Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
———————
FORM
10-K
———————
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2007
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from: _____________ to ____________
Commission
file number 000-52833
FMG
Acquisition Corp.
(Exact
name of registrant as specified in its charter)
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Delaware
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75-3241964
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(State
or other jurisdiction
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(I.R.S.
Employer
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of
incorporation or organization)
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Identification
No.)
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Four
Forest Park, Second Floor
Farmington,
Connecticut 06032
(Address
of Principal Executive Office) (Zip Code)
(860)
677-2701
(Registrant’s
telephone number, including area code)
———————
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $.0001 par value per share
(Title
of class)
Warrants
to purchase shares of Common Stock
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes
o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act. Yes
o No
x
Indicate
by check mark whether the registrant (1) has filed all reports required
to be
filed by Section 13 or 15(d) of the
Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period
that the registrant was
required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405
of
Regulation S-K (§229.405 of this
chapter)
is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or
information
statements incorporated by reference in Part III of this Form 10-K
or any
amendment to this
Form
10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
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Large
accelerated filer
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o
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Accelerated
filer
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o |
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Non-accelerated
filer
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o
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Smaller
reporting company
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x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes x No
o
The
aggregate market value of the outstanding common stock, other than shares
held
by persons who may be deemed affiliates of the registrant, computed by
reference
to the closing sales price for the Registrant’s Common Stock on March 26, 2007,
as reported on the Over-The-Counter-Bulletin Board, was approximately
$24,885,012.
As
of March 26, 2008, there were 5,858,625 shares of common stock, par value
$.0001
per share, of the registrant outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
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PART
I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors.
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12
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Item
1B.
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Unresolved
Staff Comments.
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31
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Item
2.
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Properties.
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31
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Item
3.
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Legal
Proceedings.
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31
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Item
4.
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Submission
of Matters to a Vote of Security Holders.
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31
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and
Issuer
Purchases of Equity Securities.
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32
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Item
6.
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Selected
Financial Data.
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34
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation.
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34
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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38
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Item
8.
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Financial
Statements and Supplementary Data.
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38
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Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
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38
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| Item
9A(T). |
Controls
and
Procedures. |
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38
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Item
9B.
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Other
Information.
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38
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance.
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39
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Item
11.
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Executive
Compensation.
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42
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and
Related
Stockholder Matters.
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42
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence.
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43
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Item
14.
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Principal
Accounting Fees and Services.
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46
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules.
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48
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FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements can be
identified by the use of forward-looking terminology, including the words
“believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,”
“will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in
each case, their negative or other variations or comparable terminology. Such
statements include, but are not limited to, any statements relating to our
ability to consummate any acquisition or other business combination and any
other statements that are not statements of current or historical facts. These
statements are based on management’s current expectations, but actual results
may differ materially due to various factors, including, but not limited to,
our:
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the
risk factors discussed and identified in item 1A of this
report;
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• |
adverse
governmental or regulatory policies may be
enacted;
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• |
management
and other key personnel may be
lost;
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• |
competition
to acquire a target business in the insurance industry may
increase;
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• |
we
may be unable to obtain additional financing, if required, to complete
a
business combination or fund the operations of the target
business;
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• |
we
may use a significant portion of our working capital to pursue
business
combinations that we do not
complete;
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• |
we
may not obtain regulatory approvals in connection with a business
combination in a timely manner, or at
all;
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• |
we
may effect a business combination with an entity outside of the
United
States which could increase our costs and delay the business combination
beyond the prescribed time periods;
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• |
we
may fail to maintain exemptions under the Investment Company Act
of 1940,
as amended, or Investment Company Act, which would subject us to
significant restrictions on our operations, governance and ability
to use
financing; and
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• |
general
business and economic conditions could adversely affect our ability
to
consummate a business combination.
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By
their
nature, forward-looking statements involve risks and uncertainties because
they
relate to events and depend on circumstances that may or may not occur in the
future. We caution you that forward-looking statements are not guarantees of
future performance and that our actual results of operations, financial
condition and liquidity, and developments in the industry in which we operate
may differ materially from those made in or suggested by the forward-looking
statements contained in this Annual Report on Form 10-K. In addition, even
if
our results or operations, financial condition and liquidity, and developments
in the industry in which we operate are consistent with the forward-looking
statements contained in this Annual Report on Form 10-K, those results or
developments may not be indicative of results or developments in subsequent
periods.
These
forward-looking statements are subject to numerous risks, uncertainties and
assumptions about us described in our filings with the Securities and Exchange
Commission, or SEC. The forward-looking events we discuss in this Annual Report
on Form 10-K speak only as of the date of such statement and might not occur
in
light of these risks, uncertainties and assumptions. Except as required by
applicable law, we undertake no obligation and disclaim any obligation to
publicly update or revise any forward-looking statements, whether as a result
of
new information, future events or otherwise.
PART
I
Introduction
FMG
Acquisition Corp. (the “Company”, “Registrant”, “we” or “us”), is a blank check
company organized under the laws of the State of Delaware on May 22, 2007.
We
were formed to acquire, through a merger, capital stock, exchange, asset
acquisition or other similar business combination, one or more domestic or
international assets or operating business in the insurance industry. To date,
our efforts have been limited to organizational activities, our initial public
offering and the search for a suitable business combination. As of this filing,
we have not acquired any business operations nor entered into any definitive
agreement with any target company.
Our
executive offices are located at Four
Forest Park Drive, Farmington, Connecticut 06032 and our telephone number at
that location is (860) 677-2701.
Recent
Developments
On
October 11, 2007, we consummated our initial public offering, or IPO, of
4,733,625 units, including 233,625
units
subject to the over-allotment option, with each unit consisting of one share
of
our common stock and one warrant, each to purchase one share of our common
stock
at an exercise price of $6.00 per share. The units were sold at an offering
price of $8.00 per unit, generating total gross proceeds of $37,869,000.
Immediately prior to the consummation of our initial public offering, we
consummated the private sale of 1,250,000 warrants at $1.00 per warrant to
certain of our initial stockholders and affiliates for an aggregate purchase
price of $1,250,000. After deducting the underwriting discounts and commissions
and the offering expenses, the total net proceeds to us from the offering were
$36,346,000, of which $36,202,930 was deposited into the trust account. In
addition, all of the proceeds from the private sale of the warrants were
deposited into the trust fund, for a total of $37,452,930 held in trust (or
approximately $7.91 per share sold in the offering). The proceeds that were
not
deposited into the trust fund are available to be used to search for potential
target businesses, conduct business, legal and accounting due diligence on
prospective business combinations and continuing general and administrative
expenses (collectively referred to as “costs and expenses”). Through December
31, 2007, we have used $143,207 of the net proceeds that were not deposited
into
the trust fund to pay for our costs and expenses. The net proceeds deposited
into the trust fund remain on deposit in the trust fund earning interest. As
of
December 31, 2007, there was $37,720,479 held in the trust fund.
Overview
Subsequent
to the consummation of a business combination, we believe that the strengths
of
our management team, particularly their extensive operations experience in
the
insurance industry, will be valuable with respect to operating any business
we
may acquire. Suitable companies operating in or providing services to the
insurance industry may include:
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insurance
companies, including property-casualty, life and health, reinsurance,
and
managed care companies;
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insurance
distribution, including retail agent or brokerage, managing general
agency, underwriting or program management, marketing or related
distribution companies; and
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service
providers, including claims management, medical cost management,
underwriting information companies, and asset
managers.
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We
intend
to leverage the industry experience of our executive officers and directors
by
focusing our efforts on identifying a prospective target business in the
insurance industry.
Our
Management Team
Our
executive officers and directors have extensive experience in the insurance
industry as managers, principals, advisors or directors of companies operating
in or providing services to the insurance industry. In addition, they
collectively comprise a formidable pool of expertise covering the key areas
of
the insurance industry, with experience in negotiating and structuring
transactions in the areas in which we will attempt to compete. Prior to the
consummation of a business combination, we intend to leverage the industry
experience of our executive officers, including their extensive contacts,
relationships and access to acquisition opportunities, by focusing our efforts
on identifying a prospective target business or businesses in the insurance
industry and negotiating the terms of such transaction.
By
way of
background, our Chairman, President and Chief Executive Officer Gordon G. Pratt
has completed dozens of corporate finance advisory and investment transactions
in the insurance industry. He began his career at The Chase Manhattan Bank,
N.A.
in 1986, where he, among other things, co-invented a structured financial
product for mutual insurance companies and expanded Chase’s efforts in insurance
mergers, acquisitions, and merchant banking. Mr. Pratt’s clients included
Kohlberg Kravis Roberts & Company, and he served as a lead senior debt
underwriter for KKR’s purchase of American Re-Insurance Company in 1992, at the
time the largest-ever leveraged buyout of an insurance company. Later that
year
he joined Conning & Company, then a privately-held investment bank, asset
manager, and research company focused on the insurance industry. During his
career at Conning, Mr. Pratt was promoted to Senior Vice President and became
a
shareholder, private equity partner, and member of the operating committee.
He
was involved in all aspects of forming, managing, and investing the Conning
Funds, which at that time totaled more than $430 million of private equity
capital for investment in the insurance industry. Mr. Pratt has served on the
boards of directors for a number of insurance businesses including: HealthRight,
Inc. (managed care); Investors Insurance Holding Corp. (excess and surplus
lines); Monroe Guaranty Companies, Inc. (commercial lines); Sagamore Financial
Corporation (impaired risk life); and Stockton Holdings Ltd., (finite risk).
In
1999, Mr. Pratt joined Hales & Company, an investment bank serving insurance
and insurance distribution businesses as a partner and shareholder. He helped
to
start Hales’s New York office and launched Distribution Partners Investment
Capital, L.P., a private equity fund focused on insurance distribution
businesses. In July 2004, Mr. Pratt left Hales to join Willis Group, the global
insurance broker, where he served until April of 2006. At Willis, he served
as
Senior Vice President, Corporate Finance and was in charge of the Group’s
acquisitions and divestitures worldwide.
Mr.
Pratt
is Managing Director of Fund Management Group LLC and Managing General Partner
for Distribution Partners. Fund Management Group specializes in managing
investments in and providing advice to privately held insurance related
businesses. Fund Management Group (i) manages Distribution Partners, (ii) makes
direct private equity investments, and (iii) consults with privately-held
companies and their boards of directors. Mr. Pratt is Chairman of the Board
of
Risk Enterprise Management Limited (national third-party property/casualty
administrator), and a former director of Calco (California retail broker),
Bertholon-Rowland (New York program manager), Kibble & Prentice (Seattle
retail broker), and Tri-City Holdings (national wholesaler).
Subsequent
to the consummation of a business combination, we believe the strengths of
our
officers and directors, particularly their extensive operations experience
in
the insurance industry, will be valuable with respect to operating any business
we may acquire.
Effecting
a Business Combination
General
We
are
not presently engaged in, and we will not engage in, any substantive commercial
business until we consummate a business combination. We intend to utilize our
cash, including the funds held in the trust fund, capital stock, debt or a
combination of the foregoing in effecting a business combination. A business
combination may involve the acquisition of, or merger with, a company which
does
not need substantial additional capital but which desires to establish a public
trading market for its shares, while avoiding what it may deem to be adverse
consequences of undertaking a public offering itself. These include time delays,
significant expense, loss of voting control and compliance with various Federal
and state securities laws. In the alternative, we may seek to consummate a
business combination with a company that may be financially unstable or in
its
early stages of development or growth.
We
have not entered into any definitive agreement with a target
business
To
date,
although we continue to search for a potential candidate for a business
combination, we have not entered into any definitive agreements with any target
business for a business combination.
Subject
to the limitations that a target business or businesses have a collective fair
market value of at least 80% of our net assets held in the Trust Account (net
of
taxes and amounts disbursed for working capital purposes and excluding the
amount held in the Trust Account representing a portion of the underwriters’
discount) at the time of such acquisition, we have virtually unrestricted
flexibility in identifying and selecting a prospective business combination
candidate. We have not established any other specific attributes or criteria
(financial or otherwise) for prospective target businesses. We do not intend
to
specifically target financially unstable, early stage or un-established
companies; however, to the extent we effect a business combination with a
financially unstable company or an entity in its early stage of development
or
growth, including entities without established records of sales or earnings,
we
may be affected by numerous risks inherent in the business and operations of
financially unstable and early stage or potential emerging growth companies.
Although our management will endeavor to evaluate the risks inherent in a
particular target business, we cannot assure you that we will properly ascertain
or assess all significant risk factors.
Sources
of target businesses
Target
business candidates have been brought to our attention from various unaffiliated
sources, including investment bankers, venture capital funds, private equity
funds, leveraged buyout funds, management buyout funds and other members of
the
financial community, who present solicited or unsolicited proposals. Our
officers and directors as well as their affiliates may also bring to our
attention target business candidates. Each member of our management team has
been involved in the insurance industry for a majority of, if not their entire,
professional careers. In connection therewith, members of our management, as
they have done in the past, frequently review newspaper articles and trade
publications, and attend conferences and trade shows, which relate to the
insurance industry. In no event, however, will we pay any of our existing
officers, directors or stockholders or any entity with which they are affiliated
any finder’s fee or other compensation prior to or in connection with the
consummation of a business combination.
Selection
of a target acquisition and structuring of a business
combination
Subject
to the requirement that our business combination must be with a target
acquisition having a fair market value that is at least 80% of our net assets
held in the trust account (net of taxes and amounts disbursed for working
capital purposes and excluding the amount held in the trust account representing
a portion of the underwriters’ discount) at the time of such acquisition, our
management will have virtually unrestricted flexibility in identifying and
selecting prospective target acquisitions. In evaluating a prospective target
acquisition, our management will consider, among other factors, the following
factors likely to affect the performance of the investment:
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earnings
and growth potential;
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experience
and skill of management and availability of additional
personnel;
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financial
condition and results of operation;
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stage
of development of the products, processes or
services;
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breadth
of services offered;
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degree
of current or potential market acceptance of the
services;
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regulatory
environment of the industry; and
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costs
associated with effecting the business
combination.
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These
criteria are not intended to be exhaustive. Any evaluation relating to the
merits of a particular business combination will be based, to the extent
relevant, on the above factors as well as other considerations deemed relevant
by our management in effecting a business combination consistent with our
business objective. As the evaluation process progresses, numerous other
factors, which are expected to vary with each potential candidate we evaluate,
are expected to be relevant to a final determination of whether to move forward
with any particular acquisition candidate. In evaluating a prospective target
acquisition, we will conduct an extensive due diligence review which will
encompass, among other things, a review of all relevant financial and other
information which is made available to us. This due diligence review will be
conducted either by our management or by unaffiliated third parties we may
engage. We will also seek to have all owners of any prospective target
acquisition execute agreements with us waiving any right, title, interest or
claim of any kind in or to any monies held in the trust account. If any
prospective business or owner refused to execute such agreement, it is unlikely
we would continue negotiations with such business or owner.
In
the
case of all possible acquisitions, we will seek to determine whether the
transaction is advisable and in the best interests of us and our stockholders.
We believe it is possible that our attractiveness as a potential buyer of
businesses may increase after the consummation of an initial transaction and
there may or may not be additional acquisition opportunities as we grow and
integrate our acquisitions. We may or may not make future acquisitions.
Fundamentally, however, we believe that, following an initial transaction,
we
could learn of, identify and analyze acquisition targets in the same way after
an initial transaction as we will before an initial transaction. To the extent
we are able to identify multiple acquisition targets and options as to which
business or assets to acquire as part of an initial transaction, we intend
to
seek to consummate the acquisition which is most attractive and provides the
greatest opportunity for creating stockholder value. The determination of which
entity is the most attractive would be based on our analysis of a variety of
factors, including whether such acquisition would be in the best interests
of
our security holders, the purchase price, the terms of the sale, the perceived
quality of the assets and the likelihood that the transaction will
close.
The
time
and costs required to select and evaluate a target acquisition and to structure
and complete the business combination cannot presently be ascertained with
any
degree of certainty. Any costs incurred with respect to the identification
and
evaluation of a prospective target acquisition with which a business combination
is not ultimately completed will result in a loss to us and reduce the amount
of
capital available to otherwise complete a business combination. While we may
pay
fees or compensation to third parties for their efforts in introducing us to
a
potential target business, in no event, however, will we pay any of our existing
officers, directors or stockholders or any entity with which they are affiliated
any finder’s fee or other compensation for services rendered to us or in
connection with the consummation of the initial business
combination.
Fair
market value of target acquisition
The
initial target acquisition we acquire must have a fair market value equal to
at
least 80% of our net assets held in the trust account (net of taxes and amounts
disbursed for working capital purposes and excluding the amount held in the
trust account representing a portion of the underwriters’ discount) at the time
of such acquisition, subject to the conversion rights described below, although
we may acquire a target acquisition whose fair market value significantly
exceeds 80% of our net assets held in the trust account (net of taxes and
amounts disbursed for working capital purposes and excluding the amount held
in
the trust account representing a portion of the underwriters’ discount). To
accomplish this, we may seek to raise additional funds through credit facilities
or other secured financings or a private offering of debt or equity securities
if such funds are required to consummate such a business combination, although
we have not entered into any such fund raising arrangement and do not currently
anticipate effecting such a financing other than in connection with the
consummation of the business combination.
Prior
to
entering into an agreement for a target acquisition, the fair market value
of
such target acquisition will be determined by our board of directors based
upon
standards generally accepted by the financial community, such as actual and
potential sales, earnings and cash flow and book value. If our board is not
able
to independently determine that the target acquisition has a sufficient fair
market value, we will obtain an opinion from an unaffiliated, independent third
party appraiser, which may or may not be an investment banking firm that is
a
member of the Financial Industry Regulatory Authority, Inc., stating whether
the
fair market value meets the 80% of net assets held in the trust account
threshold. If such an opinion is obtained, we anticipate distributing copies,
or
making a copy of such opinion available, to our stockholders. We will not be
required to obtain an opinion from a third party as to the fair market value
if
our board of directors independently determines that the target acquisition
complies with the 80% threshold unless there is a conflict of interest with
respect to the transaction. Satisfaction of the 80% threshold is determined
by
calculating the fair market value of what our stockholders receive in the
business combination and comparing it to 80% of the net assets held in trust.
Whether assets or stock of a target business is acquired, such assets or stock
would be evaluated based upon generally accepted financial standards in order
to
determine if the fair market value of such assets or stock equals at least
80%
of our net assets held in the trust account
excluding taxes, amounts disbursed for working capital and the deferred portion
of the underwriter’s compensation.
Probable
lack of business diversification
Our
business combination must be with a target acquisition which satisfies the
minimum valuation standard at the time of such acquisition. Consequently, we
expect to have the ability to effect only a single business combination,
although this process may entail the simultaneous acquisitions of several
businesses. Therefore, at least initially, the prospects for our success may
be
entirely dependent upon the future performance of a single business operation.
