsors’ warrants. The
net proceeds plus approximately $3.99 million attributable to the deferred
underwriters’ discount were deposited into a trust account and will be part of
the funds distributed to our public stockholders in the event we are unable to
complete a business combination. The net proceeds deposited into the trust
account remain on deposit in the trust account and earned $3.2 million and $1.4
million, respectively, in interest through December 31, 2008 and 2007,
respectively.
ITEM
6. Selected Financial Data
The
following statement of operations and balance sheet data have been derived from,
and are qualified by reference to, our audited financial statements included
elsewhere in this report. The following table summarizes financial
data for our business and should be read in conjunction with our financial
statements, including the notes thereto, and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” which are included
in this report.
|
Statement
of Operations Data:
|
|
Year
Ended
December
31, 2008
|
|
|
For
the Period from April 26, 2007 (Date of Inception)
Through December
31, 2007
|
|
|
Cumulative Period
from April 26, 2007 (Date of Inception) Through December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
3,192,928
|
|
|
$
|
1,418,345
|
|
|
$
|
4,611,273
|
|
|
Deferred
interest income
|
|
|
(170,117
|
)
|
|
|
-
|
|
|
|
(170,117
|
)
|
|
Net
interest income
|
|
|
3,022,811
|
|
|
|
1,418,345
|
|
|
|
4,441,156
|
|
|
General
and administrative expenses
|
|
|
744,284
|
|
|
|
218,424
|
|
|
|
962,708
|
|
|
Formation
costs
|
|
|
-
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
Income
before provision for income taxes
|
|
|
2,278,527
|
|
|
|
1,198,921
|
|
|
|
3,477,448
|
|
|
Provision
for income taxes
|
|
|
958,572
|
|
|
|
478,849
|
|
|
|
1,437,421
|
|
|
Net
income
|
|
$
|
1,319,955
|
|
|
$
|
720,072
|
|
|
$
|
2,040,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.15
|
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,246,041
|
|
|
|
8,006,627
|
|
|
|
13,505,205
|
|
|
Diluted
|
|
|
17,246,041
|
|
|
|
8,006,627
|
|
|
|
13,505,205
|
|
|
Balance
Sheet Data:
|
|
As
of
December
31, 2008
|
|
|
As
of
December
31, 2007
|
|
|
Cash
and cash equivalents
|
|
$
|
136,385
|
|
|
$
|
269,314
|
|
|
Cash
held in trust
|
|
|
133,161,231
|
|
|
|
132,258,345
|
|
|
Cash
held in trust from underwriter
|
|
|
3,990,000
|
|
|
|
3,990,000
|
|
|
Total
assets
|
|
|
137,667,927
|
|
|
|
136,644,242
|
|
|
Total
liabilities
|
|
|
4,330,095
|
|
|
|
4,626,365
|
|
|
Value
of common stock which may be redeemed for cash ($9.77 per
share)
|
|
|
40,448,990
|
|
|
|
40,448,990
|
|
|
Stockholders’
equity
|
|
|
92,888,842
|
|
|
|
91,568,887
|
|
|
|
|
|
|
|
|
|
|
|
ITEM
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
following discussion should be read in conjunction with our financial statements
and the notes thereto contained in this report.
Forward-Looking
Statements
This
report contains certain forward-looking statements, including information about
or related to our future results, certain projections and business trends.
Assumptions relating to forward-looking statements involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this report, the words "estimate," "project," "intend," "believe,"
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any or all of the assumptions could
prove inaccurate, and we may not realize the results contemplated by the
forward-looking statements. Management decisions are subjective in many respects
and susceptible to interpretations and periodic revisions based upon actual
experience and business developments. In light of the significant
uncertainties inherent in the forward-looking information included in this
report, you should not regard the inclusion of such information as our
representation that we will achieve any strategy, objectives or other plans. The
forward-looking statements contained in this report speak only as of the date of
this report, and we have no obligation to update publicly or revise any of these
forward-looking statements.
These
forward-looking and other statements, which are not historical facts, are based
largely upon our current expectations and assumptions and are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by such forward-looking statements. These
risks and uncertainties include, among others, our ability to effect a merger,
capital stock exchange, asset acquisition or other similar business combination
with one or more operating businesses (a “Business Combination”) and the risks
and uncertainties set forth in the section headed "Risk Factors" of Part I, Item
1A of this report and described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of Part II of this
report. We cannot assure you that we will be successful in our
efforts to consummate a Business Combination or that any such Business
Combination will result in our future profitability.
Overview
We were
formed on April 26, 2007 to serve as a vehicle to effect a Business
Combination. Our efforts in identifying a prospective target business
are not limited to a particular industry. Although we initially
focused our search for target businesses in the healthcare industry, we have
expanded our focus to include other industries as well, in addition to the
healthcare industry. The healthcare industry encompasses all healthcare service
companies, including, among others, managed care companies, hospitals,
healthcare system companies, physician groups, diagnostic service companies,
medical device companies and other healthcare-related entities. We intend to
utilize cash derived from the proceeds of our initial public offering, our
capital stock, debt or a combination of cash, capital stock and debt, in
effecting a Business Combination.
Critical
Accounting Policies and Use of Estimates
Deferred Income Taxes
—
Deferred income taxes are provided for the differences between bases of assets
and liabilities for financial reporting and income tax purposes. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Fair Value of Financial Instruments
- The fair values of our company’s 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
balance sheet at December 31, 2008.
Our
company accounts for derivative instruments, if any, in accordance with SFAS No.
133 “Accounting for Derivative Instruments and Hedging Activities” as amended
(“SFAS 133”), which establishes accounting and reporting standards for
derivative instruments. We do not currently have any derivative
instruments.
Results
of Operations – Twelve Month period ended December 31, 2008
Interest
Income
For the
twelve months ended December 31, 2008, we had gross interest income of
$3,192,928 comprised of $3,192,846 from our trust account and $82 from our
operating account. The average yield during this period was
2.33%. Due to the recent decline in interest rates, we expect
our 2009 interest average yield to decline. On March 3, 2009, our
yield on investments was 0.26%.
Deferred
Trust Interest
For the
twelve months ended December 31, 2008, we had deferred trust interest of
$170,117 representing the amount that would be paid out to those dissenting
shareholders, who have elected to convert their shares (as described in Part II,
Item8, Note 1), in the event of a Business Combination (as described more fully
in Part II, Item 8 Note 1). The deferred trust interest is calculated
as follows:
|
Deferred
Trust Interest as of December 31, 2008
|
|
|
|
|
|
Total
interest income earned since inception
|
|
$
|
4,611,191
|
|
|
Total
taxes paid since inception
|
|
$
|
(1,853,795
|
)
|
|
Prepaid
income taxes
|
|
$
|
--
|
|
|
Accrued
income/franchise taxes
|
|
$
|
(90,336
|
)
|
|
Working
capital allowance
|
|
$
|
(2,100,000
|
)
|
|
Total
base for deferral
|
|
$
|
567,060
|
|
|
Conversion
%
|
|
|
29.9999
|
%
|
|
Deferred
trust interest
|
|
$
|
170,117
|
|
General
and Administrative Expenses
For the
twelve months ended December 31, 2008, we had general and administrative
expenses of $744,284, primarily consisting of legal expenses, administrative
services fee, Delaware franchise taxes, accounting fees, directors and officer’s
liability insurance, travel expenses, listing and custody expenses.