Unlike other entities that may have the resources to complete several business
combinations of entities or assets operating in multiple industries or multiple
areas of a single industry, it is probable we will not have the resources to
diversify our operations or benefit from the possible spreading of risks or
offsetting of losses. By consummating a business combination with only a single
entity or asset, our lack of diversification may:
| · |
subject
us to numerous economic, competitive and regulatory developments,
any or
all of which may have a substantial adverse impact upon the particular
industry in which we may operate subsequent to a business combination;
and
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| · |
result
in our dependency upon the development or market acceptance of a
single or
limited number of products, processes or
services.
|
In
the event we ultimately determine to simultaneously acquire several businesses
or assets and such businesses or assets are owned by different sellers, we
may
need for each of such sellers to agree that our purchase of its business or
assets is contingent on the simultaneous closings of the other acquisitions,
which may make it more difficult for us, and delay our ability, to complete
the
business combination. With multiple acquisitions, we could also face additional
risks, including additional burdens and costs with respect to possible multiple
negotiations and due diligence investigations (if there are multiple sellers)
and the additional risks associated with the subsequent assimilation of the
businesses or assets into a single operating business.
Limited
ability to evaluate the target’s business’ management
Although
we intend to closely scrutinize the incumbent management of a prospective target
business when evaluating the desirability of effecting a business combination,
we cannot assure you that our assessment will prove to be correct. In addition,
we cannot assure you new members that join our management following a business
combination will have the necessary skills, qualifications or abilities to
manage a public company. Furthermore, the future role of our officers and
directors, if any, in the target business following a business combination
cannot presently be stated with any certainty. While our current officers and
directors may remain associated in senior management or advisory positions
with
us following a business combination, they may not devote their full time and
efforts to our affairs subsequent to a business combination. Moreover, they
would only be able to remain with the company after the consummation of a
business combination if they are able to negotiate employment or consulting
agreements in connection with such business combination, which would be
negotiated at the same time as the business combination negotiations are being
conducted and which may be a term of 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. While the personal
and financial interests of such individuals may influence their motivation
in
identifying and selecting a target business, the ability of such individuals
to
remain with the company after the consummation of a business combination will
not be the determining factor in our decision as to whether or not we will
proceed with any potential business combination. Additionally, we cannot assure
you that our officers and directors will have significant experience or
knowledge relating to the operations of the particular target
business.
Following
a business combination, we may seek to recruit additional managers to supplement
or replace the incumbent management of the target business. We cannot assure
you
that we will have the ability to recruit such managers, or that any such
managers we do recruit will have the requisite skills, knowledge or experience
necessary to enhance the incumbent management, if any.
Opportunity
for Stockholder Approval of Business Combination
Prior
to
the completion of our business combination, we will submit the transaction
to
our stockholders for approval, even if the nature of the acquisition is such
as
would not ordinarily require stockholder approval under applicable state law.
In
connection with seeking stockholder approval of a 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 such business combination.
Any vote to extend the corporate life to continue perpetually following the
consummation of a business combination will be taken only if the business
combination is approved. We will only consummate a business combination if
stockholders vote both in favor of such business combination and our amendment
to extend our corporate life. In connection with seeking stockholder approval
of
a business combination, we will furnish our stockholders with proxy solicitation
materials prepared in accordance with the Securities Exchange Act of 1934,
as
amended, which, among other matters, will include a description of the
operations of the target business and, if applicable, historical financial
statements of a target business.
In
connection with the stockholder vote required to approve any business
combination, our initial stockholders have agreed to vote all of their shares
of
common stock owned by them prior to our initial public offering in accordance
with a majority of the public stockholders who vote at the special or annual
meeting called for the purpose of approving a business combination. For example,
if the majority of public stockholders voting at the meeting, regardless of
percent, vote to approve the business combination, our initial stockholders
will
vote all shares owned by them prior to the offering in favor of the business
combination. Similarly, if the majority of public stockholders voting at the
meeting, regardless of percent, vote against the business combination, our
initial stockholders will vote all shares owned by them prior to our initial
public offering against the business combination. Our initial stockholders
have
also agreed that they will vote all shares of common stock acquired in or
following our IPO, in favor of a business combination. We will proceed with
the
business combination only if a majority of the shares of common stock voted
by
the public stockholders are voted in favor of the business combination and
public stockholders owning less than 30% of the shares of common stock sold
in
our initial public offering exercise their conversion rights. Voting against
the
business combination alone will not result in conversion of a stockholder’s
shares of common stock into a share of the trust account. Such stockholder
must
have also exercised its conversion rights described below.
Upon
the
completion of our business combination, unless required by Delaware law, the
federal securities laws, and the rules and regulations promulgated thereunder,
or the rules and regulations of an exchange upon which our securities are
listed, we do not presently intend to seek stockholder approval for any
subsequent acquisitions.
Conversion
Rights
At
the
time we seek stockholder approval of any business combination, we will offer
to
each public stockholder (but not to our initial stockholders, nor to any of
our
officers and directors to the extent that they receive shares of common stock
prior to our IPO, or purchase any shares of common stock in our initial public
offering or the aftermarket) the right to have such stockholder’s shares of
common stock converted to cash if the stockholder votes against the business
combination and the business combination is approved and completed. Initial
stockholders are not entitled to convert any of their shares of common stock
acquired prior to the offering, in the offering or after the offering into
a pro
rata share of the trust account. The actual per-share conversion price will
be
equal to the amount in the trust account, which includes $1,250,000 from the
purchase of the insider warrants by our sponsor, inclusive of any interest
(net
of any taxes due on such interest and franchise taxes, which taxes shall be
paid
from the trust account, and amounts disbursed for working capital purposes,
and
calculated as of two business days prior to the consummation of the proposed
business combination), divided by the number of shares of common stock sold
in
the offering. Without taking into any account interest earned on the trust
account or taxes payable on such interest, the initial per-share conversion
price would be approximately $7.91 or $0.09 less than the per-unit offering
price of $8.00. Because the initial per share conversion price is $7.91 per
share (plus any interest, net of taxes payable and amounts disbursed for working
capital purposes), which may be lower than the market price of the common stock
on the date of the conversion, there may be a disincentive on the part of public
stockholders to exercise their conversion rights. Because
converting stockholders will receive their proportionate share of the deferred
underwriting discounts and commissions and the underwriters will be paid the
full amount of their deferred underwriting compensation at the time of the
consummation of the initial business combination, the company (and, therefore,
the non-converting stockholders) will bear the financial effect of such payments
to both the converting stockholders and the underwriters.
An
eligible stockholder may request conversion at any time after the mailing to
our
stockholders of the proxy statement and prior to the vote taken with respect
to
a proposed business combination at a meeting held for that purpose, but the
request will not be granted unless the stockholder votes against the business
combination and the business combination is approved and completed.
Additionally, we may require public stockholders, whether they are a record
holder or hold their shares in “street name,” to either tender their
certificates to our transfer agent at any time through the vote on the business
combination or to deliver their shares to the transfer agent electronically
using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System,
at the holder’s option. The proxy solicitation materials that we will furnish to
stockholders in connection with the vote for any proposed business combination
will indicate whether we are requiring stockholders to satisfy such
certification and delivery requirements. Accordingly, a stockholder would have
from the time we send out our proxy statement through the vote on the business
combination to tender his shares if he wishes to seek to exercise his conversion
rights, a period that will not be less than 10, nor more than 60, days. 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 (because the transfer is made electronically once final instruction is
given to Depository Trust Company) by simply contacting the transfer agent
or
his broker and requesting delivery of his shares through the DWAC System, we
believe this time period is sufficient for an average investor. However, because
we do not have any control over this process, it may take significantly longer
than we anticipated. Additionally, if the shares of common stock cannot be
transferred through the DWAC system, the process may take such number of days
required to complete the proper paperwork, obtain the necessary authorizations
and consents and to locate and deliver physical stock certificates, if any.
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 and the need to deliver shares is a requirement of
conversion, regardless of the timing of when such delivery must be effectuated.
Any
request for conversion, once made, may be withdrawn at any time up to the date
of the meeting. Furthermore, if a stockholder delivered his certificate for
conversion and subsequently decided prior to the meeting not to elect
conversion, he may simply request the transfer agent return the certificate
(physically or electronically). It is anticipated the funds to be distributed
to
stockholders entitled to convert their shares who elect conversion will be
distributed promptly after completion of a business combination. Public
stockholders who convert their stock into their share of the trust account
still
have the right to exercise any warrants they still hold.
If
a vote
on our initial business combination is held and the business combination is
not
approved, we may continue to try to consummate a business combination with
a
different target until October 4, 2009. If the initial business combination
is
not approved or completed for any reason, then public stockholders voting
against our initial business combination who exercised their conversion rights
would not be entitled to convert their shares of common stock into a pro rata
share of the aggregate amount then on deposit in the trust account. In such
case, if we have required public stockholders to tender their certificates
prior
to the meeting, we will promptly return such certificates to the tendering
public stockholder. Public stockholders would be entitled to
receive their pro rata share of the aggregate amount on deposit in the trust
account only in the event the initial business combination they voted against
was duly approved and subsequently completed, or in connection with our
liquidation. If a stockholder converts his shares of common stock, he will
still
have the right to exercise the warrants received as part of the units purchased
in the offering. If the proposed business combination is not consummated then
a
stockholder’s shares will not be converted into cash, even if such stockholder
elected to convert.
Liquidation
if no business combination
If
we
have not consummated a business combination by October 4, 2009,
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 of the Delaware General Corporation Law will
require us to adopt a plan that will provide for our payment, based on facts
known to us at such time, of (i) all existing claims, (ii) all pending claims
and (iii) all claims that may be potentially brought against us within the
subsequent 10 years. Accordingly, we would be required to provide for any
creditors known to us at that time as well as provide for any claims that we
believe could potentially be brought against us within the subsequent 10 years
prior to distributing the funds held in the trust account to our public
stockholders.
We
have
not assumed we will have to provide for payment on any claims that may
potentially be brought against us within the subsequent 10 years due to the
speculative nature of such an assumption. As such, our stockholders could
potentially be liable for any claims of creditors to the extent of distributions
received by them (but no more). However, because we are a 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.
While
we
will seek to have all vendors and service providers (which would include any
third parties we engaged to assist us in any way in connection with our search
for a target business) and prospective target businesses execute agreements
with
us waiving any right, title, interest or claim of any kind they may have in
or
to any monies held in the trust account, there is no guarantee that they will
execute such agreements. Nor is there any guarantee that, even if such entities
execute such agreements with us, they will not seek recourse against the trust
account or that a court would not conclude that such agreements are not legally
enforceable. In order to protect the amounts held in the trust account, our
sponsor has agreed to indemnify us for claims of creditors, vendors, service
providers and target businesses who have not executed a valid and binding waiver
of their right to seek payment of amounts due to them out of the trust account.
As further assurance, the managing members of our sponsor, Gordon G. Pratt
and
Larry G. Swets, Jr., which we may refer to as the managing members, have agreed
to jointly and severally indemnify the trust in the event the sponsor is unable
to comply with its indemnification obligations. The
only
obligations not covered by such indemnity are with respect to claims of
creditors, vendors, service providers and target businesses that have executed
a
valid and binding waiver of their right to seek payment of amounts due to them
out of the trust account. Although we have a fiduciary obligation to pursue
Messrs. Pratt and Swets to enforce their indemnification obligations, and intend
to pursue such actions as and when we deem appropriate, there can be no
assurance they will be able to satisfy those obligations, if required to do
so.
Competition
for target business
We
expect
to encounter intense competition from other entities having a business objective
similar to ours, including other blank check companies and other entities,
domestic and international, competing for the type of businesses that we intend
to acquire. Many of these individuals and entities are well established and
have
extensive experience in identifying and effecting, directly or indirectly,
acquisitions of companies operating in or providing services to the insurance
industry. Many of these competitors possess greater technical, human and other
resources, or more local industry knowledge, than we do and our financial
resources will be relatively limited when contrasted
with those of many of these competitors. Our ability to compete with respect
to
large acquisitions will be limited by our available financial resources, giving
a competitive advantage to other acquirers with greater resources.
Our
competitors may adopt transaction structures similar to ours, which would
decrease our competitive advantage in offering flexible transaction terms.
In
addition, the number of entities and the amount of funds competing for suitable
investment properties, assets and entities may increase, resulting in increased
demand and increased prices paid for such investments. If we pay higher prices
for a target business, our profitability may decrease and we may experience
a
lower return on our investments. Increased competition may also preclude us
from
acquiring those properties, assets and entities that would generate the most
attractive returns to us.
Further,
the following may not be viewed favorably by certain target
acquisitions:
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our
obligation to seek stockholder approval of a business combination
or
obtain the necessary financial information to be included in the
proxy
statement to be sent to stockholders in connection with such business
combination may delay or prevent the completion of a
transaction;
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our
obligation to convert into cash shares of common stock held by our
public
stockholders in certain instances may reduce the resources available
to us
for a business combination;
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the
requirement to acquire assets or an operating business that has a
fair
market value equal to at least 80% of our net assets held in the
trust
account (net of taxes and amounts disbursed for working capital purposes
and excluding the amount held in the trust account representing a
portion
of the underwriters’ discount) at the time of the acquisition could
require us to acquire several assets or closely related 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;
and
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our
outstanding warrants and unit purchase option, and the potential
future
dilution they represent, may not be viewed favorably by certain target
businesses.
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If
we
succeed in effecting a business combination, there will be, in all likelihood,
intense competition from competitors of the target acquisition. We cannot assure
you that, subsequent to a business combination, we will have the resources
or
ability to compete effectively.
Financial
information
We
will
not acquire an operating business in the insurance industry if audited financial
statements based on United States generally accepted accounting principles
cannot be obtained for such target business. Additionally, our management will
provide stockholders with audited financial statements, prepared in accordance
with United States generally accepted accounting principles, of the prospective
target business as part of the proxy solicitation materials sent to stockholders
to assist them in assessing each specific target business or assets we seek
to
acquire. We cannot assure you that any particular target business identified
by
us as a potential business combination 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. The financial statements of a potential target business
will be required to be audited in accordance with United States generally
accepted accounting standards. To the extent that this requirement cannot be
met, we will not be able to effect a business combination with the proposed
target business. Our management believes that although the requirement of having
available financial information for the target business or assets may limit
the
pool of potential target businesses or assets available for acquisition, the
narrowing of the pool is not expected to be material.
Available
information
We
are
subject to the information requirements of the Exchange Act. Therefore, we
file
periodic reports, proxy statements and other information with the SEC. Such
reports, proxy statements and other information may be obtained by visiting
the
Public Reference Room of the SEC at 100 F Street, NW, Washington, DC 20549.
You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements
and
other information regarding issuers that file electronically.
Employees
We
have
five directors, of whom two are executive officers. These individuals are not
obligated to contribute any specific number of hours to our business per week,
and they intend to devote only as much time as they deem necessary to our
affairs. We have not paid any of our employees. The amount of time they devote
in any time period will vary based on the availability of suitable target
businesses to investigate. We do not intend to have any full time employees
prior to the consummation of a business combination.
RISK
FACTORS
The
risks and uncertainties described below are not the only ones facing us.
Additional risks and uncertainties that we are unaware of, or that we currently
deem immaterial, also may become important factors that affect us. If any of
the
following risks occur, our business, financial conditions or results of
operating may be materially and adversely affected. In that event, the trading
price of our securities could decline, and you could lose all or part of your
investment.
Risks
Related to Our Business
We
are a development stage company with no operating history and, accordingly,
you
will not have any basis on which to evaluate our ability to achieve our business
objective.
We
are a
recently incorporated development stage company with no operating results to
date. Since we do not have any operations or an operating history, you will
have
no basis upon which to evaluate our ability to achieve our business objective,
which is to acquire one or more operating businesses operating in or providing
services to the insurance industry. We will not generate any revenues or income
until, at the earliest, after the consummation of a business combination. We
cannot assure you as to when or if a business combination will occur.
If
we are
unable to consummate a business combination and are forced to liquidate, our
public stockholders will be forced to wait the full 24 months before receiving
liquidation distributions.
Pursuant
to our amended and restated certificate of incorporation, we have 24 months
in
which to complete a business combination. If we fail to consummate a business
combination within the required time frame, our corporate existence will cease
except for the purposes of winding up our affairs and liquidating. We have
no
obligation to return funds to our stockholders prior to such date unless we
consummate a business combination prior thereto and only then in cases where
our
stockholders have sought conversion of their shares of our common stock. Only
after the expiration of this full time period will public stockholders be
entitled to liquidation distributions if we are unable to complete a business
combination. Accordingly, investors’ funds may be unavailable to them until such
date. However, we may not be able to find suitable target businesses within
the
required 24 month time frame. We view this obligation to liquidate as an
obligation to our stockholders and that investors will make an investment
decision, relying, at least in part, on this provision. Thus, without the
affirmative vote cast at a meeting of stockholders of at least 95% of the common
stock issued in our IPO, neither we nor our board of directors will take any
action to amend or waive any provision of our amended and restated certificate
of incorporation to allow us to survive for a longer period of time. In
addition, we will not support, directly or indirectly, or in any way endorse
or
recommend, that stockholders approve an amendment or modification to such
provision if it does not appear we will be able to consummate a business
combination within the foregoing time period.
Our
affiliated stockholders have waived their rights to participate in any
liquidation distribution with respect to the shares of common stock owned by
them prior to our IPO, including the shares of common stock underlying the
insider warrants. There will be no distribution from the trust account with
respect to our warrants which will expire worthless if we do not effect a
business combination. We will pay the costs of liquidation, which we currently
estimate to be up to $15,000, from our remaining assets outside of the trust
account. In addition, our sponsor has agreed to indemnify us for all claims
of
creditors to the extent we fail to obtain valid and enforceable waivers from
vendors, service providers, prospective target business or other entities in
order to protect the amounts held in trust. As further assurance, the managing
members of our sponsor, Gordon G. Pratt and Larry G. Swets, Jr., have agreed
to
jointly and severally indemnify the trust in the event the sponsor is unable
to
comply with its indemnification obligations.
Although
we have a fiduciary obligation to pursue Messrs. Pratt and Swets to enforce
their indemnification obligations, and intend to pursue such actions as and
when
we deem appropriate, there can be no assurance they will be able to satisfy
those obligations if required to do so.
You
will not have any rights or interest in funds from the trust account, except
under certain limited circumstances.
Our
public stockholders will be entitled to receive funds from the trust account
only in the event of our liquidation or if they seek to convert their respective
shares of common stock into cash upon a business combination which the
stockholder voted against and which is completed by us. In no other
circumstances will a stockholder have any right or interest of any kind in
the
trust account.
If
we are forced to liquidate before the completion of a business combination
and
distribute the trust account, our public stockholders may receive significantly
less than $7.91 per share and our warrants will expire
worthless.
We
must
complete a business combination with a fair market value of at least 80% of
our
net assets held in the trust account (net of taxes and amounts disbursed for
working capital purposes and other than the portion representing our
underwriters’ deferred discount) at the time of acquisition by October 4,
2009. If we are unable to complete a business combination within the proscribed
time frame and are forced to liquidate the trust account, the per-share
liquidation price received by our public stockholders from the trust account
will be less than $8.00 because of the expenses of our IPO, our general and
administrative expenses and the anticipated costs of seeking a business
combination. Upon the liquidation of the trust account, public stockholders
will
be entitled to receive approximately $7.91 per share plus interest earned on
their pro rata portion of the trust account, which includes $1,514,760 ($0.32
per unit) of deferred underwriting discounts and commissions (which includes
the
233,625 Units exercised under the underwriters’ over-allotment option), and
$1,250,000 ($0.28 per unit) of the purchase price of the insider warrants.
In
the event we liquidate and it is subsequently determined the reserve for claims
and liabilities is insufficient, stockholders who received a return of funds
from the liquidation of our trust account could be liable for claims made by
our
creditors. We assume that in the event we liquidate we will not have to adopt
a
plan to provide for payment of claims that may potentially be brought against
us. Should this assumption prove to be incorrect, we may have to adopt such
a
plan upon our liquidation, which could result in the per-share liquidation
amount to our stockholders being significantly less than $7.91 per share.
Furthermore, there will be no distribution with respect to our outstanding
warrants which will expire worthless if we liquidate the trust account in the
event we do not complete a business combination within the prescribed time
periods.
We
may choose to redeem our outstanding warrants at a time that is disadvantageous
to our warrant holders.
Subject
to there being a current prospectus under the Securities Act of 1933, as amended
with respect to the common stock issuable upon exercise of the warrants, we
may
redeem the warrants issued as a part of our units at any time after the warrants
become exercisable in whole and not in part, at a price of $.01 per warrant,
upon a minimum of 30 days prior written notice of redemption, if and only if,
the last sales price of our common stock equals or exceeds $11.50 per share
for
any 20 trading days within a 30 trading day period ending three business days
before we send the notice of redemption. In addition, we may not redeem the
warrants unless the warrants comprising the units sold in our IPO and the shares
of common stock underlying those warrants are covered by an effective
registration statement from the beginning of the measurement period through
the
date fixed for the redemption. Redemption of the warrants could force the
warrant holders (i) to exercise the warrants and pay the exercise price at
a
time when it may be disadvantageous for the holders to do so, (ii) to sell
the
warrants at the then current market price when they might otherwise wish to
hold
the warrants, or (iii) to accept the nominal redemption price which, at the
time
the warrants are called for redemption, is likely to be substantially less
than
the market value of the warrants. We expect most purchasers of our warrants
will
hold their securities through one or more intermediaries and consequently they
are unlikely to receive notice directly from us that the warrants are being
redeemed. If they fail to receive notice of redemption from a third party and
their warrants are redeemed for nominal value, they will not have recourse
to
us.
Our
management’s ability to require holders of our warrants to exercise such
warrants on a cashless basis will cause holders to receive fewer shares of
common stock upon their exercise of the warrants than they would have received
had they been able to exercise their warrants for cash.
If
we
call our warrants for redemption, our management will have the option to require
any holder that wishes to exercise his warrant to do so on a “cashless basis.”
If our management chooses to require holders to exercise their warrants on
a
cashless basis, the number of shares of common stock received by a holder upon
exercise will be fewer than it would have been had such holder exercised his
warrant for cash.
Although
we are required to use our best efforts to have an effective registration
statement covering the issuance of the shares of common stock underlying the
warrants at the time our warrant holders exercise their warrants, we cannot
guarantee a registration statement will be effective, in which case our warrant
holders may not be able to exercise our warrants and therefore the warrants
could expire worthless.
Holders
of warrants sold in our IPO will be able to exercise the warrants only if (i)
a
current registration statement under the Securities Act of 1933, as amended
relating to the shares of our common stock underlying the warrants is then
effective and (ii) such shares of common stock are qualified for sale or
exempt from qualification under the applicable securities laws of the states
in
which the various holders of warrants reside. Although we have undertaken in
the
Warrant Agreement, and therefore have a contractual obligation, to use our
best
efforts to maintain a current registration statement covering the shares of
common stock underlying the warrants to the extent required by federal
securities laws, and we intend to comply with our undertaking, we cannot assure
you we will be able to do so and therefore the warrants could expire worthless.
Such expiration would result in each holder paying the full unit purchase price
solely for the shares of common stock underlying the unit. In addition, we
have
agreed to use our reasonable efforts to register the shares of common stock
underlying the warrants under the blue sky laws of the states of residence
of
the existing warrantholders, to the extent an exemption is not available. The
value of the warrants may be greatly reduced if a registration statement
covering the shares of common stock issuable upon the exercise of the warrants
is not kept current or if the securities are not qualified, or exempt from
qualification, in the states in which the holders of warrants reside. Holders
of
warrants who reside in jurisdictions in which the shares of common stock
underlying the warrants are not qualified and in which there is no exemption
will be unable to exercise their warrants and would either have to sell their
warrants in the open market or allow them to expire unexercised. If and when
the
warrants become redeemable by us, we may exercise our redemption right even
if
we are unable to qualify the underlying securities for sale under all applicable
state securities laws.
We
allow up to approximately 29.99% of our public stockholders to exercise their
conversion rights. This higher threshold will make it easier for us to
consummate a business combination with which you may not agree, and you may
not
receive the full amount of your original investment upon exercise of your
conversion rights.
When
we
seek stockholder approval of a business combination, we will offer each public
stockholder (but not our sponsor, officers or directors with respect to any
shares they owned prior to the consummation of our IPO) the right to have his,
her or its shares of common stock converted to cash if the stockholder votes
against the business combination and the business combination is approved and
consummated. We will consummate the initial business combination only if the
following two conditions are met: (i) a majority of the shares of common stock
voted by the public stockholders are voted in favor of the business combination
and (ii) public stockholders owning 30% or more of the shares sold in our IPO
do
not vote against the business combination and exercise their conversion rights.
Most other blank check companies have a conversion threshold of 20%, which
makes
it more difficult for such companies to consummate their initial business
combination. Thus, because we permit a larger number of stockholders to exercise
their conversion rights, it will be easier for us to consummate an initial
business combination with a target business which you may believe is not
suitable for us, and you may not receive the full amount of your original
investment upon exercise of your conversion rights. Assuming an interest rate
of
3% on the funds in the trust account, if we consummate a business combination
within approximately 7 months after our IPO, upon exercise of a stockholder’s
conversion right, a stockholder will not receive a full return of his
investment. Therefore, assuming the same interest rate of 3%, we would have
to
consummate a business combination after 8 months following our IPO in order
for
a stockholder exercising his, her or its conversion rights to potentially
receive equal to or more than his, her or its full invested amount. There can
be
no assurance that any converting stockholder will receive equal to or more
than
his, her or its full invested amount.
We
allow up to approximately 29.99% of our public stockholders to exercise their
conversion rights. The ability of a larger number of our stockholders to
exercise their conversion rights may not allow us to consummate the most
desirable business combination or optimize our capital
structure.
When
we
seek stockholder approval of a business combination, we will offer each public
stockholder (but not our sponsors, officers or directors with respect to any
shares they owned prior to the consummation of our IPO) the right to have his,
her or its shares of common stock converted to cash if the stockholder votes
against the business combination and the business combination is approved and
consummated. Such holder must both vote against such business combination and
then exercise his, her or its conversion rights to receive a pro rata share
of
the trust account. Unlike most other blank check offerings which have a 20%
threshold, we allow up to approximately 29.99% of our public stockholders to
exercise their conversion rights. Accordingly, if our business combination
requires us to use substantially all of our cash to pay the purchase price,
because we will not know how many stockholders may exercise such conversion
rights, we may either need to reserve part of the trust account for possible
payment upon such conversion, or we may need to arrange third party financing
to
help fund our business combination in case a larger percentage of stockholders
exercise their conversion rights than we expect. In the event the acquisition
involves the issuance of our stock as consideration, we may be required to
issue
a higher percentage of our stock to make up for a shortfall in funds. Raising
additional funds to cover any shortfall may involve dilutive equity financing
or
incurring indebtedness at higher than desirable levels. This may limit our
ability to effectuate the most attractive business combination available to
us.
Exercise
of conversion rights must be effected pursuant to a specific process which
may
take time to complete and may result in the expenditure of funds by stockholders
seeking conversion.
A
stockholder requesting conversion of his, her or its common stock into cash
may
do so at any time after the mailing to our stockholders of the proxy statement
and prior to the vote taken with respect to a proposed business combination.
A
stockholder would have from the time we send out our proxy statement through
the
vote on the business combination to tender (either electronically or through
the
delivery of physical stock certificates) his shares of common stock if he,
she
or it wishes to seek to exercise his, her or its conversion rights, a period
which is expected to be not less than 10 nor more than 60 days. There is a
nominal cost associated with the above-referenced tendering process and the
act
of certificating the shares or delivering them through the DWAC system. The
transfer agent will typically charge the tendering broker $35 and it would
be up
to the broker whether or not to pass this cost on to the converting holder.
There may be additional mailing and other nominal charges depending on the
particular process used to tender common stock. Although we believe the time
period, costs and other potential burdens associated with the tendering process
are not onerous for an average investor, this process may result in additional
burdens for stockholders, including mis-delivery or any other defect in the
tendering process.
Additionally,
if a vote on our initial business combination is held and the business
combination is not approved, we may continue to try to consummate a business
combination with a different target until twenty four months from the date
of
this prospectus. If the initial business combination is not approved or
completed for any reason, 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. In such
case, they would then have to comply with the tendering process again for any
vote against a subsequent business combination.
Our
stockholders may be held liable for claims by third parties against us to the
extent of distributions received by them.
Our
amended and restated certificate of incorporation provides that we will continue
in existence only until October 4, 2009. If we comply with certain procedures
set forth in Section 280 of the Delaware General Corporation Law intended to
ensure we make reasonable provision for all claims against us, any liability
of
stockholders with respect to a liquidating distribution is limited to the lesser
of such stockholder’s pro rata share of the claim or the amount distributed to
the stockholder, and any liability of the stockholder would be barred after
the
third anniversary of the dissolution. However, it is our intention to make
liquidating distributions to our stockholders as soon as reasonably possible
after dissolution and, therefore, we do not intend to comply with those
procedures. Because we will not be complying with those procedures, we are
required, pursuant to Section 281 of the Delaware General Corporation Law,
to
adopt a plan that will provide for our payment, based on facts known to us
at
such time, of (i) all existing claims, (ii) all pending claims and (iii) all
claims that
may
be potentially brought against us within the subsequent 10 years. We cannot
assure you we will properly assess all claims that may be potentially brought
against us. As such, our stockholders could potentially be liable for any claims
to the extent of distributions received by them and any liability of our
stockholders may extend well beyond the third anniversary of such date.
Accordingly, we cannot assure you that third parties will not seek to recover
from our stockholders amounts owed to them by us. In the event of our
liquidation, we may have to adopt a plan to provide for the payment of claims
that may potentially be brought against us, which could result in the per-share
liquidation amount to our stockholders being significantly less than
$7.91.
Our
placing of funds in the trust account may not protect those funds from third
party claims against us.
Third
party claims may include contingent or conditional claims and claims of
directors and officers entitled to indemnification under our amended and
restated certificate of incorporation. We intend to pay any claims, to the
extent sufficient to do so, from our funds not held in trust. Although we will
seek to have all vendors, service providers and prospective target businesses
or
other entities with which we execute agreements waive any right, title, interest
or claim of any kind in or to any monies held in the trust account for the
benefit of our public stockholders, there is no guarantee that they will execute
such agreements. Even if they execute such agreements, they could bring claims
against the trust account including but not limited to fraudulent inducement,
breach of fiduciary responsibility or other similar claims, as well as claims
challenging the enforceability of the waiver, in each case in order to gain
an
advantage with a claim against our assets, including the funds held in the
trust
account. If any third party refused to execute an agreement waiving such claims
to the monies held in the trust account, we would perform an analysis of the
alternatives available to us if we chose not to engage such third party and
evaluate if such engagement would be in the best interest of our stockholders
if
such third party refused to waive such claims.
Examples
of possible instances where we may engage a third party that refused to execute
a waiver include the engagement of a third party consultant whose particular
expertise or skills are believed by management to be significantly superior
to
those of other consultants that would agree to execute a waiver or in cases
where management is unable to find a provider of required services willing
to
provide the waiver. In any event, our management would perform an analysis
of
the alternatives available to it and would only enter into an agreement with
a
third party that did not execute a waiver if management believed that such
third
party’s engagement would be significantly more beneficial to us than any
alternative. In addition, there is no guarantee such entities will agree to
waive any claims they may have in the future as a result of, or arising out
of,
any negotiations, contracts or agreements with us and not seek recourse against
the trust account for any reason. Accordingly, the proceeds held in the trust
account could be subject to claims that would take priority over the claims
of
our public stockholders and the per-share liquidation price could be less than
the $7.91 per share held in the trust account, plus interest (net of taxes
payable, which taxes shall be paid from the trust account), due to claims of
such creditors. If we are unable to complete a business combination and
liquidate the company, our sponsor will be liable if we did not obtain a valid
and enforceable waiver from any vendor, service provider, prospective target
business or other entity of any rights or claims to the trust account, to the
extent necessary to ensure that such claims do not reduce the amount in the
trust account. As further assurance, the managing members of our sponsor have
agreed to jointly and severally indemnify the trust in the event the sponsor
is
unable to comply with its indemnification obligations. Although we have a
fiduciary obligation to pursue our sponsor and Messrs. Pratt and Swets to
enforce their indemnification obligations, and intend to pursue such actions
as
and when we deem appropriate, we cannot assure you our sponsor or its managing
members will be able to satisfy those obligations. The indemnification
provisions are set forth in insider letters executed by our sponsor and its
managing members. The insider letter specifically sets forth that in the event
we obtain a valid and enforceable waiver of any right, title, interest or claim
of any kind in or to any monies held in the trust account for the benefit of
our
stockholders from a vendor, service provider, prospective target business or
other entity, the indemnification from our sponsor and its managing members
will
not be available.
Additionally,
if we are forced to file a bankruptcy case or an involuntary bankruptcy case
is
filed against us which is not dismissed, the funds held in our trust account
will be subject to applicable bankruptcy law, and may be included in our
bankruptcy estate and subject to the claims of third parties with priority
over
the claims of our stockholders. To the extent any bankruptcy claims deplete
the
trust account we cannot assure you we will be able to return to our public
stockholders the liquidation amounts due them.
In
certain circumstances, our board of directors may be viewed as having breached
their fiduciary duties to our creditors, thereby exposing itself and our company
to claims of punitive damages.
If
we are
forced to file a bankruptcy case or an involuntary bankruptcy case is filed
against us 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 the termination of our
existence by operation of law, this may be viewed or interpreted as giving
preference to our public stockholders over any potential creditors with respect
to access to or distributions from our assets. Furthermore, our board of
directors may be viewed as having breached its fiduciary duty to our creditors
and/or may have acted in bad faith, thereby exposing itself and our company
to
claims of punitive damages, by paying public stockholders from the trust account
prior to addressing the claims of creditors. We cannot assure you that claims
will not be brought against us for these reasons.
If
the net proceeds of our IPO not being placed in the trust account together
with
interest earned on the trust account available to us are insufficient to allow
us to operate for at least the next 24 months, we may not be able to complete
a
business combination.
We
currently believe that, the funds available to us outside of the trust account
together with up to $1,200,000 of interest earned on the trust account that
may
be released to us will be sufficient to allow us to operate until at least
October 4, 2009, assuming that a business combination is not consummated during
that time. Based upon the experience of the members of our board and
consultation with them regarding a reasonable budget for consummating a
transaction of this kind and nature, and a review of budgets publicly disclosed
by blank-check companies, we determined that this was an appropriate
approximation of the expenses. If costs are higher than expected we might not
have sufficient funds to continue searching for, or conduct due diligence with
respect to, any potential target acquisitions. In such event, we would need
to
obtain additional funds from our initial stockholders or another source to
continue operating. Of the $100,000 not held in the trust account, plus the
$1,200,000 of net interest income, we anticipate that up to $295,000 will be
reserved for working capital purposes. We could use a portion of these funds
to
pay due diligence costs in connection with a potential business combination
or
to pay fees to consultants to assist us with our search for a target
acquisition. We could also use a portion of these funds as a down payment,
“reverse break-up fee” (a provision in a merger agreement designed to compensate
the target for any breach by the buyer which results in a failure to close
the
transaction), or to fund a “no-shop” provision (a provision in letters of intent
designed to keep target acquisitions from “shopping” around for transactions
with others on terms more favorable to such target acquisitions) with respect
to
a particular proposed business combination, although we do not have any current
intention to do so. If we entered into such a letter of intent where we paid
for
the right to receive exclusivity from a target acquisition and were subsequently
required to forfeit such funds (whether as a result of our breach or otherwise)
or if we agree to a reverse break-up fee and subsequently were required to
pay
such fee as a result of our breach of the merger agreement, we might not have
sufficient funds to continue searching for, or conduct due diligence with
respect to any other potential target acquisitions. In such event, we would
need
to obtain additional funds from our initial stockholders or another source
to
continue operations.
Our
current officers and directors may resign upon consummation of a business
combination.
Upon
consummation of a business combination, the role of our existing officers and
directors in the target business cannot presently be fully ascertained. While
it
is possible that one or more of our existing officers and directors will remain
in senior management or as directors following a business combination, we may
employ other personnel following the business combination. If we acquire a
target business in an all cash transaction, it would be more likely that our
existing officers and our directors would remain with us if they chose to do
so.
If a business combination were structured as a merger whereby the stockholders
of the target company were to control the combined company, following a business
combination, it may be less likely that our existing officers or directors
would
remain with the combined company unless it was negotiated as part of the
transaction via the acquisition agreement, an employment agreement or other
arrangement.
Negotiated
retention of officers and directors after a business combination may create
a
conflict of interest.
If,
as a
condition to a potential business combination, our existing officers negotiate
to be retained after the consummation of the business combination, such
negotiations may result in a conflict of interest. The ability of such
individuals to remain with us 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. In making the determination
as
to whether current management should remain with us following the business
combination, we will analyze the experience and skill set of the target
business’ management and negotiate as part of the business combination that our
existing officers and directors remain if it is believed that it is in the
best
interests of the combined company following consummation of the business
combination. Although we intend to closely scrutinize any additional individuals
we engage after a business combination, we cannot assure you our assessment
of
these individuals will prove to be correct.
Because
any target business with which we attempt to complete a business combination
will be required to provide our stockholders with financial statements prepared
in accordance with and reconciled to United States generally accepted accounting
principles, the pool of prospective target businesses may be
limited.
In
accordance with the requirements of United States federal securities laws,
in
order to seek stockholder approval of a business combination, a proposed target
business will be required to have certain financial statements which are
prepared in accordance with, or which can be reconciled to U.S. generally
accepted accounting principles and audited in accordance with U.S. generally
accepted auditing standards. To the extent a proposed target business does
not
have financial statements which have been prepared with, or which can be
reconciled to, U.S. GAAP, and audited in accordance with U.S. generally accepted
auditing standards, a likely possibility if we consider a business combination
with a proposed target business operating in the international insurance
industry, we will not be able to acquire that proposed target business. These
financial statement requirements may limit the pool of potential target
businesses.