Income
Before Provision for Income Taxes
For the
twelve months ended December 31, 2008, income before provision for income taxes
was $2,278,527 (42.04% effective rate) from interest income and general and
administrative expenses discussed above.
Income
Taxes
For the
twelve months ended December 31, 2008, income tax expense was approximately
$959,000 (42.07% effective rate), consisting of $707,000 in federal taxes and
$252,000, in state income taxes. The trustee of our trust account
will distribute funds to us, from the funds held in our trust account, to pay
any taxes resulting from interest accrued on the funds held in our trust
account.
Net
Income
For the
twelve months ended December 31, 2008, net income was $1,319,955, due to the
factors discussed above.
Results
of Operations – April 26, 2007 (inception) to December 31, 2007
Interest
Income
For the
period from April 26, 2007 (inception) to December 31, 2007, we had interest
income of $1,418,345 all from our trust account. The average yield
during this period was 4.65%.
General
and Administrative Expenses
For the
period from April 26, 2007 (inception) to December 31, 2007, we had general and
administrative expenses and formation expenses of $218,424 and $1,000,
respectively, primarily consisting of Delaware franchise taxes, legal expenses,
administrative services fee, directors and officer’s liability insurance and
formation costs.
Income
Before Provision for Income Taxes
For the
period from April 26, 2007 (inception) to December 31, 2007, income before
provision for income taxes was $1,198,921 from interest income and general and
administrative expenses discussed above.
Income
Taxes
For the
period from April 26, 2007 (inception) to December 31, 2007, income tax expense
was approximately $479,000 (39.95% effective rate), consisting of $371,000 in
federal taxes and $108,000, in state income taxes. The trustee of our
trust account distributed funds to us, from the funds held in our trust account,
to pay the taxes resulting from interest accrued on the funds held in our trust
account.
Net
Income
For the
period from April 26, 2007 (inception) to December 31, 2007, net income was
$720,072, due to the factors discussed above.
Results
of Operations – April 26, 2007 (inception) to December 31, 2008
Interest
Income
For the
period from April 26, 2007 (inception) to December 31, 2008, we had gross
interest income of $4,611,273 consisting of $4,611,191 from our trust account
and $82 from our operating accounts. The average yield during this
period was 2.74%.
Deferred
Trust Interest
For the
period from April 26, 2007 (inception) to December 31, 2008, we had deferred
trust interest of $170,117 representing the amount that would be paid out to
those dissenting shareholders, who have elected to convert their shares (as
described in Part II, Item 8, Note 1), in the event of a Business Combination
(as described more fully in Part II, Item 8, Note 1). The deferred
trust interest is calculated as follows:
|
Deferred
Trust Interest as of December 31, 2008
|
|
|
|
|
|
Total
interest income earned since inception
|
|
$
|
4,611,191
|
|
|
Total
taxes paid since inception
|
|
$
|
(1,853,795
|
)
|
|
Prepaid
income taxes
|
|
$
|
--
|
|
|
Accrued
income/franchise taxes
|
|
$
|
(90,336
|
)
|
|
Working
capital allowance
|
|
$
|
(2,100,000
|
)
|
|
Total
base for deferral
|
|
$
|
567,060
|
|
|
Conversion
%
|
|
|
29.9999
|
%
|
|
Deferred
trust interest
|
|
$
|
170,117
|
|
General
and Administrative Expenses
For the
period from April 26, 2007 (inception) to December 31, 2008, we had general and
administrative expenses and formation expenses of $962,708 and $1,000,
respectively, primarily consisting of legal expenses, Delaware franchise taxes,
administrative services fee, accounting fees, directors and officer’s liability
insurance, travel expenses, listing and custody expenses.
Income
Before Provision for Income Taxes
For the
period from April 26, 2007 (inception) to December 31, 2008, income before
provision for income taxes was $3,477,448 from interest income and general and
administrative expenses discussed above.
Income
Taxes
For the
period from April 26, 2007 (inception) to December 31, 2008, income tax expense
was approximately $1,438,000 (41.32% effective rate), consisting of $1,078,000
in federal taxes and $360,000, in state income taxes. The trustee of
our trust account has distributed, and will distribute, funds to us, from the
funds held in our trust account, to pay any taxes resulting from interest
accrued on the funds held in our trust account.
Net
Income
For the
period from April 26, 2007 (inception) to December 31, 2008, net income was
$2,040,027, due to the factors discussed above.
Financial
Condition, Liquidity and Capital Resources
On
October 9, 2007 we consummated our initial public offering of 12,000,000 units
and the private placement of 3,250,000 warrants (the “Sponsors’ Warrants”) to
our founders and affiliates of our founders and on October 15, 2007 we closed on
the exercise of the underwriters’ over-allotment option for an additional
1,800,000 units, resulting in aggregate gross proceeds from our initial public
offering (including the over-allotment option) and the private placement of the
Sponsors’ Warrants of $141,250,000. We paid or incurred a total of $5,320,000 in
underwriting discounts and commissions (not including $3,990,000 which was
deferred by the underwriters until completion of a Business Combination) and
approximately $667,000 for other costs and expenses related to our initial
public offering. After deducting the underwriting discounts and commissions and
the offering expenses, the total net proceeds, including $3,250,000 from the
sale of the Sponsor’ Warrants to us, from the offering were approximately
$135,263,000 (including $3.99 million in deferred underwriters commission), and
an amount of $134,830,000 was deposited into our trust account at Morgan Stanley
with Continental Stock Transfer & Trust as trustee. We intend to use
substantially all of the net proceeds of our initial public offering and the
private placement of the Sponsors’ Warrants to seek to effect a Business
Combination, including identifying and evaluating prospective acquisition
candidates, selecting the target business, and structuring, negotiating and
consummating the Business Combination. 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 our trust account, as well as any other net proceeds not
expended, will be used to finance the operations of the target business. We
believe we will have sufficient available funds outside of our trust account to
operate through October 3, 2009, assuming that a Business Combination is not
consummated during that time.
We expect
our primary liquidity requirements, other than payment of income taxes for
interest income earned on our trust account, during this period to
include:
•
$950,000 of expenses for the search for target businesses and for the legal,
accounting and other third-party expenses attendant to the due diligence
investigations, structuring and negotiating of a business
combination;
•
$330,000 of expenses for the due diligence and investigation of a target
business by our officers, directors and existing stockholders;
•
$195,000 of expenses in legal and accounting fees relating to our Security and
Exchange Commission reporting obligations;
•
$240,000 for the administrative fee payable to Kanders & Company and Ivy
Capital Partners, each an affiliate of certain of our officers and directors,
($10,000 per month for twenty four months); and
•
$885,000 for general working capital that will be used for miscellaneous
expenses and reserves, including approximately $150,000 for director and officer
liability insurance premiums.
We do not
believe we will need to raise additional funds following our initial public
offering in order to meet the expenditures required for operating our business.
However, we may need to raise additional funds through a private offering of
debt or equity securities if funds are required to consummate a Business
Combination that is presented to us. We would only consummate such a
financing simultaneously with the consummation of a Business
Combination.
Commencing
on October 3, 2007 and ending upon the consummation of a Business Combination or
our liquidation, we began incurring a fee from Kanders & Company and Ivy
Capital Partners, of $10,000 per month for office space, administrative and
support services. In addition, in April 2007, Kanders & Company, Inc. and
Ivy Capital Partners advanced an aggregate of $100,000 to us for payment on our
behalf of offering expenses. These loans were repaid following our initial
public offering from the proceeds of the offering.