We
do not intend to establish an audit committee until consummation of a business
combination.
We
currently do not have an audit committee and do not intend to establish one
prior to consummation of a business combination. Accordingly, there will not
be
a separate committee comprised of some members of our board of directors with
specialized accounting and financial knowledge to meet, analyze and discuss
solely financial matters concerning potential target businesses. This may have
the result of a less comprehensive discussion among board members with
accounting expertise about accounting and financial matters, as it would be
expected to be only part of a larger discussion of a target business in a
meeting of the entire board. Despite the lack of an audit committee, those
members of the board of directors that would otherwise be on our audit committee
will continue to analyze and investigate our potential target businesses as
members of our board of directors. Furthermore, our entire board of directors
is
aware of the importance of the financial and accounting due diligence that
must
be conducted prior to any business combination and they intend to conduct a
comprehensive accounting and financial analysis of any potential target
business. Despite these assurances, the lack of an audit committee may prove
to
have a material impact on our analysis of potential target businesses which
may
harm our future operating prospects.
Because
of our limited resources and the significant competition for business
combination opportunities, including numerous companies with a business plan
similar to ours, it may be more difficult for us to complete a business
combination.
Based
on
publicly available information, approximately 151 similarly structured blank
check companies have completed initial public offerings since August 2003,
and numerous others have filed registration statements. Of these companies,
only
45 companies have consummated a business combination, while 24 other companies
have announced that they have entered into definitive agreements or letters
of
intent with respect to potential business combinations, but have not yet
consummated such business combinations and another 8 have liquidated or will
be
liquidating. Accordingly, there are approximately 74 blank check companies
with
approximately $13.4 billion in the trust accounts that
have
filed registration statements and are or will be seeking to enter into a
business combination. While some of these companies have specific industries
in
which they must identify a potential target business, a number of these
companies may consummate a business combination in any industry and/or
geographic location they choose. As a result, we may be subject to competition
from these and other companies seeking to consummate a business combination
within any of our target sectors, which, in turn, will result in an increased
demand for privately-held companies in these industries. Because of this
competition, we cannot assure you we will be able to effectuate a business
combination within the required time period. Further, the fact that only 69
of
such companies have either consummated a business combination or entered into
a
definitive agreement for a business combination may indicate that there are
fewer attractive target businesses available to such entities or that many
privately-held target businesses are not inclined to enter into these types
of
transactions with publicly-held blank check companies like ours.
We
expect
to encounter intense competition from other entities having a business objective
similar to ours, including private investors (which may be individuals or
investment partnerships), other blank check companies, and other entities,
domestic and international, competing for the type of businesses we intend
to
acquire. Many of these individuals and entities are well established and have
extensive experience in identifying and effecting, directly or indirectly,
acquisitions of companies operating in or providing services to the insurance
industry. Many of these competitors possess greater technical, human and other
resources, or more local industry knowledge, than we do and our financial
resources will be relatively limited when contrasted with those of many of
these
competitors. While we believe there are numerous target acquisitions we could
potentially acquire with the net proceeds of our IPO, our ability to compete
with respect to the acquisition of certain target acquisitions that are sizable
will be limited by our available financial resources. This inherent competitive
limitation gives others an advantage in pursuing the acquisition of certain
target acquisitions. Furthermore, the obligation we have to seek stockholder
approval of a business combination may delay the consummation of a transaction.
Additionally, our outstanding warrants and the future dilution they potentially
represent may not be viewed favorably by certain target acquisitions. Also,
our
obligation to convert into cash the shares of common stock in certain instances
may reduce the resources available for a business combination. Any of these
obligations may place us at a competitive disadvantage in successfully
negotiating a business combination.
We
cannot
assure you we will be able to successfully compete for an attractive business
combination. Additionally, because of this competition, we cannot assure you
we
will be able to effectuate a business combination within the prescribed time
period. If we are unable to consummate a business combination within the
prescribed time period, we will be forced to liquidate.
You
will not be entitled to protections normally afforded to investors of blank
check companies under Rule 419.
Since
the
net proceeds of our IPO are intended to be used to complete a business
combination with an unidentified target acquisition, we may be deemed to be
a
“blank check” company under the United States securities laws including Rule
419. However, since we have net tangible assets in excess of $5,000,000, we
are
exempt from rules promulgated by the SEC to protect investors of blank check
companies such as Rule 419. Accordingly, investors will not be afforded the
benefits or protections of those rules, such as entitlement to all the interest
earned on the funds deposited in the trust account. Because we are not subject
to these rules, including Rule 419, we have a longer period of time to complete
a business combination in certain circumstances than we would if we were subject
to such rule.
Since
we have not yet selected any target acquisition with which to complete a
business combination, we are unable to currently ascertain the merits or risks
of the business’ operations. Therefore,
our ability to successfully effect a business combination and to be successful
thereafter will be totally dependent upon the efforts of our key personnel,
including our officers, directors and others to source business transactions,
some of whom may not continue with us following a business
combination.
Because
we have not yet identified a prospective target acquisition, investors in our
IPO currently have no basis to evaluate the possible merits or risks of the
target acquisition. Although our management will evaluate the risks inherent
in
a particular target acquisition, we cannot assure you they will properly
ascertain or assess all of the significant risk factors. We also cannot assure
you that an investment in our units will ultimately prove to be more favorable
to investors than a direct investment, if such opportunity were available,
in a
target acquisition. Except for the
limitation that a target acquisition have a fair market value of at least 80%
of
our net assets held in the trust account (net of taxes and amounts disbursed
for
working capital purposes and other than the portion representing our
underwriters’ deferred discount) at the time of the acquisition, we will have
virtually unrestricted flexibility in identifying and selecting a prospective
acquisition candidate. Investors will be relying on management’s ability to
source business transactions, evaluate their merits, conduct or monitor
diligence and conduct negotiations. Additionally, it is possible, following
our
initial acquisition, that uncertainties in assessing the value, strengths and
potential profitability of, and identifying the extent of all weaknesses, risks,
contingent and other liabilities (including environmental liabilities) of,
acquisition or other transaction candidates could cause us not to realize the
benefits anticipated to result from an acquisition.
We
may issue shares of our capital stock to complete a business combination, which
would reduce the equity interest of our stockholders and likely cause a change
in control of our ownership.
Our
amended and restated certificate of incorporation authorizes the issuance of
up
to 20,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000
shares of preferred stock, par value $0.0001 per share. There are 7,199,344
authorized but unissued shares of our common stock available for issuance (after
appropriate reservation for the issuance of shares of common stock upon full
exercise of our outstanding warrants and the unit purchase option granted to
Pali Capital, Inc., the representative of the underwriters) and all of the
1,000,000 shares of preferred stock available for issuance. Although we have
no
commitment, we are likely to 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 preferred stock
is
issued with rights senior to those afforded to the holders of our
common
stock;
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·
|
will
likely cause a change in control if a substantial number of our shares
of
common stock are issued, which may affect, among other things, our
ability
to use our net operating loss carry forwards, if any, and most likely
will
also result in the resignation or removal of our present officers
and
directors; and
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·
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may
adversely affect prevailing market prices for our common
stock.
|
We
may issue notes or other debt securities, or otherwise incur substantial debt,
to complete a business combination, which may adversely affect our leverage
and
financial condition. Alternatively,
we may be unable to obtain additional financing, if required, to complete a
business combination or to fund the operations and growth of the target
business, which could compel us to restructure the transaction or abandon a
particular business combination.
Although
we believe the net proceeds of our IPO and the private placement will be
sufficient to allow us to consummate a business combination, we cannot ascertain
the capital requirements for any particular transaction. If the net proceeds
of
our IPO and the private placement prove to be insufficient for any reason,
we
will be required to seek additional financing. We cannot assure you any
additional financing will be available to us on acceptable terms, if at all.
To
the extent additional financing proves to be unavailable when needed to
consummate a particular business combination, we would be compelled to either
restructure the transaction or abandon that particular business combination
and
seek an alternative target acquisition candidate. In addition, it is possible
we
could use a portion of the funds not in the trust account to make a deposit,
down payment or fund a “no-shop” provision with respect to a proposed business
combination. In the event we were ultimately required to forfeit such funds
(whether as a result of our breach of the agreement relating to such payment
or
otherwise), and if we have exhausted the limited recourse line of credit
totaling $250,000 made available to us by our sponsor, we may not have a
sufficient amount of working capital available outside of the trust account
to
conduct
due diligence and pay other expenses related to finding a suitable business
combination without securing additional financing. If we are unable to secure
additional financing, we would most likely fail to consummate a business
combination in the allotted time and would liquidate the trust account,
resulting in a loss of a portion of your investment. Except for the limited
recourse line of credit totaling $250,000, neither our sponsor nor any of our
officers, directors or stockholders is required to provide any financing to
us
in connection with or after a business combination. In the event we are able
to
secure financing, the incurrence of debt could result in:
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·
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default
and foreclosure on our assets if our operating cash flow after a
business
combination were insufficient to pay our debt
obligations;
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·
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acceleration
of our obligations to repay the indebtedness even if we have made
all
principal and interest payments when due, if the debt security contained
covenants that required the maintenance of certain financial ratios
or
reserves and any such covenant were breached without a waiver or
renegotiation of that covenant;
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our
immediate payment of all principal and accrued interest, if any,
if the
debt security was payable on
demand;
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·
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covenants
that limit our ability to pay dividends on our common stock, to acquire
capital assets or make additional acquisitions;
and
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·
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our
inability to obtain additional financing, if necessary, if the debt
security contained covenants restricting our ability to obtain additional
financing while such security was
outstanding.
|
We
may in the future enter into joint venture arrangements, which are risky since
our joint venture investments could be adversely affected by our lack of sole
decision making authority, our reliance on a co-venturers’ financial condition
and disputes between us and our co-venturers.
We
may in
the future co-invest with third parties through partnerships, joint ventures
or
other entities, acquiring non-controlling interests in or sharing responsibility
for managing the affairs of a target business, partnership, joint venture or
other entity. In such circumstances, we may not be in a position to exercise
sole decision making authority regarding a target business, partnership, joint
venture or other entity. Investments in partnerships, joint ventures or other
entities may, under certain circumstances, involve risks not present were a
third party not involved, including the possibility that partners or
co-venturers might become insolvent or fail to fund their share of required
capital contributions. Partners or co-venturers may have economic or other
business interests or goals which are inconsistent with our business interests
or goals, and may be in a position to take actions contrary to our policies
or
objectives. Such investments may also have the potential risk of impasses on
decisions, such as a sale, because neither we nor the partner or co-venturer
would have full control over the partnership or joint venture. Disputes between
us and partners or co-venturers may result in litigation or arbitration that
would increase our expenses and distract our officers and/or directors from
focusing their time and effort on our business. Consequently, actions by, or
disputes with, partners or co-venturers might result in subjecting assets owned
by the partnership or joint venture to additional risk. We may also, in certain
circumstances, be liable for the actions of our third party partners or
co-venturers. For example, in the future we may agree to guarantee indebtedness
incurred by a partnership, joint venture or other entity. Such a guarantee
may
be on a joint and several basis with our partner or co-venturer in which case
we
may be liable in the event such party defaults on its guaranty
obligation.
We
will have only limited ability to evaluate the management of the target
business.
While
we
intend to closely scrutinize any individuals we engage after a business
combination, we cannot assure you our assessment of these individuals will
prove
to be correct. These individuals may be unfamiliar with the requirements of
operating a public company which could cause us to have to expend time and
resources helping them become familiar with such requirements. This could be
expensive and time-consuming and could lead to various operational issues which
may adversely affect our operations.
Our
officers and directors will allocate some portion of their time to other
businesses thereby causing conflicts of interest in their determination as
to
how much time to devote to our affairs. This conflict of interest could have
a
negative impact on our ability to consummate a business
combination.
Our
officers and directors are not required to commit their full time to our
affairs, which could create a conflict of interest when allocating their time
between our operations and their other commitments. We do not intend to have
any
full time employees prior to the consummation of a business combination. Our
executive officers and directors are currently employed by other entities and
are not obligated to devote any specific number of hours to our affairs. If
other entities require them to devote more substantial amounts of time to their
business and affairs, it could limit their ability to devote time to our affairs
and could have a negative impact on our ability to consummate a business
combination. We cannot assure you that these conflicts will be resolved in
our
favor.
We
may engage in a business combination with one or more target businesses that
have relationships or are affiliated with our initial stockholders, directors
or
officers, which may raise potential conflicts.
Other
than with respect to the business combination, we have not adopted a policy
that
expressly prohibits our directors, officers, securityholders or affiliates
from
having a direct or indirect pecuniary interest in any investment to be acquired
or disposed of by us or in any transaction to which we are a party or have
an
interest. Nor do we have a policy that expressly prohibits any such persons
from
engaging for their own account in business activities of the types conducted
by
us. Accordingly, we may engage in a business combination with one or more target
businesses that have relationships or are affiliated (as defined in Rule 405
of
the Securities Act) with our initial stockholders, directors or officers, which
may raise potential conflicts. Also, the completion of a business combination
between us and an entity owned by a business in which one of our directors
or
officers may have an interest could enhance their prospects for future business
from such client. To minimize potential conflicts of interest, we have agreed
not to consummate a business combination with an entity that is affiliated
with
any of our sponsor, officers or directors unless we obtain an opinion from
an
unaffiliated, independent third party appraiser, which may or may not be an
investment banking firm that is a member of the Financial Industry Regulation
Authority, Inc., that the business combination is fair to our stockholders
from
a financial point of view.
Our
officers and directors currently are, and may in the future become affiliated
with additional entities that are, engaged in business activities similar to
those intended to be conducted by us and, accordingly, may have conflicts of
interest in determining to which entity a particular business opportunity should
be presented.
None
of
our officers or directors have been or currently are a principal of, or
affiliated or associated with, any other blank check company. However, our
officers and directors may in the future become affiliated with additional
entities, including other blank check companies which may be engaged in
activities similar to those intended to be conducted by us. Additionally, our
officers and directors may become aware of business opportunities which may
be
appropriate for presentation to us and the other entities to which they owe
fiduciary duties or other contractual obligations. Some of our officers and
directors have pre-existing fiduciary obligations to other businesses of which
they are officers, directors or advisors. To the extent they identify business
opportunities which may be suitable for the entities to which they owe a
pre-existing fiduciary obligation, our officers and directors will honor those
fiduciary obligations. Accordingly, they are prohibited from presenting
opportunities to us that otherwise may be attractive to us unless the entities
to which they owe a pre-existing fiduciary obligation (and any successors to
such entities) have declined to accept such opportunities.
Gordon
Pratt, our Chairman, CEO and President is the Managing Director of Fund
Management Group, LLC Chairman of the Board Risk Enterprise Management Limited,
and Managing General Partner for Distribution Partners Investment Capital,
L.P.
Larry Swets, Jr., our Chief Financial Officer, Executive Vice President,
Secretary, Treasurer and a Director, is the managing director of Itasca
Financial, LLC, an advisory firm to insurance companies and financials service
firms, many of whose clients are in the insurance industry. In addition, Mr.
Swets is Managing Director of InsRisk Partners, LLC, which he founded in early
2007. InsRisk manages private funds for investment in insurance-focused
securities. Mr. Swets is also the Acting Chief Financial Officer of Risk
Enterprise Managment Limited. Since 2000, Thomas Sargent, one of our directors,
has been a principal at Bradley, Foster & Sargent, Inc., a Connecticut based
investment management firm. In May 2007, Mr. Sargent also became a partner
of
Tennant Capital Fund, L.P., a private equity fund focused on making investments
in the insurance industry. James Zuhlke, one of our directors, is a
director of Southern Eagle Insurance Company. In addition, Mr. Zuhlke is the
Executive Vice President of Brooke Capital Corporation. John Petry, our special
advisor, is a partner at Gotham Capital, a value and special situation hedge
fund, and a partner of Gotham Asset Management, a multi-manager investment
partnership. Messrs. Pratt, Swets, Sargent, Zuhlke and Petry have a fiduciary
duty to each of these companies and may not present opportunities to us that
otherwise may be attractive to us unless these entities have declined to accept
such opportunities. Furthermore, we will not enter into a business combination
with any operating company with which we or any of our officers, directors,
special advisors or affiliates have, in any capacity since our formation,
engaged in discussions and negotiations with an intent to acquire such company.
Our
sponsor, officers or directors currently own shares of our common stock
and
thus may influence certain actions requiring a stockholder vote. Shares owned
by
our sponsor, officers or directors will not participate in the liquidation
of
the trust account and a conflict of interest may arise in determining whether
a
particular target acquisition is appropriate for a business
combination.
Our
sponsor, officers and directors collectively own 20% of our issued and
outstanding common stock. This ownership interest, together with any other
acquisitions of our shares of common stock (or warrants which are subsequently
exercised), could allow our sponsor, officers or directors to influence the
outcome of matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions after completion
of
our initial business combination. The interests of our sponsor, officers or
directors and your interests may not always align and taking actions which
require approval of a majority of our stockholders, such as selling our company,
may be more difficult to accomplish.
Our
sponsor, officers or directors have waived their right to receive distributions
with respect to those shares of common stock upon the liquidation of the trust
account if we are unable to consummate a business combination. Additionally,
our
purchased 1,250,000 warrants directly from us in a private placement transaction
prior to the consummation of our IPO at a purchase price of $1.00 per warrant
for a total purchase price of $1,250,000. The shares of common stock acquired
prior to our IPO and any warrants owned by our sponsor will be worthless if
we
do not consummate a business combination. The personal and financial interests
of our officers and our directors, who control and own our sponsor, may
influence their motivation in timely identifying and selecting a target
acquisition and completing a business combination. Consequently, our officers’
discretion, and the discretion of our directors, in identifying and selecting
a
suitable target acquisition may result in a conflict of interest when
determining whether the terms, conditions and timing of a particular business
combination are appropriate and in our stockholders’ best interest and as a
result of such conflicts management may choose a target acquisition that is
not
in the best interests of our stockholders.
The
requirement that we complete a business combination by October 4, 2009 may
give potential target businesses leverage over us in negotiating a business
combination.
We
will
liquidate and promptly distribute only to our public stockholders the amount
in
our trust account (subject to our obligations under Delaware law for claims
of
creditors) plus any remaining net assets if we do not effect a business
combination by October 4, 2009. Any potential target business with which we
enter into negotiations concerning a business combination will be aware of
this
requirement. Consequently, such target businesses may obtain leverage over
us in
negotiating a business combination, knowing that if we do not complete a
business combination with that particular target business, we may be unable to
complete a business combination with any target business. This risk will
increase as we get closer to the time limits referenced above.
The
requirement that we complete a business combination by October 4, 2009 may
motivate our officers and directors to approve a business combination during
that time period so that they may get their out-of-pocket expenses
reimbursed.