See below
for amounts transferred at our instruction from our trustee to pay for certain
tax and working capital payments.
|
|
|
Taxes
|
|
|
Working
Capital
|
|
|
Total
|
|
|
January
25, 2008
|
|
$
|
611,203
|
|
|
$
|
-
|
|
|
$
|
611,203
|
|
|
April
9, 2008
|
|
|
130,000
|
|
|
|
|
|
|
|
130,000
|
|
|
June
11, 2008
|
|
|
829,671
|
|
|
|
|
|
|
|
829,671
|
|
|
June
25, 2008
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
September
5, 2008
|
|
|
240,000
|
|
|
|
|
|
|
|
240,000
|
|
|
September
8, 2008
|
|
|
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
November
12, 2008
|
|
|
29,086
|
|
|
|
|
|
|
|
29,086
|
|
|
Total
|
|
$
|
1,839,960
|
|
|
$
|
450,000
|
|
|
$
|
2,289,960
|
|
Off-Balance
Sheet Arrangements
Warrants
issued in conjunction with our initial public offering are equity linked
derivatives and accordingly represent off-balance sheet
arrangements. The warrants meet the scope exception paragraph 11(a)
of Financial Accounting Standards (FAS) 133 and are accordingly not accounted
for as derivatives for purposes of FAS 133, but instead are accounted for as
equity. See Note 1 to the financial statements contained elsewhere in
this report for more information.
Contractual
Obligations
We do not
have any long-term debt, capital lease obligations, operating lease obligations,
purchase obligations or other long-term liabilities.
New Accounting
Pronouncements
In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”). This standard identifies sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. generally accepted accounting
principles. The Company does not believe SFAS 162 will change its current
practices and thereby believes it will not impact preparation of the financial
statements.
In
December 2007, the FASB released SFAS No. 141(R), Business Combinations (revised
2007) (“SFAS 141(R)”), which changes many well-established business combination
accounting practices and significantly affects how acquisition transactions are
reflected in the financial statements. Additionally, SFAS 141(R) will
affect how companies negotiate and structure transactions, model financial
projections of acquisitions and communicate to stakeholders. SFAS
141(R) must be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The adoption of this
pronouncement has had no impact on the Company’s financial statements, but
will affect the Company once an acquisition is completed.
In
December 2007, the FASB released SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (“SFAS 160”), which
establishes accounting and reporting standards for the noncontrolling interests
in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interests and
requires disclosure, on the face of the consolidated statement of income, of the
amounts of net income attributable to the parent and to the noncontrolling
interest. Previously, net income attributable to the noncontrolling
interest was reported as an expense or other deduction in arriving at net
income. SFAS 160 is effective for financial statements issued for
fiscal years beginning after December 15, 2008. The adoption of this
pronouncement has had no impact on the Company’s financial statements but may
affect the Company once an acquisition is completed.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework
for reporting fair value and expands disclosures about fair value measurements.
SFAS No. 157 was effective for the Company on January 1, 2008, with the
exception that the applicability of SFAS No. 157’s fair value measurement
requirements to nonfinancial assets and liabilities that are not required or
permitted to be recognized or disclosed at fair value on a recurring basis has
been delayed by the FASB for one year. The partial adoption of this
pronouncement had no impact on the Company’s financial
statements. Adopting the remainder of the provision is not expected
to have an impact on the Company’s financial statements as all our marketable
securities are determined by an observable market value. See Note 1
to the financial statements contained elsewhere in this report for more
information.
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an Amendment of FASB No. 115,” (“SFAS 159”). SFAS 159
allows a company to irrevocably elect fair value as the initial and subsequent
measurement attribute for certain financial assets and financial liabilities on
a contract-by-contract basis, with changes in fair value recognized in
earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007 and will be applied prospectively. The adoption of
this pronouncement has had no impact on the Company’s financial
statements.
The
Company does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
ITEM
7A. Quantitative and Qualitative Disclosures about Market
Risk
As of
December 31, 2008, our efforts have been limited to organizational activities
and activities relating to our initial public offering and the identification of
a target business; we have neither engaged in any operations nor generated any
revenues (other than interest income earned on our trust account). As the
proceeds from our initial public offering held in trust have been invested in
short-term investments, our only market risk exposure relates to fluctuation in
short-term interest rates.
As of
December 31, 2008, approximately $133,161,000 (excluding $3,990,000 of deferred
underwriting discounts and commissions) was held in trust for the purposes of
consummating a Business Combination. The proceeds held in trust
(including approximately $3,990,000 of deferred underwriting discounts and
commissions) have been invested in the Morgan Stanley Institutional Liquidity
Funds – Government Portfolio (stock symbol: MVRXX). Based upon
information provided by Morgan Stanley, (i) the Government Portfolio seeks to
maintain a stable net asset value of $1.00 per share by investing exclusively in
obligations of the U.S. Government and its agencies and instrumentalities and in
repurchase agreements collateralized by such securities; (ii) at December 31,
2008, 61.8% of the portfolio was invested in U.S. Government Agency Securities
and 38.2% of the portfolio was invested in repurchase agreements collateralized
by U.S. Government and Agency securities; and (iii) as of February 28, 2009, the
one day yield was 0.25%, and the weighted average maturity was twenty-seven
days. Therefore, due to the conservative nature of our investments,
our future interest income sensitivity and risk are limited.
We have
not engaged in any hedging activities since our inception on April 26, 2007. We
do not expect to engage in any hedging activities with respect to the market
risk to which we are exposed.
ITEM
8. Financial Statements and Supplementary Data
Highlands
Acquisition Corp.
Index
to Financial Statements
Page
|
Report
of Independent Registered Public Accounting Firm on Financial
Statements
|
52
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
|
53
|
|
|
|
|
Balance
Sheets as of December 31, 2008 and 2007
|
54
|
|
|
|
|
Statements
of Income for the Year ended December 31, 2008, the period from April 26,
2007 (date of inception) through December 31, 2007 and the cumulative
period from April 26, 2007 (date of inception) through December 31,
2008
|
55
|
|
|
|
|
Statements
of Stockholders' Equity for the cumulative period from April 26, 2007
(date of inception) through December 31, 2008
|
56
|
|
|
|
|
Statements
of Cash Flows for the Year Ended December 31, 2008, the period from April
26, 2007 (date of inception) through December 31, 2007 and the cumulative
period from April 26, 2007 (date of inception) through December 31,
2008
|
57
|
|
|
|
|
Notes
to Financial Statements
|
58
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Highlands
Acquisition Corp.
We have
audited the accompanying balance sheets of Highlands Acquisition Corp. (a
corporation in the development stage) as of December 31, 2008 and 2007 and the
related statements of income, stockholders’ equity and cash flows for the year
ended December 31, 2008 and the period from April 26, 2007 (inception) through
December 31, 2007 and the cumulative period from April 26, 2007 (inception) to
December 31, 2008. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide 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 Highlands Acquisition Corp. as of
December 31, 2008 and 2007, and the results of its operations and its cash flows
for the year ended December 31, 2008, the period from April 26, 2007 (inception)
through December 31, 2007 and the cumulative period from April 26, 2007
(inception) to December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Highlands Acquisition Corp.’s internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated March 12, 2009
expressed an unqualified opinion on the effectiveness of Highlands Acquisition
Corp.’s internal control over financial reporting.
The
accompanying financial statements have been prepared assuming that Highlands
Acquisition Corp. will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company will face a mandatory liquidation on
October 3, 2009 if a business combination is not consummated, which raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
McGLADREY
& PULLEN, LLP
New York,
New York
March 12,
2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Highlands
Acquisition Corp.
We have
audited Highlands Acquisition Corp.’s (the “Company”) internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Company's internal control over financial reporting 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
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (a)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(b) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (c) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the balance sheets of the Company as of
December 31, 2008 and 2007 and the related statements of income, stockholders’
equity and cash flows for the period from April 26, 2007 (inception) through
December 31, 2007, the year ended December 31, 2008, and the
cumulative period from April 26, 2007 (inception) to December 31, 2008 and our
report dated March 12, 2009 expressed an unqualified opinion.
McGLADREY
& PULLEN, LLP
New York,
New York
March 12,
2009
Highlands
Acquisition Corp.
(a corporation in the
development stage)
BALANCE
SHEET
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
136,385
|
|
|
$
|
269,314
|
|
|
Investments
held in trust
|
|
|
133,161,231
|
|
|
|
132,258,345
|
|
|
Investments
held in trust from underwriter
|
|
|
3,990,000
|
|
|
|
3,990,000
|
|
|
Prepaid
expenses
|
|
|
44,078
|
|
|
|
66,585
|
|
|
Total
Current Assets
|
|
|
137,331,694
|
|
|
|
136,584,244
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset
|
|
|
336,233
|
|
|
|
59,998
|
|
|
Total
assets
|
|
$
|
137,667,927
|
|
|
$
|
136,644,242
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
76,142
|
|
|
$
|
10,945
|
|
|
Accrued
expenses
|
|
|
49,182
|
|
|
|
84,238
|
|
|
Accrued
offering costs
|
|
|
-
|
|
|
|
2,335
|
|
|
Income
taxes payable
|
|
|
44,654
|
|
|
|
538,847
|
|
|
Deferred
trust interest
|
|
|
170,117
|
|
|
|
-
|
|
|
Deferred
underwriting fee
|
|
|
3,990,000
|
|
|
|
3,990,000
|
|
|
Total
liabilities
|
|
|
4,330,095
|
|
|
|
4,626,365
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, subject to possible conversion of 4,139,999 shares
|
|
|
40,448,990
|
|
|
|
40,448,990
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingency (Note 1and 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.0001 par value Authorized 1,000,000 shares; none issued and
outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common
stock, $.0001 par value Authorized 50,000,000
shares
Issued
and outstanding 17,250,000 shares (which includes 4,139,999
Shares
subject to possible conversion)
|
|
|
1,725
|
|
|
|
1,725
|
|
|
Additional
paid-in capital
|
|
|
90,847,090
|
|
|
|
90,847,090
|
|
|
Income
accumulated during the development stage
|
|
|
2,040,027
|
|
|
|
720,072
|
|
|
Total
stockholders’ equity
|
|
|
92,888,842
|
|
|
|
91,568,887
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
137,667,927
|
|
|
$
|
136,644,242
|
|
See
Notes to Financial Statements.
Highlands
Acquisition Corp.
(a
corporation in the development stage)
STATEMENTS
OF OPERATIONS
|
|
|
Year
Ended December 31, 2008
|
|
|
For
the Period from April 26, 2007 (Date of inception)
Through
December
31, 2007
|
|
|
Cumulative
Period from April 26, 2007 (Date of inception) Through
December
31, 2008
|
|
|
Interest
income
|
|
$
|
3,192,928
|
|
|
$
|
1,418,345
|
|
|
$
|
4,611,273
|
|
|
Deferred
interest income
|
|
|
(170,117
|
)
|
|
|
-
|
|
|
|
(170,117
|
)
|
|
Net
interest income
|
|
|
3,022,811
|
|
|
|
1,418,345
|
|
|
|
4,441,156
|
|
|
General
and administrative expenses
|
|
|
744,284
|
|
|
|
219,424
|
|
|
|
963,708
|
|
|
Income
before provision for income taxes
|
|
|
2,278,527
|
|
|
|
1,198,921
|
|
|
|
3,477,448
|
|
|
Provision
for income taxes
|
|
|
958,572
|
|
|
|
478,849
|
|
|
|
1,437,421
|
|
|
Net
income
|
|
$
|
1,319,955
|
|
|
$
|
720,072
|
|
|
$
|
2,040,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share – basic and diluted
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
17,246,041
|
|
|
|
8,006,627
|
|
|
|
13,505,205
|
|
See
Notes to Financial Statements.
Highlands Acquisition Corp.
(a
corporation in the development stage)
STATEMENT OF
STOCKHOLDERS’ EQUITY
For
the period April 26, 2007 (inception) to December 31, 2008
|
|
|
Common
Stock
|
|
|
Additional
paid-in
|
|
|
Income
Accumulated
During
the
Development Stage
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
|
|
|
|
|
|
Issuance
of units to Founders on May 1, 2007 at approximately $0.007 per
unit
|
|
|
3,450,000
|
|
|
$
|
345
|
|
|
$
|
24,655
|
|
|
$
|
|
|
|
$
|
25,000
|
|
|
Sale
of Private Placement Warrants on October 9, 2007
|
|
|
|
|
|
|
|
|
|
|
3,250,000
|
|
|
|
|
|
|
|
3,250,000
|
|
|
Sale
of 13,800,000 units at $10 per unit through public offering (net of
underwriter’s discount and offering expenses) including 4,139,999 shares
subject to possible conversion on October 9, 2007.
|
|
|
13,800,000
|
|
|
|
1,380
|
|
|
|
128,021,425
|
|
|
|
|
|
|
|
128,022,805
|
|
|
Proceeds
subject to possible conversion
|
|
|
|
|
|
|
|
|
|
|
(40,448,990
|
)
|
|
|
|
|
|
|
(40,448,990
|
)
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
720,072
|
|
|
|
720,072
|
|
|
Balance
at December 31, 2007
|
|
|
17,250,000
|
|
|
$
|
1,725
|
|
|
$
|
90,847,090
|
|
|
$
|
720,072
|
|
|
$
|
91,568,887
|
|
|
Repurchase
of 20,700 units at $0.007 per unit
|
|
|
(20,700
|
)
|
|
|
(2
|
)
|
|
|
(148
|
)
|
|
|
|
|
|
|
(150
|
)
|
|
Issuance
of 20,700 units at $0.007 per unit
|
|
|
20,700
|
|
|
|
2
|
|
|
|
148
|
|
|
|
|
|
|
|
150
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,319,955
|
|
|
|
1,319,955
|
|
|
Balance
at December 31, 2008
|
|
|
17,250,000
|
|
|
$
|
1,725
|
|
|
$
|
90,847,090
|
|
|
$
|
2,040,027
|
|
|
$
|
92,888,842
|
|
See
Notes to Financial Statements
Highlands
Acquisition Corp.