Each
of
our officers and directors may receive reimbursement for out-of-pocket expenses
incurred by them in connection with activities on our behalf such as identifying
potential target businesses and performing due diligence on suitable business
combinations. The funds for such reimbursement will be provided from the money
not held in trust. In the event we do not effect a business combination by
October 4, 2009,
any
expenses incurred by such individuals in excess of the money being held outside
of the trust account will not be repaid as we will liquidate at such time.
On
the other hand, if we complete a business combination
within such time period, those expenses will be repaid by the target business.
Consequently, our officers, who are also our directors, may have an incentive
to
complete a business combination other than just what is in the best interest
of
our stockholders.
None
of our officers or directors, or any of their affiliates, has ever been
associated with a blank check company and such lack of experience could
adversely affect our ability to consummate a business
combination.
None
of
our officers or directors, or any of their affiliates, has ever been associated
with a blank check company. Accordingly, you may not have sufficient information
with which to evaluate the ability of our management team to identify and
complete a business combination using the proceeds of our IPO. Our management’s
lack of experience in operating a blank check company could adversely affect
our
ability to consummate a business combination and could result in our having
to
liquidate our trust account. If we liquidate, our public stockholders could
receive less than the amount they paid for our securities, causing them to
incur
significant financial losses.
Initially,
we may only be able to complete one business combination, which will cause
us to
be solely dependent on a single asset or property.
The
net
proceeds from our IPO and the private placement (excluding $1,514,760 held
in
the trust account which represents deferred underwriting discounts and
commissions) will provide us with approximately $36,000,000 which will be held
in the trust account and may be used by us to complete a business combination.
We currently have no restrictions on our ability to seek additional funds
through the sale of securities or through loans. As a consequence, we could
seek
to acquire a target business that has a fair market value significantly in
excess of 80% of our net assets held in the trust account (net of taxes and
amounts disbursed for working capital purposes and excluding the amount held
in
the trust account representing a portion of the underwriters’ discount).
Although we have not engaged or retained, had any discussions with, or entered
into any agreements with, any third party regarding any such potential financing
transactions, we could seek to fund such a business combination by raising
additional funds through the sale of our securities or through loan
arrangements. However, if we were to seek such additional funds, any such
arrangement would only be consummated simultaneously with our consummation
of a
business combination. Consequently, it is probable we will have the ability
to
complete only a single business combination, although this may entail the
simultaneous acquisitions of several assets or closely related operating
businesses at the same time. However, should our management elect to pursue
more
than one acquisition of target businesses simultaneously, our management could
encounter difficulties in consummating all or a portion of such acquisitions
due
to a lack of adequate resources, including the inability of management to devote
sufficient time to the due diligence, negotiation and documentation of each
acquisition. Furthermore, even if we complete the acquisition of more than
one
target business at substantially the same time, there can be no assurance that
we will be able to integrate the operations of such target businesses.
Accordingly, the prospects for our ability to effect our business strategy
may
be:
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·
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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.
|
In
this
case, we will not be able to diversify our operations or benefit from the
possible spreading of risks or offsetting of losses, unlike other entities
which
may have the resources to complete several business combinations in different
industries or different areas of a single industry. Furthermore, since our
business combination may entail the simultaneous acquisitions of several assets
or operating businesses at the same time and may be with different sellers,
we
will need to convince such sellers to agree that the purchase of their assets
or
businesses is contingent upon the simultaneous closings of the other
acquisitions.
If
we redeem our public warrants, the insider warrants, which are non redeemable,
could provide the purchasers thereof with the ability to realize a larger gain
than the public warrant holders.
The
warrants held by our public warrant holders may be called for redemption at
any
time after the warrants become exercisable:
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·
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in
whole and not in part;
|
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·
|
at
a price of $.01 per warrant;
|
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·
|
upon
not less than 30 days' prior written notice of redemption to each
warrant
holder;
|
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·
|
if,
and only if, the last sale price of the common stock equals or exceeds
$11.50 per share, for any 20 trading days within a 30 trading day
period
ending on the third business day prior to the notice of redemption
to
warrant holders.
|
In
addition, we may not redeem the warrants (including those warrants sold to
our
sponsor in a private placement prior to our IPO) unless the warrants comprising
the units sold in our IPO and the shares of common stock underlying those
warrants are covered by an effective registration statement from the beginning
of the measurement period through the date fixed for the redemption. As a result
of the insider warrants not being subject to the redemption features that our
publicly-held warrants are subject to, holders of the insider warrants, or
their
permitted transferees, could realize a larger gain than our public warrant
holders in the event we redeem our public warrants.
We
could be liable for up to the amount of the purchase price of the insider
warrants plus interest to our sponsor who purchased the insider warrants in
a
private placement conducted immediately prior to our
IPO.
We
sold
in a private placement occurring immediately prior to our IPO 1,250,000 insider
warrants to our sponsor. This private placement was made in reliance on an
exemption from registration under the Securities Act. This exemption requires
there be no general solicitation of investors with respect to the sales of
the
insider warrants. If such offering were deemed to be a general solicitation
with
respect to the insider warrants, the offer and sale of such securities would
not
be exempt from registration and the purchasers of those securities could have
a
right to rescind their purchases. Rescinding purchasers could seek to recover
the purchase price paid, with interest, or if they no longer own the securities,
to receive damages. The insider warrants purchase agreement contains provisions
under which the purchasers waive any and all rights to assert present or future
claims, including the right of rescission, against us with respect to their
purchase of the insider warrants and agree to indemnify and hold us and the
underwriters harmless from all losses, damages or expenses that relate to claims
or proceedings brought against us or the underwriters by the purchasers of
the
insider warrants, although it is unclear whether these waivers and
indemnifications would be enforceable.
Our
outstanding warrants may have an adverse effect on the market price of common
stock and make it more difficult to effect a business
combination.
In
connection with our IPO, we issued warrants to purchase up to 4,733,625 shares
of common stock. In addition, we (a) sold to the sponsor warrants to purchase
up
to 1,250,000 shares of common stock immediately prior to consummation of our
IPO, (b) issued an additional 233,625 warrants to purchase additional shares
of
common stock to Pali Capital, Inc. and (c) granted to Pali Capital, Inc. a
unit
purchase option to purchase up to 450,000 shares of common stock and warrants
to
purchase up to an additional 450,000 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 of common stock upon
exercise of these warrants could make us a less attractive acquisition vehicle
in the eyes of a target acquisition. Such securities, when exercised, will
increase the number of issued and outstanding shares of our common stock and
reduce the value of the shares of common stock issued to complete the
business
combination. Therefore, our warrants may make it more difficult to effectuate
a
business combination or increase the cost of acquiring the target acquisition.
Additionally, the sale, or even the possibility of sale, of the shares of common
stock underlying the warrants could have an adverse effect on the market price
for our securities or on our ability to obtain future financing. If and to
the
extent these warrants are exercised, you may experience dilution to your
holdings.
If
our sponsor, officers or directors exercise their registration rights, and/or
if
Pali Capital, Inc. elects to exercise its unit purchase option, it may have
an
adverse effect on the market price of our common stock and the existence of
the
registration rights and the purchase option may make it more difficult to effect
a business combination.
Our
sponsor, officers or directors are entitled to require us to register the resale
of their 1,183,406 shares of common stock at any time after the date on which
their shares of common stock are released from escrow, which, except in limited
circumstances, will not be before one year from the consummation of a business
combination. Further, prior to our IPO, the sponsor purchased in a private
placement 1,250,000 insider warrants that are identical to the warrants sold
in
our IPO, except that, among other things, such insider warrants will become
freely tradable only after they are registered. If all of the insider warrants
are exercised, there will be an additional 1,250,000 shares of our common stock
eligible for trading in the public market.
In
addition, we sold to Pali Capital, Inc. a unit purchase option to purchase
up to
a total of 450,000 units. If this unit purchase option is exercised, and all
of
the underlying warrants are also exercised, there will be an additional 900,000
shares of our common stock eligible for trading in the public market. The
presence of these additional numbers of securities eligible for trading in
the
public market may have an adverse effect on the market price of our common
stock. In addition, the existence of these rights may make it more difficult
to
effectuate a business combination or increase the cost of the target business,
as the stockholders of the target business may be discouraged from entering
into
a business combination with us or will request a higher price for their
securities as a result of the potential future effect their exercise may have
on
the trading market for our common stock.
If
we are deemed to be an investment company, we may be required to institute
burdensome compliance requirements and our activities may be restricted, which
may make it difficult for us to complete a business combination, or we may
be
required to incur additional expenses if we are unable to liquidate after the
expiration of the allotted time period.
We
do not
believe our anticipated principal activities will subject us to the Investment
Company Act of 1940, as amended. Companies that fall within the definition
of an
“investment company”, as set forth in Section 3 of the Investment Company Act of
1940, as amended, and the regulations thereunder, which we refer to as the
1940
Act, are subject to registration and substantive regulation under the 1940
Act.
Companies that are subject to the 1940 Act that do not become registered are
normally required to liquidate and are precluded from entering into transactions
or enforceable contracts other than as an incident to liquidation. The basic
definition of an “investment company” in the 1940 Act and related SEC rules and
interpretations includes a company (1) that is, proposes to be, or holds itself
out as being engaged primarily in investing, reinvesting or trading in
securities (Section 3(a)(1)(A) of the 1940 Act); or (2) that has more than
40%
of its assets (exclusive of U.S. government securities and cash items) in
“investment securities,” (Section 3(a)(1)(C) of the 1940 Act) or (3) that is a
“special situation investment company” (such as a merchant bank or private
equity fund).
In
order
not to be regulated as an investment company under the 1940 Act, unless we
can
qualify for an exclusion, we must ensure we are engaged primarily in an initial
business other than investing, reinvesting or trading of securities and that
our
activities do not include investing, reinvesting, owning, holding or trading
“investment securities.”
Our business will be to identify and consummate a business combination and
thereafter to operate the acquired business or businesses for the long term.
We
do not plan to buy companies with a view to resale or profit from sale of the
businesses. We do not plan to buy unrelated businesses or to be a passive
investor. We do not believe our anticipated principal activities will subject
us
to the 1940 Act.
In
order
to avoid being deemed an “investment company”, the proceeds held in the trust
account may be invested by the trust account agent only in United States
“government securities” within the meaning of Section 2(a)(16) of the 1940 Act
with a maturity of 180 days or less, or in money market funds meeting certain
conditions under Rule 2a-7 promulgated under the 1940 Act. By restricting
the investment of the proceeds to these instruments, we intend to avoid being
deemed an investment company within the meaning of the 1940 Act. Our IPO is
not
intended for persons who are seeking a return on investments in government
securities. The trust account and the purchase of government securities for
the
trust account is intended as a holding place for funds pending the earlier
to
occur of either: (i) the consummation of our primary business objective, which
is a business combination, or (ii) absent a business combination, liquidation
and return of the funds held in this trust account to our public stockholders.
If we are deemed to be an investment company under the 1940 Act, we may be
subject to certain restrictions that may make it more difficult for us to
complete a business combination, including:
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·
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additional
expenses for which we have not
budgeted;
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·
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restrictions
on the nature of our investments;
and
|
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·
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restrictions
on the issuance of securities.
|
In
addition, we may have imposed upon us certain burdensome requirements, which
would require additional expenses for which we have not budgeted,
including:
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·
|
registration
as an investment company;
|
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·
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adoption
of a specific form of corporate structure; and
|
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·
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reporting,
record keeping, voting, proxy, compliance policies and procedures
and
disclosure requirements and other rules and
regulations.
|
Our
directors may not be considered “independent” and we thus may not have the
benefit of independent directors examining our financial statements and the
priority of expenses incurred on our behalf subject to
reimbursement.
Our
sponsor, officers and directors hold an aggregate of 1,183,406 shares of common
stock which they purchased at our inception for a purchase price of
approximately $0.021 per share, which is significantly lower than our IPO price.
No salary or other compensation will be paid to our officers or directors for
services rendered by them on our behalf prior to or in connection with a
business combination. Although we believe three (3) of the members of our board
of directors are “independent” under the rules of the Nasdaq Stock Market,
because our directors may receive reimbursement for out-of-pocket expenses
incurred by them in connection with activities on our behalf such as identifying
potential target businesses and performing due diligence on suitable business
combinations, it is likely state securities administrators would take the
position we do not have the benefit of independent directors examining the
propriety of expenses incurred on our behalf and subject to reimbursement.
Additionally, there is no limit on the amount of out-of-pocket expenses that
could be incurred and there will be no review of the reasonableness of the
expenses by anyone other than our board of directors, which would include
persons who may seek reimbursement, or a court of competent jurisdiction if
such
reimbursement is challenged. Although we believe all actions taken by our
directors on our behalf will be in our best interests, whether or not any
directors are deemed to be “independent,” we cannot assure you that this will
actually be the case. If actions are taken or expenses are incurred that are
actually not in our best interests, it could have a material adverse effect
on
our business and operations and the price of our stock held by the public
stockholders.
We
may not obtain an opinion from an unaffiliated third party as to the fair market
value of the target acquisition or that the price we are paying for the business
is fair to our stockholders.
We
are
not required to obtain an opinion from an unaffiliated third party that either
the target acquisition we select has a fair market value in excess of 80% of
our
net assets held in the trust account (net of taxes and amounts disbursed for
working capital purposes and excluding the amount held in the trust account
representing a portion of the underwriters’ discount) or that the price we are
paying is fair to stockholders unless (i) our board is not able to independently
determine that a target acquisition has a sufficient market value or (ii) there
is a conflict of interest with respect to the transaction. If no opinion is
obtained, our stockholders will be relying on the judgment or our board of
directors.
Our
securities are quoted on the OTC Bulletin Board, which limits the liquidity
and
price of our securities more than if our securities were quoted or listed on
the
Nasdaq Stock Market or a national exchange.
Our
securities are traded in the over-the-counter market and quoted on the OTC
Bulletin Board, FINRA-sponsored and operated inter-dealer automated quotation
system for equity securities not included in the Nasdaq Stock Market. Quotation
of our securities on the OTC Bulletin Board limits the liquidity and price
of
our securities more than if our securities were quoted or listed on The Nasdaq
Stock Market or a national exchange. Lack of liquidity limits the price at
which
you may be able to sell our securities or your ability to sell our securities
at
all.
Risks
Related to Our Target Businesses
Compliance
with governmental regulations and changes in laws and regulations and risks
from
investigations and legal proceedings could be costly and could adversely affect
operating results.
The
insurance industry is subject to regulation and intervention by governments
throughout the world. A target business’ operations in the U.S. and
internationally can be impacted by expected and unexpected changes in the legal
and business environments in which we could operate, as well as the outcome
of
ongoing government and internal investigations and legal proceedings. Changes
that could impact the legal environment include new legislation, new regulation,
new policies, investigations and legal proceedings and new interpretations
of
the existing legal rules and regulations. In particular, additional restrictions
on doing business in countries subject to sanctions, and
changes in laws in countries identified by management for immediate focus.
Changes that impact the business environment include changes in accounting
standards, changes in tax laws or tax rates, the resolution of audits by various
tax authorities, and the ability to fully utilize our tax loss carryforwards
and
tax credits. Compliance related issues could limit our ability to do business
in
certain countries. These changes could have a significant financial impact
on
our future operations and the way we conduct, or if we conduct, business in
the
affected countries.
We
may not be able to obtain regulatory approvals in connection with a business
combination in a timely manner, or at all. This delay or failure may result
in
additional expenditures of money and resources, jeopardize our efforts to
consummate a business combination within required time periods and force us
to
liquidate.
Business
combinations with insurance-related businesses are generally subject to
significant regulatory requirements and consents. We will not be able to
consummate a business combination with an insurance-related business without
complying with applicable laws and regulations and obtaining required
governmental consents.
Insurance
laws and regulations of all 50 states of the United States and the District
of
Columbia generally require that, before a company can acquire with an
insurance-related business domiciled in that jurisdiction, the acquiring company
must obtain the prior approval of the insurance regulator of that jurisdiction.
This typically applies where 10% or more of the shares of a domiciliary
insurance company, either directly or through its holding company parent, are
subject to transfer and, therefore, will likely affect business combinations
we
would contemplate. Laws applicable to insurers and reinsurers domiciled in
Canada, Bermuda and the Cayman Islands are substantially similar to those in
the
U.S. and typically require the prior approval of the regulatory body exercising
jurisdiction over insurers and reinsurers to any proposed change in control
of
such an insurer or reinsurer. Laws applicable to insurance business in the
United Kingdom give the Financial Services Authority Limited (FSA) jurisdiction
over any proposed change of control of such insurance business. These laws
may
be triggered by a proposed change in ownership at a threshold as low as five
percent (5%), as is the case of the Cayman Islands’ insurance code.
Any
regulatory obstacles in obtaining approval may result in additional expenditures
or further reduce anticipated benefits of a business combination. New or
additional requirements or limitations may also be imposed, which could delay
or
reduce the anticipated benefits of the business combination. These delays may
jeopardize or postpone completion of the business combination in the required
time period and may force us to dissolve and liquidate.
Each
of our target businesses will be subject to extensive regulation, which may
adversely affect our ability to achieve our business objectives. In addition,
if
a target business fails to comply with these regulations, it may be subject
to
penalties, including fines and suspensions, which could reduce our earnings
significantly.
We
will
be subject to extensive regulation in the states and countries in which we
operate. Most insurance regulations are designed to protect the interests of
insurance policyholders, as opposed to the interests of stockholders. These
regulations generally are administered by a department of insurance or similar
regulatory authority and relate, among other things, to authorization to write
lines of business, capital and surplus requirements, rate and policy form
approvals, investment and underwriting limitations, affiliated transactions,
dividend limitations, changes in control, solvency and a variety of other
financial and non-financial aspects of an insurance business. Insurance
regulators also conduct periodic examinations of the affairs of insurance
companies and require the filing of annual and other reports relating to
financial condition, holding company issues and other matters.
If
we do
not have the requisite licenses and approvals, or do not comply with the
applicable regulatory requirements, insurance regulatory authorities could
preclude or temporarily suspend us from carrying on some or all of our
activities or otherwise penalize us.
The
National Association of Insurance Commissioners, or the NAIC, has adopted a
system to test the adequacy of statutory capital, known as “risk-based capital.”
This system establishes the minimum amount of risk-based capital necessary
for
an insurance company to support its insurance business operations. Insurers
falling below a calculated threshold may be subject to varying degrees of
regulatory action, including supervision, rehabilitation or liquidation. Failure
to maintain our risk-based capital at the required levels could adversely affect
the ability to maintain regulatory authority to conduct an insurance business.
Changes
in existing statutes, regulations and regulatory policies, as well as changes
in
the implementation of such statutes, regulations and regulatory policies, may
affect the way a target business does business, its ability to sell
new
policies, products or services and its claims exposure on existing policies.
State insurance regulators and the NAIC continually re-examine existing laws
and
regulations. These examinations may result in the enactment of laws and
regulations, or the issuance of interpretations of existing laws and
regulations, that may adversely affect an insurance-related
business.
More
restrictive laws, rules or regulations may be adopted in the future that could
make compliance more difficult and/or expensive. Although the U.S. federal
government generally does not directly regulate the insurance business, changes
in federal legislation and administrative policies in several areas, including
changes in the Gramm-Leach-Bliley Act of 1999, financial services regulation
and
federal taxation, could significantly harm the insurance industry and us.
Specifically, recently adopted federal financial services modernization
legislation addressing privacy issues, among other matters, is expected to
lead
to additional federal regulation of the insurance industry in the coming years,
which could result in increased expenses or restrictions on a target business’
operations.
If
we fail to properly evaluate the financial position and reserves of a target
business with which we enter into a business combination, our losses and
benefits from the operation of that business may exceed our loss and benefit
reserves, which could have a significantly adverse effect on our results of
operations.
If
we
enter into a business combination with a target business, our ability to operate
that business will depend on our accurate assessment of the financial position
and reserves of, and the risks underwritten by, the target business. Reserves
are actuarial and statistical projections at a given point in time of what
any
insurance or reinsurance company ultimately expects to pay on claims and
benefits, based on facts and circumstances then known, predictions of future
events, estimates of future trends in claim frequency and severity, mortality,
morbidity and other variable factors such as inflation. If we fail to assess
accurately the risks underwritten by a target business or if our evaluation
of
the target business’s reserves is incorrect, the reserves may be inadequate to
cover losses and we may be unable to operate the target business profitably.
If
our actual claims experience is less favorable after the business combination
than our underlying assumptions prior to the acquisition of the target business,
we may be unable to operate the business on a sound financial
basis.
In
addition, the actual losses and benefits experienced by any target company
we
may acquire may deviate, perhaps substantially, from the reserve estimates
contained in its financial statements. Although we will conduct due diligence
on
the transactions that the target business has underwritten, we cannot assure
you
that this evaluation will be borne out by events and, if they are not, our
future financial position and results of operations could fail to achieve their
anticipated levels.
In
addition, as industry practices and legal, judicial and social conditions
change, unexpected issues related to claims and coverage may emerge. These
issues may either extend coverage beyond the period which we intended or
increase the number or size of claims. In some instances, these changes may
not
manifest themselves until many years after we enter into contracts affected
by
these changes. As a result, we may not be able to ascertain the full extent
of
our liabilities under contracts for many years following the issuance of the
contracts.
If
we
determine that our reserves are inadequate, we will increase our reserves with
a
corresponding reduction in net income for the period in which the deficiency
was
identified.
A
downgrade in the claims paying and financial strength ratings of a target
business may cause significant declines in its revenues and
earnings.
If
we
enter into a business combination with an insurance company, our financial
strength will be monitored by regulatory authorities and private companies,
such
as A.M. Best. Claims paying and financial strength ratings have become an
increasingly important factor in establishing the competitive position of
insurance companies. A.M. Best focuses on balance sheet strength (including
capital adequacy and loss expense reserve adequacy), operating performance
and
business profile. A reduction in a target business’ performance under these
criteria could result in a downgrade of its A.M. Best rating. Any downgrade
of
this rating could cause any brokers, agents, retail brokers or insureds with
whom a target business works to choose other, more highly rated competitors,
which could cause significant declines in the revenues and earnings of the
target business. A ratings downgrade could also increase the cost or reduce
the
availability of reinsurance to the target company.
Changes
in market interest rates or in the equity security markets may impair the
performance of a target business’ investments, the sales of its investment
products and issuers of securities held in the portfolio of the target
business.
A
target
insurance business will depend on income from its investment portfolio for
a
significant portion of its revenues and earnings. The performance of a target
business’ investment portfolio depends in part upon the level of interest rates,
equity security prices, real estate values, the performance of the economy
generally, the performance of issuers of securities held in the portfolio of
the
target business and other factors that are beyond a target business’ control.
Changes in these factors may impair a target business’ net investment income
and, thus, reduce or eliminate our profitability.
In
addition, a target business may face significant liquidity risk if the maturity
and the duration of its investment portfolio are not correlated with the
liquidity requirements of its liabilities. To the extent that a target business
is unsuccessful in correlating its investment portfolio with its expected
liabilities, a target business may be forced to liquidate investments at times
and prices that are not optimal, which could harm the performance of its
investment portfolio.
If
we
effect a business combination with a life insurance or annuity company, then
the
target business would be exposed to the risk that changes in interest rates
may
reduce the “spread,” or the difference between the amounts that it is required
to pay under the contracts in its general account, principally traditional
whole
life insurance, fixed annuities and guaranteed investment contracts, and the
rate of return it is able to earn on general account investments to support
obligations under the contracts. A reduction of its spread due to changes in
interest rates or equity security markets may reduce or eliminate a target
life
insurance and/or annuity business’ profitability.
If
our target business’ established reserves for insurance claims are insufficient,
its earnings may be reduced or it could suffer
losses.
In
accordance with insurance industry practice and accounting and regulatory
requirements, the target business must establish and maintain reserves for
claims and claims expenses related to any risk-bearing insurance businesses
in
which it engages. Reserves do not represent an exact calculation of liability,
but instead represent estimates, generally using actuarial projection techniques
at a given accounting date. These reserve estimates are based on an assessment
of facts and circumstances then known, a review of historical settlement
patterns, development in the frequency, severity and pattern of claims between
the estimated and actual amounts, judicial trends, regulatory changes and
inflation and foreign currency fluctuations. In the case of life insurance
and
annuity companies, reserves for future benefits and claims are based on a number
of factors, including mortality rates, expected claims, policy persistency,
future premium amounts and rates of return on investments. Because the
establishment of claims reserves is an inherently uncertain process involving
estimates, ultimate losses may exceed claims reserves, which would reduce the
earnings of any acquired business and could cause us to incur
losses.
If
a target business is engaged in insurance brokerage, a reduction in insurance
premium rates and commission rates may have an adverse effect on its operations
and profits.
Insurance
brokers typically derive a significant part of their revenues from commissions
on insurance products brokered. Insurance brokers have no control over the
insurance premium rates on which these commissions are based, and revenues
may
be adversely affected by a reduction in rates. In addition, insurance brokers’
commission revenues could also be reduced by a decrease in the commission rates
that insurance companies pay for the sale of their products. Historically,
premium rates have been cyclical, varying widely based on market conditions,
including the underwriting capacity of insurance companies, earnings by
insurance companies on their investment portfolios and competition in the
marketplace. Health care premiums and commissions may also be affected by a
slowing economy as employers seek ways to minimize employee benefits costs
and
reduce the size of their workforce. A period of decreasing premium rates may
reduce insurance brokers’ profitability.
Geopolitical
and International Environment Risks
International
and political events could adversely affect our results of operations and
financial condition.
A
significant portion of our post business combination revenue may be derived
from
non-United States operations, which exposes us to risks inherent in doing
business in each of the countries in which we transact business.
The occurrence of any of the risks described below could have a material adverse
effect on our results of operations and financial condition.
Operations
in countries other than the United States are subject to various risks peculiar
to each country. With respect to any particular country, these risks may
include:
| |
·
|
expropriation
and nationalization of our assets in that
country;
|
| |
·
|
political
and economic instability;
|
| |
·
|
civil
unrest, acts of terrorism, force majeure, war, or other armed
conflict;
|
| |
·
|
natural
disasters, including those related to earthquakes and
flooding;
|
| |
·
|
currency
fluctuations, devaluations, and conversion
restrictions;
|
| |
·
|
confiscatory
taxation or other adverse tax
policies;
|
| |
·
|
governmental
activities that limit or disrupt markets, restrict payments, or limit
the
movement of funds;
|
| |
·
|
governmental
activities that may result in the deprivation of contract rights;
and
|
| |
·
|
governmental
activities that may result in the inability to obtain or retain licenses
required for operation.
|
Due
to
the unsettled political conditions in many countries in which we may operate,
our revenue and profits are subject to the adverse consequences of war, the
effects of terrorism, civil unrest, strikes, currency controls, and governmental
actions. Our facilities and our employees could come under threat of attack
in
some countries where we may operate. In addition, we may become subject to
the
risk related to loss of life of our personnel and our subcontractors in these
areas. We are also subject to the risks that our employees, joint venture
partners, and agents outside of the United States may fail to comply with
applicable laws.
We
may effect a business combination with an entity organized under the laws of
any
state of the United States, Canada, Bermuda or the Cayman Islands, the United
Kingdom, or other country outside the United States. Seeking to effect a
business combination with an entity outside the United States could increase
our
costs, delay the business combination beyond the time period requirements
described in this prospectus and, if completed, would expose us to the risks
attendant to operating internationally.
Seeking
to effect a business combination with an entity outside of the United States
could expose us to increased costs and delay completion of the business
combination. For example, a target company’s financial statements may be
reported in accordance with the domiciliary country’s GAAP or in accordance with
the domiciliary country’s statutory accounting requirements for insurance
companies, rather than U.S. GAAP. Reconciling these financial statements to
U.S.
GAAP may be time consuming and expensive. Moreover, the reconciliation process
may not uncover all of the applicable accounting issues, which could, among
other negative effects, expose our directors and officers to stockholder
litigation, increase the potential for regulatory scrutiny of our accounting
practices and cause us to restate previously announced financial
results.
If
we
complete a business combination with a target company, including an insurance
holding company, that operates outside the United States, we may be subject
to
risks relating to:
| |
·
|
deterioration
of relations between the United States and such country and social
unrest,
political upheaval;
|
| |
·
|
currency
exchange rate fluctuations and currency exchange
controls;
|
| |
·
|
potentially
adverse consequences in complying with foreign laws and regulations,
including, but not limited to, more cumbersome corporate disclosure,
governance and regulatory requirements, less protection for intellectual
property rights or property rights in general, and restrictions in
dividend payments;
|
| |
·
|
difficulties
in staffing and managing foreign operations and in assimilating cultural
and managerial differences; and
|
| |
·
|
potentially
adverse tax consequences, including, but not limited to, a more burdensome
tax system, withholding taxes on income and capital gains, and termination
or reduction of tax incentives.
|
Further,
if we determine to change domiciles in connection with a business combination,
the new jurisdiction’s laws will likely govern our business combination and
future agreements, as well as our corporate governance, which may impede our
ability to enforce our legal rights and result in a significant loss of
business, business opportunities or capital.
|
Item
1B.
|
Unresolved
Staff Comments.
|
None
We
maintain our executive offices at Four Forest Park Drive, Farmington CT 06032
.
The cost for this space is included in the $7,500 per-month fee we pay for
general and administrative services to Fund Management Group LLC, an entity
of
which Mr. Gordon Pratt, our Chairman, CEO and President, and Mr. Larry Swets,
our CFO, Executive Vice President, Secretary and Treasurer, are managing
members. We pay this fee from working capital and the interest earned on the
Trust Account, which we are permitted to withdraw. The agreement for
administrative services with Fund Management Group LLC, which covers the rental
of this space, continues until the earlier of the completion of a business
combination or upon our dissolution. We consider our current office facilities
suitable for our business as it is presently conducted. We do not own any real
estate or other physical properties.
|
Item
3.
|
Legal
Proceedings.
|
There
is no litigation currently pending or, to our knowledge, threatened against
us
or any of our officers or directors in their capacity as such
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders.
|
There
were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal period ended December 31, 2007.
PART
II
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities.
|
Market
Information
Our
Units, Common Stock and Warrants are each traded on the Over-the-Counter
Bulletin Board under the symbols FMGQU, FMGQ and FMGQW, respectively. Our Units
commenced public trading on October 4, 2007 and our Common Stock and Warrants
commenced public trading on November 7, 2007.
The
table
below sets forth, for the calendar quarter indicated, the high and low bid
prices of our units, common stock and warrants as reported on the
Over-the-Counter Bulletin Board. The over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not
necessarily reflect actual transactions.
| |
|
|
Over-the-Counter
Bulletin Board
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
Units
|
|
|
Common
Stock
|
|
|
Warrants
|
|
| |
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter*
|
|
$
|
8.00
|
|
$
|
7.90
|
|
$
|
7.30
|
|
$
|
7.15
|
|
$
|
0.70
|
|
$
|
0.70
|
|
*
For the period October 4 through end of the quarter
Holders
of Common Equity
As
of March 26, 2008, we had approximately 6 holders of record of our Common Stock,
2 holders of record of our Warrants and 1 holder of record of our Units.
Dividends
We
have not paid any dividends on our Common Stock to date and do not intend to
pay
dividends before we complete our initial business combination. Thereafter,
dividend payments will depend upon our revenues and earnings, if any, capital
requirements and general financial condition and will be within the discretion
of our board of directors. Our board of directors currently intends to retain
all earnings, if any, for use in our business operations and, accordingly,
our
board does not anticipate declaring any dividends in the foreseeable
future.
Securities
Authorized for Issuance Under Equity Compensation Plans
None.
Performance
Graph
We
are a smaller reporting company as defined in Regulation S-K, as such pursuant
to Regulation S-K we are not required to make disclosures under this Item.
Recent
Sales of Unregistered Securities
Since
the
date of inception, May 22, 2007, we sold the following shares of Common Stock
without registration under the Securities Act:
|
Stockholders
|
|
Number
of
Shares
|
| |
|
|
|
FMG
Investors
LLC(1)
|
|
1,045,000
|
|
Thomas
D. Sargent
|
|
20,000
|
|
David
E. Sturgess
|
|
20,000
|
|
James
R. Zuhlke
|
|
20,000
|
|
John
Petry
|
|
20,000
|
| |
|
|
|
Total
|
|
1,125,000
|
——————
|
(1)
|
Gordon
G. Pratt and Larry G. Swets, Jr. are the managing members and sole
owners
of our sponsor, FMG Investors LLC, and the beneficial owners of the
common
stock owned by FMG Investors LLC.
|
Such
shares of common stock were issued on May 22, 2007 in connection with our
organization pursuant to the exemption from registration contained in Section
4(2) of the Securities Act as they were sold to “accredited investors” as
defined in Rule 501(a) of the Securities Act. The shares of common stock issued
to the persons above were sold for an aggregate offering price of $25,000 at
a
purchase price of $0.022 per share. No underwriting discounts or commissions
were paid with respect to such sales. Effective August 13, 2007, our board
of
directors authorized a forward stock split in the form of a stock dividend
of
0.15 shares of common stock for each outstanding share of common stock,
effectively lowering the purchase price to approximately $0.019 per
share.
Upon
consummation of the IPO, the Company’s initial stockholders, who owned 100% of
the Company’s issued and outstanding common stock prior to the IPO, forfeited a
pro-rata portion of their shares of common stock (an aggregate of 110,344 shares
of common stock) as a result of the underwriters’ election not to exercise the
balance of their over-allotment option; effectively raising the purchase price
to approximately $0.021 per share. Such ownership interests were adjusted upon
consummation of the IPO to reflect their aggregate ownership of 20% of the
Company’s issued and outstanding common stock (an aggregate of 1,183,406 shares
of common stock).
Immediately
prior to the consummation of our IPO, our sponsor, FMG Investors LLC, purchased
1,250,000 insider warrants at $1.00 per share, from us, for an aggregate
purchase price of $1,250,000. These insider warrants were issued pursuant to
the
exemption from registration contained in Section 4(2) of the Securities Act
as
they were sold to “accredited investors” as defined in Rule 501(a) of the
Securities Act. No underwriting discounts or commissions were paid with respect
to such sales. A private placement subscription agreement was entered into
between the Company and our sponsor in connection with these insider warrants.
Initial
Public Offering
On
October 11, 2007, we consummated our initial public offering of 4,733,625 units,
with each unit consisting of one share of our common stock and one
warrant,
to
purchase one share of our common stock at an exercise price of $6.00 per share.
The units were sold at an offering price of $8.00 per unit, generating total
gross proceeds of $37,869,000. Simultaneously with the consummation of our
initial public offering, we consummated the private sale of 1,250,000 warrants
at $1.00 per warrant to certain of our initial stockholders and affiliates
for
an aggregate purchase price of $1,250,000, pursuant to Section 4(2) of the
Securities Act of 1933 (the “Act”) and Regulation D as promulgated under the
Act. Pali Capital, Inc. acted as representative of the underwriters. The
securities sold in the offering were registered under the Securities Act of
1933, as amended, on a registration statement on Form S-1 (No. 333-143466).
The
Securities and Exchange Commission declared the registration statement effective
on October 11, 2007.
We
paid a
total of $1,136,070 in underwriting discounts and commissions, and approximately
$386,793 has been paid for costs and expenses related to the offering.
After
deducting the underwriting discounts and commissions and the offering expenses,
the total net proceeds to us from the offering (including the private sale
of
warrants) were approximately $37,596,237, of which $37,452,930 (or approximately
$7.91 per share sold in the offering) was deposited into a trust fund and the
remaining proceeds are available to be used to provide for business, legal
and
accounting due diligence on prospective business combinations and continuing
general and administrative expenses. The trust fund has earned $267,549 through
December 31, 2007.
We
will
use substantially all of the net proceeds of the initial public offering to
acquire a target business, including identifying and evaluating prospective
acquisition candidates, selecting the target business, and structuring,
negotiating and consummating the business combination. To the extend that our
capital stock is used in whole or in part as consideration to effect a business
combination, the proceeds held in the trust fund as well as any other net
proceeds not expended with be used to finance the operations of the target
business.
No
expenses of the offering were paid to any of our officers and directors, to
persons owning ten (10) percent or more of Common Stock, or any of their
respective affiliates. We did, however, repay to our sponsor for loans it made
to us prior to the consummation of the initial public offering. The aggregate
amount of principal on such loans that were repaid was $100,000. This loan
was
non-interest bearing.
Repurchases
of Equity Securities
None
|
Item
6.
|
Selected
Financial Data.
|
We
are a smaller reporting company as defined in Regulation S-K, as such pursuant
to Regulation S-K, we are not required to make disclosures under this Item.
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation.
|
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this Report. This discussion
and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results may differ materially form
those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those which are not within our
control.
Overview
We
were
formed on May 22, 2007, for the purpose of acquiring, through a merger, capital
stock exchange, asset acquisition or other similar Business Combination, an
operating business in the insurance industry. Our initial Business Combination
must be with a target business whose fair market value is at least equal to
80%
of our net assets at the time of such acquisition. We intend to use cash derived
from the proceeds of our initial public offering and concurrent private
placement, our capital stock, debt or a combination of cash, capital stock
and
debt, to effect such Business Combination.
Since
our
initial public offering, we have been actively searching for a suitable Business
Combination candidate. We currently have not entered into any definitive
agreement with any potential target businesses. We have met with service
professionals and other intermediaries to discuss our company, the background
of
our management and our combination preferences. In the course of these
discussions, we have also spent time explaining the capital structure of the
initial public offering, the combination approval process and the timeline
within which we must enter into a definitive agreement for a Business
Combination or return the proceeds of the initial public offering held in the
Trust Account to investors. Consistent with the disclosures in our prospectus,
we have focused our search on companies in the insurance industry. We cannot
assure investors that we will find a suitable Business Combination in the
allotted time.
We
are
currently in the process of evaluating and identifying targets for an initial
transaction. We are not presently engaged in, and will not engage in, any
substantive commercial business until we consummate an initial transaction.