(a
corporation in the development stage)
STATEMENT
OF CASH FLOWS
|
|
|
Year
Ended
December
31, 2008
|
|
|
For
the period April 26, 2007 (inception) to
December
31, 2007
|
|
|
Cumulative
period from April 26, 2007 (inception) to
December
31, 2008
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,319,955
|
|
|
$
|
720,072
|
|
|
$
|
2,040,027
|
|
|
Adjustment
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
earned on trust account
|
|
|
(3,192,846
|
)
|
|
|
(1,418,345
|
)
|
|
|
(4,611,191
|
)
|
|
Decrease/(increase)
in prepaid expenses
|
|
|
22,507
|
|
|
|
(66,585
|
)
|
|
|
(44,078
|
)
|
|
Increase
in prepaid taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Increase
in deferred taxes
|
|
|
(276,235
|
)
|
|
|
(59,998
|
)
|
|
|
(336,233
|
)
|
|
Increase
in deferred trust interest
|
|
|
170,117
|
|
|
|
-
|
|
|
|
170,117
|
|
|
Increase
in accounts payable
|
|
|
65,197
|
|
|
|
10,945
|
|
|
|
76,142
|
|
|
(Decrease)/increase
in accrued expenses
|
|
|
(35,056
|
)
|
|
|
84,238
|
|
|
|
49,182
|
|
|
(Decrease)/increase
in income taxes payable
|
|
|
(494,193
|
)
|
|
|
538,847
|
|
|
|
44,654
|
|
|
Net
cash used in operating activities
|
|
|
(2,420,554
|
)
|
|
|
(190,826
|
)
|
|
|
(2,611,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
placed in trust account
|
|
|
-
|
|
|
|
(134,830,000
|
)
|
|
|
(134,830,000
|
)
|
|
Disbursements
from trust for working capital
|
|
|
450,000
|
|
|
|
-
|
|
|
|
450,000
|
|
|
Disbursements
from trust to pay taxes
|
|
|
1,839,960
|
|
|
|
-
|
|
|
|
1,839,960
|
|
|
Net
cash provided by/(used in) investing activities
|
|
|
2,289,960
|
|
|
|
(134,830,000
|
)
|
|
|
(132,540,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of units to public
|
|
|
-
|
|
|
|
138,000,000
|
|
|
|
138,000,000
|
|
|
Proceeds
from private placement of warrants
|
|
|
-
|
|
|
|
3,250,000
|
|
|
|
3,250,000
|
|
|
Proceeds
from sale of units to Founders
|
|
|
-
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
Proceeds
from borrowings under notes payable to affiliates
|
|
|
-
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
Payments
of notes payable to affiliates
|
|
|
-
|
|
|
|
(100,000
|
)
|
|
|
(100,000
|
)
|
|
Payment
of offering costs
|
|
|
(2,335
|
)
|
|
|
(5,984,860
|
)
|
|
|
(5,987,195
|
)
|
|
Issuance
of founder’s units
|
|
|
150
|
|
|
|
-
|
|
|
|
150
|
|
|
Repurchase
of founder’s units
|
|
|
(150
|
)
|
|
|
-
|
|
|
|
(150
|
)
|
|
Net
cash (used in)/provided by financing activities
|
|
|
(2,335
|
)
|
|
|
135,290,140
|
|
|
|
135,287,805
|
|
|
Net
(decrease)/increase in cash
|
|
|
(132,929
|
)
|
|
|
269,314
|
|
|
|
136,385
|
|
|
Cash
at beginning of period
|
|
|
269,314
|
|
|
|
-
|
|
|
|
-
|
|
|
Cash
at end of period
|
|
$
|
136,385
|
|
|
$
|
269,314
|
|
|
$
|
136,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
of offering costs
|
|
$
|
-
|
|
|
$
|
2,335
|
|
|
$
|
-
|
|
|
Accrual
of deferred underwriting fee
|
|
$
|
-
|
|
|
$
|
3,990,000
|
|
|
$
|
3,990,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
1,729,000
|
|
|
$
|
-
|
|
|
$
|
1,729,000
|
|
See
Notes to Financial Statements
Highlands
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
1. Organization
and Business Operations
The
Company was incorporated in Delaware on April 26, 2007 for the purpose of
effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or other similar business combination with one or more operating
businesses (a “Business Combination”).
At
December 31, 2008, the Company’s operations have been limited to organizational
activities, activities relating to our initial public offering (“the Offering”),
as described in Note 2 below, and the identification of a target
business. The Company has not engaged in any operations or generated
any revenues (other than interest income earned on the Company’s trust
account).
The
registration statement for the Offering was declared effective on October 3,
2007. The Company consummated the Offering on October 9, 2007 and the
underwriters exercised their over-allotment option on October 10, 2007 and
consummated it on October 15, 2007. The Company received net proceeds
of approximately $131,273,000, including $3,250,000 of proceeds from the private
placement (the “Private Placement”) sale of 3,250,000 warrants (the “Sponsor
Warrants”) to certain affiliates of the Company. The Sponsor Warrants are
identical to the warrants sold in the Offering, except (i) if the Company calls
its warrants for redemption, the Sponsors’ Warrants will not be redeemable by
the Company as long as they are still held by the initial purchasers or their
permitted transferees and (ii) the initial purchasers have agreed that the
Sponsors’ Warrants will not be sold or transferred by them (subject to limited
exceptions) until after the completion of the Company’s initial Business
Combination.
The
Company’s management has broad discretion with respect to the specific
application of the net proceeds of the Offering and the Private Placement,
although substantially all of the net proceeds of the Offering are intended to
be generally applied toward consummating a Business Combination. There is no
assurance that the Company will be able to successfully affect a Business
Combination. Upon the closing of the Offering, (including the exercise of the
over-allotment option by the underwriters) and the Private Placement,
an aggregate of $134,830,000, including $3,990,000 of the underwriters’
discounts and commissions as described in Note 2 below, was deposited in a trust
account (the “Trust Account”) and invested in United States “government
securities” within the meaning of Section 2(a)(16) of the Investment Company Act
of 1940 having a maturity of 180 days or less or in money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company Act
of 1940 until the earlier of (i) the consummation of an initial Business
Combination or (ii) liquidation of the Company. At December 31, 2008, the funds
are invested in money market funds. The placing of funds in the Trust
Account may not protect those funds from third party claims against the Company.
Although the Company will seek to have all vendors, providers of financing,
prospective target businesses or other entities it engages, execute agreements
with the Company waiving any right, title, interest or claim of any kind in or
to any monies held in the Trust Account, there is no guarantee that they will
execute such agreements. Two of the Company’s affiliates have agreed that they
will be liable under certain circumstances to ensure that the proceeds in the
Trust Account are not reduced by the claims of target businesses or vendors,
providers of financing, service providers or other entities that are owed money
by the Company for services rendered to or contracted for or products sold to
the Company. There can be no assurance that they will be able to satisfy those
obligations. The net proceeds not held in the Trust Account may be used to pay
for business, legal and accounting due diligence on prospective acquisitions and
continuing general and administrative expenses. Additionally, up to an aggregate
of $2,100,000 of interest earned on the Trust Account balance may be released to
the Company to fund working capital requirements and additional funds may be
released to fund tax obligations.
The
Company, after signing a definitive agreement for a potential Business
Combination, is required to submit such transaction for stockholder approval. In
the event that stockholders owning 30% or more of the shares sold in the
Offering vote against the Business Combination and exercise their conversion
rights described below, the Business Combination will not be consummated. All of
the Company’s stockholders prior to the Offering (the “Founders”), have agreed
to vote their founding shares of common stock in accordance with the vote of the
majority of the shares voted by all other stockholders of the Company (the
“Public Stockholders”) with respect to any Business Combination and in favor of
an amendment to our certificate of incorporation to provide for the Company’s
perpetual existence.
Highlands
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
With
respect to a Business Combination which is approved and consummated, any Public
Stockholder who voted against the Business Combination may demand that the
Company convert his or her shares. The per share conversion price
will equal the amount in the Trust Account, calculated as of two business days
prior to the consummation of the proposed Business Combination, divided by the
number of shares of common stock held by Public Stockholders at the consummation
of the Offering. Accordingly, Public Stockholders holding 4,139,999 shares sold
in the Offering may seek conversion of their shares in the event of a Business
Combination. Accordingly, a portion of the net proceeds of the Offering has been
classified as common stock subject to possible conversion of shares on the
accompanying balance sheet. Such Public Stockholders are entitled to
receive their per share interest in the Trust Account computed without regard to
the shares of common stock held by the Founders prior to the consummation of the
Offering.
Deferred Interest –
A portion
(29.9999%) of the interest earned on the Trust Account (after permissible
reductions for working capital requirements and tax obligations) has been
deferred on the balance sheet as it represents interest attributable to the
common stock subject to possible conversion of shares.
The
Company’s Amended and Restated Certificate of Incorporation provides that the
Company will continue in existence only until 24 months from October 3, 2007. If
the Company has not completed a Business Combination by such date, its corporate
existence will cease and it will dissolve and liquidate for the purposes of
winding up its affairs. This factor raises a substantial doubt about the
Company’s ability to continue as a going concern. The financial
statements do not include any adjustments that may result from the outcome of
this uncertainty. 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 Offering (assuming no value is attributed to the Warrants
contained in the Units sold in the Offering).
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
—
The Company maintains cash in a bank deposit account which, at times, exceeds
federally insured (FDIC) limits. The Company has not experienced any losses on
this account.
Deferred Income Taxes
—
Deferred income taxes are provided for the differences between bases of assets
and liabilities for financial reporting and income tax purposes. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Net Income Per Common Share –
Income per common share is based on the weighted average number of common
shares outstanding. The Company complies with SFAS No. 128, “Earnings
Per Share,” which requires dual presentation of basic and diluted earnings per
share on the face of the statement of operations. Basic income per
share excludes dilution and is computed by dividing income available to holders
of Common Stock by the weighted-average common shares outstanding for the
period. Diluted income per share reflects the potential share
dilution that could occur if Warrants were to be exercised or otherwise resulted
in the issuance of Common Stock that then shared in the earnings of the
entity.
Highlands
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
The
following table details the net income per share computations on a basic and
diluted basis for the years ended December 31, 2008 and 2007 and the cumulative
period from April 26, 2007 (date of inception) through December 31,
2008.
|
|
|
For
the Period Ended December 31, 2008
|
|
|
For
the Period Ended December 31, 2007
|
|
|
Cumulative
Period from April 26, 2007 (Date of inception) Through December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
1,319,955
|
|
|
$
|
720,072
|
|
|
$
|
2,040,027
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share weighted-average shares outstanding
|
|
|
17,246,041
|
|
|
|
8,006,627
|
|
|
|
13,505,205
|
|
|
Effect
of dilutive securities:
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
weighted-average shares outstanding
|
|
|
17,246,041
|
|
|
|
8,006,627
|
|
|
|
13,505,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.15
|
|
|
Diluted
earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.15
|
|
Other contingent
shares:
The dilutive effect of shares issuable does not
include 13,800,000 Public Stockholders’ warrants that are not exercisable until
later of the Company’s initial Business Combination or January 3,
2009. Furthermore, 3,450,000 Founders warrants and 3,250,000
Sponsors’ Warrants are also excluded from the dilutive effect since they are not
exercisable until the Public Stockholders’ warrants are exercisable and, in
addition with respect to the Founders’ warrants, the Company’s common stock
price equals or exceeds $14.25 per share for any 20 trading days within a
30-trading day period.
Use of Estimates
— The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial
Instruments
- The fair values of the Company’s 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 balance sheet at December 31, 2008.
The
Company accounts for derivative instruments, if any, in accordance with SFAS No.
133 “Accounting for Derivative Instruments and Hedging Activities” as amended
(“SFAS 133”), which establishes accounting and reporting standards for
derivative instruments. We do not currently have any derivative
instruments.
New Accounting Pronouncements
— In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”). This standard identifies sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. generally accepted accounting
principles. The Company does not believe SFAS 162 will change its current
practices and thereby believes it will not impact preparation of the financial
statements.
Highlands
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (“SFAS 161”), which amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (“SFAS 133”) and requires enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations, and how derivative instruments and related
hedge items affect an entity’s financial position, financial performance, and
cash flows. SFAS 161 also requires the disclosure of the fair values of
derivative instruments and their gains and losses in a tabular format and
requires cross-referencing within the footnote of important information about
derivative instruments. SFAS 161 is effective for financial statements
issued for fiscal years beginning on or after November 15, 2008. The
Company does not believe SFAS 161 will change its current practices and thereby
believes it will not impact preparation of the financial
statements.
In
December 2007, the FASB released SFAS No. 141(R), Business Combinations (revised
2007) (“SFAS 141(R)”), which changes many well-established business combination
accounting practices and significantly affects how acquisition transactions are
reflected in the financial statements. Additionally, SFAS 141(R) will
affect how companies negotiate and structure transactions, model financial
projections of acquisitions and communicate to stakeholders. SFAS
141(R) must be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The adoption of this
pronouncement has had no impact on the Company’s financial statements, but
will affect the Company once an acquisition is completed.
In
December 2007, the FASB released SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (“SFAS 160”), which
establishes accounting and reporting standards for the noncontrolling interests
in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interests and
requires disclosure, on the face of the consolidated statement of income, of the
amounts of net income attributable to the parent and to the noncontrolling
interest. Previously, net income attributable to the noncontrolling
interest was reported as an expense or other deduction in arriving at net
income. SFAS 160 is effective for financial statements issued for
fiscal years beginning after December 15, 2008. The Company believes
the adoption of this statement will not have an impact on its financial
statements.
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an Amendment of FASB No. 115,” (“SFAS 159”). SFAS 159
allows a company to irrevocably elect fair value as the initial and subsequent
measurement attribute for certain financial assets and financial liabilities on
a contract-by-contract basis, with changes in fair value recognized in
earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007 and will be applied prospectively. The adoption of
this pronouncement has had no impact on the Company’s financial
statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework
for reporting fair value and expands disclosures about fair value measurements.
SFAS No. 157 was effective for the Company on January 1, 2008, with the
exception that the applicability of SFAS No. 157’s fair value measurement
requirements to nonfinancial assets and liabilities that are not required or
permitted to be recognized or disclosed at fair value on a recurring basis has
been delayed by the FASB for one year. The partial adoption of this
pronouncement had no impact on the Company’s financial
statements. Adopting the remainder of the provision is not expected
to have an impact on the Company’s financial statements as all our marketable
securities are determined by an observable market value. See
Note 3 to the financial statements contained elsewhere in this report for
more information.
Reclassification
— Certain
prior year amounts have been reclassified to conform with the current year
presentation.