We
intend to utilize cash derived from the proceeds of our initial public offering,
the private placement, our capital stock, debt or a combination of cash, capital
stock and debt, in effecting an initial transaction. The issuance of additional
shares of our capital stock:
| · |
may
significantly reduce the equity interest of our current
stockholders;
|
| · |
may
subordinate the rights of holders of common stock if preferred stock
is
issued with rights senior to those afforded to our common
stock;
|
| · |
will
likely cause a change in control if a substantial number of our shares
of
common stock or preferred stock are issued, which may affect, among
other
things, our ability to use our net operating loss carry forwards,
if any,
and most likely also result in the resignation or removal of one
or more
of our present officers and directors;
and
|
| · |
may
adversely affect prevailing market prices for our
securities.
|
Similarly,
if we issued debt securities, it could result in:
| · |
default
and foreclosure on our assets, if our operating revenues after an
initial
transaction were insufficient to pay our debt
obligations;
|
| · |
acceleration
of our obligations to repay the indebtedness, even if we have made
all
principal and interest payments when due, if the debt security contained
covenants that required the maintenance of certain financial ratios
or
reserves and any such covenant were breached without a waiver or
renegotiation of that covenant;
|
| · |
our
immediate payment of all principal and accrued interest, if any,
if the
debt security was payable on demand;
and
|
| · |
our
inability to obtain additional financing, if necessary, if the debt
security contained covenants restricting our ability to obtain additional
financing while such security was
outstanding.
|
We
anticipate that we would only consummate such a financing simultaneously with
the consummation of a Business Combination, although nothing would preclude
us
from raising more capital in anticipation of a possible Business
Combination.
CHANGES
IN FINANCIAL CONDITION
Liquidity
and Capital Resources
On
October
11, 2007, we entered into an agreement with our sponsor for the sale of
1,250,000 warrants in a private placement. Each warrant entitles the holder
to
purchase from us one share of our common stock on a cashless basis. The warrants
were sold at a price of $1.00 per warrant, generating net proceeds of
$1,250,000.
On
October 11, 2007, we consummated our initial public offering of 4,733,625 Units,
including 233,625 Units subject to the over-allotment option. Each unit consists
of one share of common stock and one warrant. Each warrant entitles the holder
to purchase from us one share of our common stock at an exercise price of
$6.00.
The
gross
proceeds from our offering were $39,119,100 (including the over-allotment option
and warrants sold privately). We paid a total of $1,136,070 in underwriting
discounts and commissions, and approximately $386,793 was paid for costs and
expenses related to the offering. After deducting the underwriting discounts
and
commissions and the offering expenses, the total net proceeds to us from the
offering were approximately $37,596,237, of which $37,452,930 was deposited
into
the trust account (or approximately $7.91 per share).
Net
income for the period from May 22, 2007 (inception) to December 31, 2007 of
$82,457 consisted of $268,228 of interest income, offset by $22,500 of monthly
administrative fees, $8,925 of directors and officers liability insurance,
$71,505 of provision for taxes, $14,450 of franchise expenses, $4,730 of travel
expenses, $48,887 of professional fees and licenses, $14,774 of other operating
costs. Through December 31, 2007, we have used $143,207 of the net proceeds
that
were not deposited into the trust fund to pay for our costs and expenses. The
net proceeds deposited into the trust fund remain on deposit in the trust fund
earning interest. As of December 31, 2007, there was $37,720,479 held in the
trust fund.
We
will
use substantially all of the net proceeds of the initial public offering to
acquire a target business, 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 the trust fund 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 the
trust fund to operate through October 4, 2009, assuming that a business
combination is not consummated during that time. We do not believe we will
need
to raise additional funds in order to meet the expenditures required for
operating our business. However, we may need to raise additional funds through
a
private or public offering of debt or equity securities if such 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.
The
$1,514,760
of the funds attributable to the deferred underwriting discount and commissions
in connection with the Offering and Private Placement will be released to the
underwriters upon completion of a business combination as such term is defined
in our prospectus filed with on Form 424B4 on October 5, 2007 with the
Securities Exchange Commission.
We
may
need to raise additional funds in order to meet the expenditures required to
consummate a Business Combination before October 4, 2009. Although we believe
the net proceeds of the offering and the private placement will be sufficient
to
allow us to consummate a business combination, in as much as we have not yet
identified any prospective target business, we cannot ascertain the capital
requirements for any particular transaction. If the net proceeds of the offering
and the private placement prove to be insufficient, either because of the size
of the business combination or the depletion of the available net proceeds
in
search of a target business, or because we become obligated to redeem for cash
a
significant number of shares from dissenting stockholders, we will be required
to seek additional financing. We cannot assure you such financing would be
available on acceptable terms, if at all.
Commencing
on October 11, 2007 and ending upon the acquisition of a target business, we
began incurring a fee of $7,500 per month for office space and certain
administrative services from Fund Management Group LLC. In addition, in 2007,
FMG Investors LLC advanced to us an aggregate of $100,000 for payment of
offering expenses on our behalf. These advances were repaid on October 11,
2007
from the proceeds of the initial public offering that were allocated to pay
offering expenses.
We
may
use all or substantially all of the proceeds held in trust other than the
deferred portion of the underwriter’s fee to acquire one or more target
businesses. We may not use all of the proceeds held in the Trust Account in
connection with a Business Combination, either because the consideration for
the
Business Combination is less than the proceeds in trust or because we finance
a
portion of the consideration with capital stock or debt securities that we
can
issue. In that event, the proceeds held in the Trust Account as well as any
other net proceeds not expended will be used to finance the operations of the
target business or businesses. The operating businesses that we acquire in
such
Business Combination must have, individually or collectively, a fair market
value equal to at least 80% of the balance in the Trust Account (excluding
deferred underwriter’s fee of $1,514,760) at the time of such acquisition. If we
consummate multiple Business Combinations that collectively have a fair market
value of 80% of our net assets, then we would require that such transactions
are
consummated simultaneously.
If
we are
unable to find a suitable target business by October 4, 2009, we will be forced
to liquidate. If we are forced to liquidate, the per share liquidation amount
may be less than the initial per unit offering price because of the underwriting
commissions and expenses related to our initial public offering and because
of
the value of the warrants in the per unit offering price. Additionally, if
third
parties make claims against us, the initial public offering proceeds held in
the
Trust Account could be subject to those claims, resulting in a further reduction
to the per share liquidation price. Under Delaware law, our stockholders who
have received distributions from us may be held liable for claims by third
parties to the extent such claims are not been paid by us. Furthermore, our
warrants will expire worthless if we liquidate before the completion of a
Business Combination.
Results
of Operations
Through
December 31, 2007, our efforts have been primarily organizational activities,
activities relating to our initial public offering and active searching for
a
target company to do a business combination. We have neither engaged in any
operations nor generated any revenues to date. We currently have no operating
business and have not entered into a definitive agreement with any potential
target businesses. Beginning October 11, 2007 (the date of the consummation
of
our initial public offering) until our consummation of a Business Combination,
we expect interest earned on the Offering proceeds held in our Trust Account
to
be our primary source of income.
The
gross
proceeds from our offering were $39,119,100 (including the over-allotment option
and warrants sold privately). We paid a total of $1,136,070 in underwriting
discounts and commissions, and approximately $386,793 was paid for costs and
expenses related to the offering. After deducting the underwriting discounts
and
commissions and the offering expenses, the total net proceeds to us from the
offering were approximately $37,596,237, of which $37,452,930 was deposited
into
the trust account (or approximately $7.91 per share).
Net
income for the period from May 22, 2007 (inception) to December 31, 2007 of
$82,457 consisted of $268,228 of interest income, offset by $22,500 of monthly
administrative fees, $8,925 of directors and officers liability insurance,
$71,505 of provision for taxes, $14,450 of franchise taxes, $4,730 of travel
expenses, $48,887 of professional fees and licenses, $14,774 of other operating
costs. Through December 31, 2007, we have used $143,207 of the net proceeds
that
were not deposited into the trust fund to pay for our costs and expenses. The
net proceeds deposited into the trust fund remain on deposit in the trust fund
earning interest. As of December 31, 2007, there was $37,720,479 held in the
trust fund.
In
addition, we may need to raise additional funds through a private offering
of
debt or equity securities if such funds are required to consummate an initial
transaction that is presented to us. Subject to compliance with applicable
securities laws, we would only consummate such a fund-raising simultaneously
with the consummation of an initial transaction.
We
currently pay Fund Management Group LLC, an affiliate of our sponsor, an
aggregate fee of $7,500 per month which includes the cost of the office space
and the cost of other general and administrative services provided to us by
Fund
Management Group LLC.
Off-Balance
Sheet Arrangements
We
have
issued warrants in conjunction with our initial public offering and private
placement, and have also issued incentive warrants. These warrants may be deemed
to be equity linked derivatives and, accordingly, represent off balance sheet
arrangements. As permitted under EITF 00-19, we account for these warrants
as
stockholders’ equity and not as derivatives.
In
connection with the offering, on October 4, 2007, we entered into a limited
recourse revolving line of credit with Fund Management Group LLC, under which
we
may have up to $250,000 of outstanding borrowings at any time. The revolving
line of credit terminates upon the earlier of the completion of a business
combination or the cessation of our corporate existence (as such borrowings
may
be used to pay costs, expenses and claims in connection with any such
dissolution and liquidation). The revolving line of credit bears no interest
and
has no recourse against the funds in the trust account, which funds will be
distributed to the public stockholders if we do not consummate a business
combination within the requisite time periods. It is possible we could use
a
portion of the borrowings under the limited recourse revolving line of credit
to
make a deposit, down payment or fund a “no-shop” provision with respect to a
particular proposed business combination. In the event we were ultimately
required to forfeit such funds (whether as a result of our breach of the
agreement relating to such payment or otherwise), we may not have a sufficient
amount of working capital available to pay expenses related to finding a
suitable business combination without securing additional financing. If we
were
unable to secure additional financing, we would most likely fail to consummate
a
business combination in the allotted time and would be forced to liquidate
and
dissolve.
Contractual
Obligations
We
did not have any long term debt, capital lease obligations, operating lease
obligations, purchase obligations or other long term liabilities. We entered
into a Service Agreement with the parent of our Sponsor requiring us to pay
$7,500 per month. The agreement terminates on the earlier of the completion
of a
business combination or upon our dissolution.
In
connection with our initial public offering, Pali Capital, Inc., the
representative of the underwriters, has agreed to defer payment of the deferred
underwriting discount and commission of $1,514,760 until completion of a
Business Combination. Until a Business Combination is complete, these funds
will
remain in the Trust Account. If the Company does not complete a Business
Combination then the deferred fee will become part of the funds returned to
the
Company’s Public Stockholders from the Trust Account upon its liquidation as
part of any plan of dissolution and distribution approved by the Company’s
stockholders.
Other
than contractual obligations incurred in the ordinary course of business, we
do
not have any other long-term contractual obligations.
|
Item
7A.
|
Quantitative
and Qualitative Disclosure about Market
Risk.
|
Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices, and other market-driven rates or
prices. We are not presently engaged in, and if a suitable business target
is
not identified by us prior to the prescribed liquidation of the Trust Account,
we many not engage in, any substantive commercial business. Accordingly, the
risks associated with foreign exchange rates, commodity prices, and equity
prices are not significant. We have not engaged in any hedging activities with
respect to the market risk to which we are exposed.
The
total
net proceeds to us from the offering (including $1,250,000 from the sale of
insider warrants) before deducting the underwriting discount and commissions
were approximately $37,596,237, and an amount of $37,452,930 was deposited
into
the Trust Account, which is maintained by Continental Stock Transfer and Trust
Company, acting as trustee. As of December 31, 2007, the balance of the Trust
Account was $37,720,479, net of permitted accrued expenses and taxes. The
proceeds held in the Trust Account will primarily be invested in U.S.
“government securities,” defined as any Treasury Bill issued by the United
States having a maturity of 180 days or less. Thus, we are subject to market
risk primarily through the effect of changes in interest rates on government
securities, and because the proceeds from our offering have been invested in
treasury bills or a short-term investment (namely, the JP Morgan 100% Treasury
Money Market Fund), our only material market risk exposure relates to
fluctuations in interest rates. Given our limited risk in our exposure to money
market funds, we do not view the interest rate risk to be significant.
|
Item
8.
|
Financial
Statements and Supplementary
Data.
|
Reference
is made to pages F-1 through F-14 comprising a portion of this Annual Report
on
Form 10-K.
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
None
|
Item
9A.
|
Controls
and Procedures.
|
Disclosure
Controls and Procedures
As
of the end of the period covered by this annual report on Form 10-K, our chief
executive officer and chief financial officer conducted an evaluation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) of the
Securities Exchange Act). Based upon this evaluation, our chief executive
officer and chief financial officer concluded that our disclosure controls
and
procedures are effective in timely alerting them of any material information
relating to us that is required to be disclosed by us in the reports we file
or
submit under the Securities Exchange Act.
Internal
Control Over Financial Reporting
This
annual report does not include a report of our management’s assessment regarding
internal control over financial reporting or an attestation report of our
registered public accounting firm due to a transition period established by
rules of the SEC for newly public companies.
During
the period covered by this report, there have been no significant changes in
our
internal control over financial reporting (as defined in Rule 13-15(f) of the
Securities Exchange Act) that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
|
Item
9B.
|
Other
Information.
|
None
PART
III
|
Item
10.
|
Directors,
Executive Officers and Corporate
Governance.
|
Our
current directors and executive officers are as follows:
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
Gordon
G. Pratt
|
|
46
|
|
Chairman,
President and Chief Executive Officer
|
| |
|
|
|
|
|
Larry
G. Swets, Jr.
|
|
33
|
|
Chief
Financial Officer, Executive Vice President, Secretary, Treasurer
and
Director
|
| |
|
|
|
|
|
Thomas
D. Sargent
|
|
49
|
|
Director
|
| |
|
|
|
|
|
David
E. Sturgess
|
|
52
|
|
Director
|
| |
|
|
|
|
|
James
R. Zuhlke
|
|
61
|
|
Director
|
Gordon
G. Pratt
has
served as our Chairman of the Board of Directors, President and Chief Executive
Officer since our inception. Mr. Pratt is Managing Director of Fund
Management Group and Managing General Partner for Distribution Partners
Investment Capital, L.P., which he co-founded in 1999. Fund Management Group
specializes in managing investments in and providing advice to privately held
insurance related businesses. Fund Management Group (i) manages Distribution
Partners, (ii) makes direct private equity investments, and (iii) consults
with
privately-held companies and their boards of directors. Fund Management
Group/Distribution Partners past and current portfolio companies include:
Bertholon-Rowland Corp.; Calco Holdings Corporation; Distinguished Programs
Holdings; Envoy Health; InsRisk Equity Fund, LP; Kibble & Prentice Holding
Company; Pavlo, Weinberg & Associates; Reliant Pre-Pak, LLC; and Tri-City
Holdings, Inc. Mr. Pratt is Chairman of the Board of Risk Enterprise Management
Limited (national third-party property/casualty administrator), and a former
director of Calco (California retail broker), Bertholon-Rowland (New York
program manager), Kibble & Prentice (Seattle retail broker), and Tri-City
Holdings (national wholesaler).
From
July
of 2004 through April of 2006, concurrently with his duties at Fund Management
Group, Mr. Pratt also was Senior Vice President of Corporate Finance for
Willis Group, the global insurance broker. At Willis he was in charge of the
Group’s acquisitions and divestitures worldwide. Prior to joining Willis in
2004, Mr. Pratt was an owner of Hales & Company, an investment banking
firm serving the insurance industry. While at Hales, he helped to found Hale’s
New York office and launched Distribution Partners in 1999. Before joining
Hales, he was a Senior Vice President, shareholder, and member of the operating
committee of Conning & Company, which for more than 85 years focused on
insurance investment, research, and asset management. At Conning, Mr. Pratt
was involved in all aspects of forming, managing, and investing the Conning
Funds, which at that time totaled more than $430 million of private equity
capital for investment in the insurance industry. He began his career at The
Chase Manhattan Bank, N.A. in 1986. Mr. Pratt graduated with a B.A. in
United States history from Cornell University (1984) and a Master of Management,
Finance and Accounting from Northwestern University (1986).
During
his career, Mr. Pratt has completed dozens of corporate finance advisory
and investment transactions in the insurance industry. He began his career
at
The Chase Manhattan Bank, N.A. in 1986. While at Chase, among other duties,
he
co-invented a structured financial product for mutual insurance companies and
expanded Chase’s efforts in insurance mergers, acquisitions, and merchant
banking. Mr. Pratt’s clients included Kohlberg Kravis Roberts &
Company, and he served as a lead senior debt underwriter for KKR’s purchase of
American Re-Insurance Company in 1992, at the time the largest-ever leveraged
buyout of an insurance company. Later that year he joined Conning & Company,
then a privately-held investment bank, asset manager, and research company
focused on the insurance industry. During his career at Conning, Mr. Pratt
was promoted to Senior Vice President and became a shareholder, private equity
partner, and member of the operating committee. He was involved in all aspects
of forming, managing, and investing the Conning Funds, which at that time
totaled more than $430 million of private equity capital for investment in
the
insurance industry. Mr. Pratt has served on the boards of directors for a
number of insurance businesses including: HealthRight, Inc. (managed care);
Investors Insurance Holding Corp. (excess and surplus lines); Monroe Guaranty
Companies, Inc. (commercial lines); Sagamore Financial Corporation (impaired
risk life); and Stockton Holdings Ltd., (finite risk). In 1999, Mr. Pratt
joined Hales & Company, an investment bank serving insurance and insurance
distribution businesses as a partner and shareholder. He helped to start Hales’s
New York office and launched Distribution Partners Investment Capital, L.P.,
a
private equity fund focused on insurance distribution businesses. In July of
2004, Mr. Pratt left Hales to join Willis Group where he served until April
of 2006.
Larry
G. Swets, Jr., CFA,
has
served as our Chief Financial Officer, Executive Vice President, Secretary,
Treasurer and a Director since our inception. Since June 2005, Mr. Swets
has served as the Managing Director of Itasca Financial, LLC, an advisory firm
to insurance companies and financial service firms whose clients include the
insurance industry. In addition, Mr. Swets is Managing Director of
InsRisk Partners, LLC, which he founded in early 2007. InsRisk manages private
funds for investment in insurance-focused securities. Mr. Swets also serves
as
Acting Chief Financial Officer of Risk Enterprise Management Limited.
Mr. Swets has been an insurance company executive and advisor, including
serving as Director of Investments and Fixed Income Portfolio Manager for Kemper
Insurance, a diversified mutual property-casualty insurance company, from June
1997 to May 2005. As Director, Mr. Swets oversaw Kemper’s relationships
with banks and outside investment advisors; he also coordinated various
treasury, cash management, and financial analysis functions. He served Kemper
in
evaluating business units, executing corporate transactions and divestitures,
and by developing financial projections and analysis for the company during
its
runoff stage. Mr. Swets began his career in insurance as an intern in the
Kemper Scholar program in 1994. He has taught finance and investments as an
adjunct professor at the College of Business, Valparaiso University.