Highlands
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
2. Initial
Public Offering
On
October 9, 2007, the Company sold 12,000,000 units (“Units”) in the Offering at
a price of $10 per Unit. The Offering generated net proceeds of approximately
$114,600,000, which, together with $3,450,000 in deferred underwriters discounts
and commissions, was placed in the Trust Account. On October 10,
2007, the underwriters exercised the full amount of their over-allotment option
for an additional 1,800,000 Units, which closed on October 15, 2007. The
exercise of the over-allotment generated additional net proceeds of
approximately $16,740,000, which, together with $540,000 in deferred
underwriters discounts and commissions, was placed in the Trust
Account. After consummation of the Offering (including the
exercise of the over-allotment option by the underwriters) and the Private
Placement, an aggregate amount of $134,830,000 was deposited in the Trust
Account, which consisted of aggregate net proceeds of approximately $128,030,000
from the Offering and the over-allotment, plus $3,990,000 in deferred
underwriting discounts and commissions and $3,250,000 of proceeds from the
Private Placement, but net of the proceeds from the offering held outside the
Trust Account. Each Unit consists of one share of the Company’s
common stock, par value $0.0001 per share (the “Common Stock”) and one warrant
to purchase one share of Common Stock (“Warrants”). Each Warrant will entitle
the holder to purchase from the Company one share of Common Stock at an exercise
price of $7.50 commencing on the later of the completion of an initial Business
Combination and 15 months from the October 3, 2007 and expiring five years from
October 3, 2007. The Company may redeem all of the Warrants, at a price of $.01
per Warrant upon 30 days’ notice while the Warrants are exercisable, only in the
event that the last sale price of the Common Stock is at least $14.25 per share
for any 20 trading days within a 30 trading day period ending on the third day
prior to the date on which notice of redemption is given. In accordance with the
warrant agreement relating to the Warrants sold and issued in the 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 a 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.
In
connection with the Offering and over-allotment, the Company paid Citigroup
Global Markets Inc. and William Smith Securities, the underwriters of the
Offering, an underwriting discount of 7% of the gross proceeds of the Offering,
of which 3% of the gross proceeds ($3,990,000) is held in the Trust Account and
payable only upon the consummation of a Business Combination. This
amount is included in deferred underwriting fee on the accompanying balance
sheet. The underwriters have waived their right to receive such
payment upon the Company’s liquidation if it is unable to complete a Business
Combination. Additionally, Kanders & Company, an affiliate of Warren B.
Kanders, one of the Company’s directors, purchased 500,000 Units in the
Offering. The Company received the entire aggregate gross proceeds from this
purchase and the underwriters did not receive any underwriting discounts or
commissions on these Units.
Simultaneously
with the consummation of the Offering, certain of the Company’s affiliates
purchased the Sponsor’s Warrants at a purchase price of $1.00 per Sponsor
Warrant, in a private placement. The proceeds of $3,250,000 were placed in the
Trust Account. The Sponsors’ Warrants are identical to the Warrants
underlying the Units sold in the Offering except that if the Company calls the
Warrants for redemption, the Sponsors’ Warrants will not be redeemable by the
Company as long as they are still held by the initial purchasers or their
permitted transferees. The purchasers have agreed that the Sponsors’ Warrants
will not be sold or transferred by them subject to (limited exceptions), until
after the completion of an initial Business Combination. The purchase price of
the Sponsors’ Warrants approximates the fair value of such
warrants.
The
Founders and the holders of the Sponsors’ Warrants and Co-Investment Units (as
described in Note 6 below) will be entitled to registration rights with respect
to their securities pursuant to an agreement signed prior to the effective date
of the Offering. At any time and from time to time on or after the date that is
30 days after the Company consummates a Business Combination, the holders of a
majority-in-interest of the Founders’ Units (and underlying securities), the
Sponsors’ Warrants (and underlying securities) or the Co-Investment Units (and
underlying securities) may make a written demand that the Company register such
securities under the Securities Act of 1933, as amended. The Company
is not obligated to effect more than an aggregate of two such demand
registrations. In addition, such holders have certain “piggy back”
registration rights on registration statements filed subsequent to the Company’s
consummation of a Business Combination. The Company will bear the expenses
incurred in connection with the filing of any such registration
statements.
Highlands
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
3. Investments
Held in Trust
Effective
January 1, 2008 the Company adopted Statement No. 157, Fair Value
Measurements. Statement No. 157 applies to all assets and liabilities
that are being measured and reported on a fair value basis. Statement
No. 157 requires new disclosure that establishes a framework for measuring fair
value in GAAP, and expands disclosure about fair value
measurements. This statement enables the reader of the financial
statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The statement requires
that assets and liabilities carried at fair value will be classified and
disclosed in one of the following three categories:
|
Level
1:
|
Quoted
market prices in active markets for identical assets or
liabilities.
|
|
Level
2:
|
Observable
market based inputs or unobservable inputs that are corroborated by market
data.
|
|
Level
3:
|
Unobservable
inputs that are not corroborated by market
data.
|
In
determining the appropriate levels, the Company performs a detailed analysis of
the assets and liabilities that are subject to Statement No. 157. At
each reporting period, all assets and liabilities for which the fair value
measurement is based on significant unobservable inputs are classified as Level
3.
The table
below presents the balances of assets and liabilities measured at fair value on
a recurring basis by level within the hierarchy.
|
|
|
December
31, 2008
|
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
Held in Trust
|
|
$
|
133,161,231
|
|
|
$
|
133,161,231
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Investment
Held in Trust from Underwriter
|
|
|
3,990,000
|
|
|
|
3,990,000
|
|
|
|
--
|
|
|
|
--
|
|
|
Total
|
|
$
|
137,151,231
|
|
|
$
|
137,151,231
|
|
|
$
|
--
|
|
|
$
|
--
|
|
The
Company’s investments held in trust include money market securities that are
considered to be highly liquid and easily tradable.
The
reconciliation of investment held in trust (including the investments held in
trust from underwriter) is as follows:
|
|
|
For the year
December 31,
2008
|
|
|
For the period
from
April
26, 2007 to
December
31,
2007
|
|
|
For
the cumulative period from
April
26, 2007
(inception) to
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
held in trust- beginning of period
|
|
$
|
136,248,345
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
to trust (which includes the deferred underwriting discount and commission
of $3,990,000)
|
|
|
—
|
|
|
|
134,830,000
|
|
|
|
134,830,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income received
|
|
|
3,192,846
|
|
|
|
1,418,345
|
|
|
|
4,611,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawals
to fund operations (a)
|
|
|
(450,000
|
)
|
|
|
—
|
|
|
|
(450,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawals
to pay taxes
|
|
|
(1,839,960
|
)
|
|
|
—
|
|
|
|
(1,839,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments held in trust
|
|
$
|
137,151,231
|
|
|
$
|
136,248,345
|
|
|
$
|
137,151,231
|
|
(a)
Amount is limited to $2,100,000
Highlands
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
4. Notes
Payable, Affiliates of Stockholders
The
Company issued unsecured promissory notes in an aggregate principal amount of
$100,000 to two affiliates of the Founders on April 30, 2007. The notes were
non-interest bearing and were payable on the earlier of April 30, 2008 or the
consummation of the Offering. Due to the short-term nature of the notes, the
fair value of the notes approximated their carrying amount. On October 9, 2007,
the Company repaid the notes in full.
5. Income
Taxes
The
Company’s provision for income taxes reflects the application of federal, state
and city statutory rates to the Company’s income before taxes.
Components
of the provision for income taxes are as follows:
|
|
|
For
the
Period
Ended
December
31, 2008
|
|
|
For
the
Period
Ended
December
31, 2007
|
|
|
Current
|
|
|
|
|
|
|
|
Federal
|
|
$
|
956,558
|
|
|
$
|
417,425
|
|
|
State
|
|
|
278,249
|
|
|
|
121,423
|
|
|
Total
Current
|
|
$
|
1,234,807
|
|
|
$
|
538,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(250,299
|
)
|
|
$
|
(46,478
|
)
|
|
State
|
|
|
(25,936
|
)
|
|
|
(13,519
|
)
|
|
Total
Deferred
|
|
$
|
(276,235
|
)
|
|
$
|
(59,998
|
)
|
|
|
|
$
|
958,572
|
|
|
$
|
478,849
|
|
The
following is a summary of the items that caused recorded income taxes to differ
from income taxes computed using the statutory federal income tax rate of 34%
for the year ended December 31, 2008 and 2007.
|
|
|
For
the Year Ended December 31, 2008
|
|
|
For
the Period Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Computed
“expected” income tax expense
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
|
State
income taxes, net of federal income taxes
|
|
|
5.95
|
%
|
|
|
5.94
|
%
|
|
State
valuation allowance
|
|
|
2.06
|
%
|
|
|
|
|
|
Total
income tax expense
|
|
|
42.07
|
%
|
|
|
39.94
|
%
|
Highlands
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
Deferred
income tax assets and liabilities are determined based on the difference between
the financial reporting carrying amounts and tax bases of existing assets and
liabilities and operating loss and tax credit
carryforwards. Significant components of the Company’s existing
deferred income tax assets and liabilities as of December 31, 2008 and 2007 are
as follows:
|
|
|
As
of
December
31, 2008
|
|
|
As
of
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Capitalized
start up costs
|
|
$
|
315,160
|
|
|
$
|
59,998
|
|
|
Deferred
trust interest
|
|
|
67,945
|
|
|
|
-
|
|
|
Valuation
Allowance for deferred income taxes
|
|
|
(46,872
|
)
|
|
|
-
|
|
|
Total
Deferred tax assets
|
|
$
|
336,233
|
|
|
$
|
59,998
|
|
The
majority of the Company’s operating expenses are not currently deductible for
income tax purposes. These expenses will be deductible for income tax
purposes over a period of time when a trade or business, as defined in the
Internal Revenue Code, begins operations or in the event the Company
liquidates. The deferred tax asset relates to the future benefit the
Company will receive when it is able to deduct these costs for income tax
purposes. In recognition of the uncertainty regarding the ultimate amount of
income tax benefits to be derived, the Company recorded a full valuation
allowance that was partially relieved following the Offering. Because
of limitations on loss carrybacks applicable to state income taxes, the Company
continued to record a valuation reserve for deferred state tax assets at
December 31, 2008. There have been no audits of the Company’s tax
returns since inception and all years remain open to tax
examination.
6. Commitments
and Related Party Transactions
The
Company presently occupies office space provided by affiliates of certain of the
Founders. Such affiliates have agreed that, until the Company consummates a
Business Combination, they will make such office space, as well as certain
office, secretarial and adminitrative and general services, available to
the Company, as may be required by the Company from time to time. The Company
has agreed to pay such affiliates an aggregate amount of $10,000 per month for
such services commencing on the effective date of the Offering. The
accompanying statement of income includes $120,000 and $30,000 of expense
related to this agreement for the periods ended December 31, 2008 and 2007
respectively.
Pursuant
to letter agreements that the Founders entered into with the Company and the
underwriters, the Founders waived their right to receive distributions with
respect to their founding shares upon the Company’s liquidation.
Certain
of the Company’s affiliates have agreed to purchase a total of 1,000,000 units
(the “Co-Investment Units”) at a price of $10 per unit (an aggregate price of
$10,000,000) from the Company in a private placement that will occur immediately
prior to the Company’s consummation of a Business Combination. These
Co-Investment Units will be identical to the Units sold in the Offering. The
purchasers have agreed that the Co-Investment Units will not be sold,
transferred, or assigned (subject to limited exceptions) until at least one year
after the completion of the Business Combination.
The
Founders and the holders of the Sponsors’ Warrants (or underlying securities)
and the holders of the Co-Investment Units (or underlying securities) will be
entitled to registration rights with respect to their securities pursuant to an
agreement signed prior to the effective date of the Offering. At any
time, and from time to time, on or after the date that is 30 days after the
Company consummates a Business Combination, the holders of a
majority-in-interest of the Founders’ Units (and underlying securities), the
Sponsors’ Warrants (and underlying securities) or the Co-Investment Units (and
underlying securities) may make a written demand that the Company register such
securities under the Securities Act of 1933, as amended. The Company is not
obligated to effect more than an aggregate of two such demand registrations. In
addition, such holders have certain “piggy back” registration rights on
registration statements filed subsequent to the Company’s consummation of a
Business Combination. The Company will bear the expenses incurred in connection
with the filing of any such registration statements.
Highlands
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
7. Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined from
time to time by the Company’s Board of Directors. The agreement with
the underwriters prohibits the Company, prior to a Business Combination, from
issuing preferred stock which participates in the proceeds of the Trust Account
or which votes as a class with the Common Stock on a Business
Combination.
8. Common
Stock
Effective
July 16, 2007, the Company’s Board of Directors authorized a unit dividend of
0.15 units for each outstanding unit. Effective October 3, 2007, the Company’s
Board of Directors authorized a unit dividend of 0.2 units for each outstanding
unit. All references in the accompanying financial statements to the number of
shares of Common Stock have been retroactively restated to reflect these
transactions.
On March
3, 2008, the Company repurchased 20,700 Founders Units from William V. Campbell
for the original purchase price of $150 and released Mr. Campbell from the
obligation of continuing to serve as a Director of the Company until the earlier
of a Business Combination or the liquidation of the Company. The purchased units
were subsequently cancelled.
On May
12, 2008, the Company issued 20,700 units with certain service and vesting
requirements to Ronnie P. Barnes for $150. In addition, the units sold to Ronnie
P. Barnes are subject to the same rights and restrictions as the Founders Units,
as described in Note 2 above. Due to the rights and performance
restrictions of the Founders Units issued to Mr. Barnes, the Company will record
a $194,844 non-cash charge when a Business Combination is
consummated.
9
. Quarterly Results of
Operations (Unaudited)
The
following table presents summarized unaudited quarterly results of operations
for the Company for fiscal year 2008 and 2007. We believe all necessary
adjustments have been included in the amounts stated below to present fairly the
following selected information when read in conjunction with the Financial
Statements and Notes thereto included in this report. Future quarterly operating
results may fluctuate depending on a number of factors. Results of operations
for any particular quarter are not necessarily indicative of results of
operations for a full year or any other quarter.
|
|
|
Fiscal
2008
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total
|
|
|
Gross
interest income
|
|
$
|
1,215,833
|
|
|
$
|
821,613
|
|
|
$
|
767,344
|
|
|
$
|
388,138
|
|
|
$
|
3,192,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$
|
1,215,833
|
|
|
$
|
821,613
|
|
|
$
|
662,593
|
|
|
$
|
322,772
|
|
|
$
|
3,022,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
615,860
|
|
|
$
|
372,708
|
|
|
$
|
298,238
|
|
|
$
|
33,149
|
|
|
$
|
1,319,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.04
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.04
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.00
|
|
|
|
|
|