Mr. Swets holds a Bachelor’s degree from Christ College, Valparaiso
University, Summa Cum Laude (1997) and a Master’s degree in Finance from De Paul
University (1999). Mr. Swets holds the Chartered Financial Analyst
designation and is a member of the CFA Society of Chicago and the CFA
Institute.
Thomas
D. Sargent
has been
a member of our board of directors since our inception. Since 2000, he has
been
a principal at Bradley, Foster & Sargent, Inc., a Connecticut based
investment management firm. In May 2007, Mr. Sargent also became a partner
of Tennant Capital Fund, L.P., a private equity fund focused on making
investments in the insurance industry. Prior to joining Bradley, Foster &
Sargent, he was a Senior Vice President, shareholder, and member of the
operating committee of Conning & Company. Mr. Sargent joined Conning
& Company in 1986 and served in a variety of roles culminating in his
appointment as Director of Research and head of Conning’s institutional
insurance research, sales, and trading departments. He has served as a director
of Discover Re Holdings, one of the Conning Funds’ investments, until its sale
to USF&G Corp. Mr. Sargent received a Bachelor of Arts from Union
College (1981) and an M.B.A. from the Amos Tuck School at Dartmouth (1986).
He
holds the Charter Financial Analyst designation.
David
E. Sturgess
has been
a member of our board of directors since our inception. He is President of
Updike, Kelly & Spellacy, P.C., a Connecticut law firm and a member of the
Meritas law firms worldwide. He has practiced law since 1981, and since joining
Updike, Kelly & Spellacy in 1985, Mr. Sturgess has expanded his
practice to include the areas of general business law, finance and venture
capital. He is counsel to numerous businesses and to institutional investors,
particularly in private equity and venture capital, mezzanine finance,
technology and e-commerce. Mr. Sturgess has provided advice in debt and
equity financings, mergers and acquisitions, regulatory requirements, contract
law, employment issues and intellectual property procurement and protection.
He
has represented a majority stockholder in a successful proxy fight with a major
public company, represented the purchasers of a National Hockey League
franchise, and represented a Fortune 500 company in its sale of two operating
subsidiaries. He is President of the Connecticut Venture Group, a venture
capital association, and serves on the board of directors and the executive
committee for Community Health Charities of Connecticut. Mr. Sturgess
received a B.S., magna cum laude, in Finance from the University of Connecticut
(1978) and a J.D. from The Duke University School of Law (1981). He is a member
of the Connecticut Bar Association.
James
R. Zuhlke
has been
a member of our board of directors since our inception. Since June 2005, Mr.
Zuhlke has served on the Board of Directors of Southern Eagle Insurance Company,
a Florida based provider of workers compensation insurance. In addition, since
February 2008, Mr. Zuhlke has served as Executive Vice President of Brooke
Capital Corporation. From April 1998 until January 2004, he was President and
Chief Executive Officer of Kingsway America Inc. and a director of its parent
Kingsway Financial Services, Inc., an NYSE listed company specializing in
providing personal and commercial lines of property and casualty insurance
in
the United States and Canada. During his tenure at Kingsway America,
Mr. Zuhlke assisted in the acquisition of six insurance businesses and
managed the integration and assimilation of their operations by strengthening
planning, budgeting, financial reporting, underwriting, and claims handling
disciplines. Under his leadership, Kingsway America reached $1.0 billion in
net
premiums written in five years. In 1976, Mr. Zuhlke started his first
insurance business, Washington International Insurance Company, and served
as
its President and Chief Executive Officer. In 1980, he co-founded insurance
underwriting operations which in 1986 became Intercargo Corporation, a
specialist in U.S. customs bonds and international freight insurance. At
Intercargo, he was President and Chairman of the Board of Directors. Intercargo
became a NASDAQ listed company in 1988 and ultimately was sold to XL Capital
Ltd. in 1998. Mr. Zuhlke holds a Bachelor’s degree (1968) and a Juris
Doctor’s degree (1971) from the University of Wisconsin. He is a member of the
Wisconsin, Illinois and American Bar Associations.
Number
and Terms of Office of Directors
Our
board
of directors is divided into two classes with only one class of directors being
elected in each year and each class serving a two-year term. Our Bylaws provide
that the number of directors which may constitute the board of
directors shall not be less than one or more than nine. Our board of
directors has five members. The term of office of the first class of
directors, consisting of Mr. Swets and Mr. Zuhlke, will expire at our
first annual meeting of stockholders. The term of office of the second class
of
directors, consisting of Mr. Pratt, Mr. Sargent, and
Mr. Sturgess, will expire at the second annual meeting.
Special
Advisor
John
Petry
is our
special advisor who will advise us concerning our acquisition of a target
business. Mr. Petry is a partner at Gotham Capital, a value and special
situation hedge fund he joined in 1997. Among other duties, he is partner and
was a co-founder of Gotham Asset Management, a multi-manager investment
partnership whose managers pursue an investment style similar to Gotham Capital.
In 1999, while at Gotham, Mr. Petry co-founded the Value Investors Club, a
website that provides a forum for exchanging investment ideas concerning value
and special situation securities. Mr. Petry serves as the Treasurer for the
board of trustees of the Harlem Success Academy Charter School. He received
a
B.S. from the Wharton School of the University of Pennsylvania.
These
individuals will play a key role in identifying and evaluating prospective
acquisition candidates, selecting the target acquisition, and structuring,
negotiating and consummating its acquisition. None of these individuals has
been
or currently is a principal of or affiliated with a blank check company.
However, we believe that the skills and expertise of these individuals, their
collective access to acquisition opportunities and ideas, their contacts, and
their transactional expertise should enable them to identify and effect an
acquisition. Since our special advisor is not an officer, director, employee
or
consultant to us, he is under no legal, contractual or other special duty to
us
or our stockholders with regard to any matter, including any conflict of
interest, and neither he nor any affiliate of his is bound by any contractual
agreement or arrangement with us.
Director
Independence
In
connection with a proposed business combination, we anticipate applying to
have
our securities listed on a national securities exchange. At that time, we will
adhere to the rules of whatever exchange we seek to have our securities listed
on. The Nasdaq Stock Exchange and American Stock Exchange listing standards
generally define an “independent director” as a person, other than an officer of
a company, who does not have a relationship with the company that would
interfere with the director’s exercise of independent judgment.
Board
Committees
Our
board
of directors, in its entirety, will act as the audit committee. Our board of
directors intends to establish an audit committee and a compensation committee
upon consummation of a business combination. At that time, our board of
directors intends to adopt charters for these committees. Prior to such time,
we
do not intent to establish either one. Accordingly, there will not be a separate
committee comprised of some members of our board of directors with specialized
accounting and financial knowledge to meet, analyze and discuss solely financial
matters concerning potential target businesses. We do not feel a compensation
committee is necessary prior to a business combination as there is no salary,
fees or other compensation being paid to our officers or directors prior to
a
business combination other than as disclosed in this annual report.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers,
directors and persons who beneficially own more than ten percent of our common
stock to file reports of ownership and changes in ownership with the SEC. These
reporting persons are also required to furnish us with copies of all Section
16(a) forms they file. Based solely on copies of such forms received or written
representations from certain reporting persons that no Form 5s were required
for
those persons, we believe that, during the fiscal year ended March 31, 2007,
all
filing requirements applicable to our officers, directors and greater than
ten
percent beneficial owners were complied with.
Code
of Ethics
In
October 2007, our board of directors adopted a code of ethics that applies
to
our directors, officers and employees as well as those of our subsidiaries.
A
copy of our code of ethics is attached as an exhibit to this Annual
Report.
|
Item
11.
|
Executive
Compensation.
|
Commencing
October 4, 2007 and ending upon the acquisition of a target business, we will
pay Fund Management Group LLC, an affiliate of Gordon G. Pratt, our chairman
of
the board, chief executive officer and president, a fee of $7,500 per month
for
providing us with certain general and administrative services including office
space, utilities and secretarial support. Other than this $7,500 per-month
fee,
no compensation of any kind, including finders and consulting fees, will be
paid
to any of our founding stockholders, including all of our officers and
directors, or any of their respective affiliates, prior to, or for any services
they render in order to effectuate, the consummation of a business combination.
However, our initial stockholders will be reimbursed for any out-of-pocket
expenses incurred in connection with activities on our behalf such as
identifying potential target businesses and performing due diligence on suitable
business combinations. There is no limit on the amount of these out-of-pocket
expenses and there will be no review of the reasonableness of the expenses
by
anyone other than our board of directors, which includes persons who may seek
reimbursement, or a court of competent jurisdiction if such reimbursement is
challenged.
Since
our
formation, we have not granted any stock options or stock appreciation rights
or
any awards under long-term incentive plans.
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of December 31, 2007 and as adjusted to reflect the sale of
insider warrants and the sale of our common stock included in the units offered
in our IPO, by:
| |
·
|
each
person known by us to be the beneficial owner of more than 5% of
our
outstanding shares of common stock;
|
| |
·
|
each
of our officers and directors; and
|
| |
·
|
all
our officers and directors as a
group.
|
Unless
otherwise indicated, we believe that all persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them.
| |
|
Common
Stock
|
|
| |
|
Number
of Shares (2)
|
|
Percentage
of Common Stock
|
|
|
Name
and Address of Beneficial Owners(1)
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
FMG
Investors LLC(3)
|
|
1,099,266
|
|
|
|
18.57%
|
|
|
|
|
Gordon
G. Pratt, Chairman, Chief Executive Officer and President
|
|
1,099,266
|
(3)
|
|
|
18.57%
|
|
|
|
|
Larry
G. Swets, Jr., Chief Financial Officer, Secretary, Treasurer, Executive
Vice President
|
|
1,099,266
|
(3)
|
|
|
18.57%
|
|
|
|
|
Thomas
D. Sargent, Director
|
|
21,035
|
|
|
|
0.36%
|
|
|
|
|
David
E. Sturgess, Director(4)
|
|
21,035
|
|
|
|
0.36%
|
|
|
|
|
James
R. Zuhlke, Director
|
|
21,035
|
|
|
|
0.36%
|
|
|
|
|
HBK
Investments L.P.(5)
|
|
547,250
|
|
|
|
9.2%
|
|
|
|
|
Brian
Taylor(6)
|
|
437,500
|
|
|
|
7.47%
|
|
|
|
|
Bulldog
Investors(7)
|
|
826,500
|
|
|
|
13.96%
|
|
|
|
|
Millenco
LLC(8)
|
|
189,375
|
|
|
|
3.2%
|
|
|
|
|
D.B.
Zwirn Special Opportunities Fund, L.P.(9)
|
|
147,000
|
|
|
|
2.48%
|
|
|
|
|
D.B.
Zwirn Special Opportunities Fund, Ltd. (9)
|
|
203,000
|
|
|
|
3.43%
|
|
|
|
|
D.B.
Zwirn & Co., L.P. (9)
|
|
350,000
|
|
|
|
5.92%
|
|
|
|
|
DBZ
GP, LLC(9)
|
|
350,000
|
|
|
|
5.92%
|
|
|
|
|
Zwirn
Holdings, LLC(9)
|
|
350,000
|
|
|
|
5.92%
|
|
|
|
|
Daniel
B. Zwirn(9)
|
|
350,000
|
|
|
|
5.92%
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
All
Directors and Officers as a Group (5 persons)
|
|
1,162,371
|
|
|
|
19.64%
|
|
|
|
——————
|
(1)
|
Unless
otherwise indicated, the business address of each of the stockholders
is
Four Forest Park, Second Floor, Farmington, Connecticut
06032.
|
| |
|
|
(2)
|
Unless
otherwise indicated, all ownership is direct beneficial
ownership.
|
| |
|
|
(3)
|
Each
of Messrs. Pratt and Swets are the managing members of our sponsor,
FMG Investors LLC, and may be deemed to each beneficially own the
1,099,266 shares owned by FMG Investors LLC.
|
| |
|
|
(4)
|
The
business address of David E. Sturgess is c/o Updike, Kelly & Spellacy,
P.C., One State Street, Hartford, Connecticut 06103.
|
| |
|
|
(5)
|
Based
on information contained in a Statement on Schedule 13G filed by
HBK
Investments L.P., HBK Services LLC, HBK Partners II L.P., HBK Management
LLC and HBK Master Fund L.P. on November 16, 2007. All reporting
parties
have shared voting and dispositive power over such securities. The
address
of all such reporting parties is 300 Crescent Court, Suite 700, Dallas,
Texas 75201.
|
| |
|
|
(6)
|
Based
on information contained in a Statement on Schedule 13D filed by
Brian
Taylor, Pine River Capital Management L.P., Nisswa Master Fund Ltd.
on
October 12, 2007. All reporting parties have shared voting and dispositive
power over such securities. The address of all such reporting parties
is
800 Nicollet Mall, Suite 2850, Minneapolis, MN 55402.
|
| |
|
|
(7)
|
Based
on information contained in a Statement on Schedule 13G filed by
Bulldog
Investors, Phillip Goldstein and Andrew Dakos on October 15, 2007.
All
reporting parties have shared voting and dispositive power over such
securities. The address of all such reporting parties is Park 80
West,
Plaza Two, Saddle Brook, NJ 07663.
|
| |
|
|
(8)
|
Based
on information contained in a Statement on Schedule 13G filed by
Millenco
LLC, Millenium Management LLC and Israel A. Englander on December
11,
2007. All reporting parties have shared voting and dispositive power
over
such securities. The address of all such reporting parties is 666
Fifth
Avenue, New York, NY 10103.
|
| |
|
|
(9)
|
D.B.
Zwirn & Co., L.P., DBZ GP, LLC, Zwirn Holdings, LLC, and Daniel B.
Zwirn may each be deemed the beneficial owner of (i) 147,000 shares
of
Common Stock owned by D.B. Zwirn Opportunities Fund, L.P. and (ii)
203,000
shares of Common Stock owned by D.B. Zwirn Special Opportunities
Fund,
Ltd. (each entity referred to in (i) and (ii) is referred to as a
"Fund"
and, collectively, as the "Funds"). D.B. Zwirn & Co., L.P. is the
manager of the Funds, and consequently has voting control and investment
discretion over the shares of Common Stock held by the Fund. Daniel
B.
Zwirn is the managing member of and thereby controls Zwirn Holdings,
LLC,
which in turn is the managing member of and thereby controls DBZ
GP, LLC,
which in turn is the general partner of and thereby controls D.B.
Zwirn
& Co., L.P. Each of D.B. Zwirn & Co., L.P., DBZ GP, LLC, Zwirn
Holdings, LLC and Daniel B. Zwirn disclaims beneficial ownership
of the
shares of Common Stock held by the Funds. Therefore, (i) D.B. Zwirn
Special Opportunities Fund, L.P. owns approximately 2.48% of the
outstanding shares of Common Stock, (ii) D.B. Zwirn Special Opportunities
Fund, Ltd. owns approximately 3.43% of the outstanding shares of
Common
Stock and (iii) each of D.B. Zwirn & Co., L.P., DBZ GP, LLC, Zwirn
Holdings, LLC and Daniel B. Zwirn may be deemed to beneficially own
approximately 5.92% of the outstanding shares of Common
Stock.
|
Our
sponsor purchased 1,250,000 warrants from us at a price of $1.00 per warrant
in
a private placement transaction. These warrants, which we collectively refer
to
as the insider warrants, cannot be sold or transferred by the sponsor until
the
90th day following consummation of a business combination, except in certain
limited circumstances. The $1,250,000 purchase price of the insider warrants
were added to the proceeds being held in the trust account pending our
completion of one or more business combinations. If we do not complete one
or
more business combinations that meet the criteria described in this prospectus,
then the $1,250,000 purchase price of the insider warrants will become part
of
the liquidation amount distributed to our public stockholders from our trust
account and the insider warrants will become worthless.
All
of
the shares of common stock outstanding prior to our IPO were placed in escrow
with Continental Stock Transfer & Trust Company, as escrow agent, until the
earliest of:
| |
·
|
one
year following the consummation of a business combination;
and
|
| |
·
|
the
consummation of a liquidation, merger, stock exchange or other similar
transaction which results in all of our stockholders having the right
to
exchange their shares of common stock for cash, securities or other
property subsequent to our consummating a business combination with
a
target acquisition.
|
During
the escrow period, the holders of these shares of common stock will not be
able
to sell or transfer their securities except in certain limited circumstances
(such as transfers to relatives and trusts for estate planning purposes, while
remaining in escrow), but will retain all other rights as our stockholders,
including, without limitation, the right to vote their shares of common stock
and the right to receive cash dividends, if declared. If dividends are declared
and payable in shares of common stock, such dividends will also be placed in
escrow. If we are unable to effect a business combination and liquidate, none
of
our initial stockholders will receive any portion of the liquidation proceeds
with respect to common stock owned by them prior to this offering, including
the
common stock underlying the insider warrants.
Each
of
Messrs. Pratt and Swets is deemed to be our “parent” and “promoter,” as
these terms are defined under the Federal securities laws.
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
On
May
22, 2007, we issued 1,125,000 shares of our common stock to certain affiliates
listed below for an aggregate amount of $25,000 in cash, at a purchase price
of
approximately $0.022 per share.
|
Name
|
|
Number
of Shares
|
|
Relationship
to Us
|
|
|
|
|
|
|
|
FMG
Investors LLC
|
|
1,045,000
|
|
Sponsor.
Gordon Pratt and Larry G. Swets, Jr.
are the managing members of FMG Investors LLC.
|
|
Thomas
D. Sargent
|
|
20,000
|
|
Director
|
|
David
E. Sturgess
|
|
20,000
|
|
Director
|
|
James
R. Zuhlke
|
|
20,000
|
|
Director
|
|
John
Petry
|
|
20,000
|
|
Special
Advisor
|
Effective
August 13, 2007, our board of directors authorized a forward stock split in
the
form of a stock dividend of 0.15 shares of common stock for each outstanding
share of common stock, effectively lowering the purchase price to approximately
$0.019 per share.
Upon
consummation of the IPO, the Company’s initial stockholders, who owned 100% of
the Company’s issued and outstanding common stock prior to the IPO, forfeited a
pro-rata portion of their shares of common stock (an aggregate of 110,344 shares
of common stock) as a result of the underwriters’ election not to exercise the
balance of their over-allotment option; effectively raising the purchase price
to approximately $0.021 per share. Such ownership interests were adjusted upon
consummation of the IPO to reflect their aggregate ownership of 20% of the
Company’s issued and outstanding common stock (an aggregate of 1,183,406 shares
of common stock).
Prior
to
the consummation of the offering, our sponsor purchased, in a private placement
transaction pursuant to Regulation D under the Securities Act, 1,250,000
warrants from us at a price of $1.00 per warrant. These warrants, which we
refer
to as the insider warrants, will not be sold or transferred by the purchaser
who
initially purchases these warrants from us prior to 90 days following the
completion of our initial business combination. These warrants contain cashless
exercise provisions. The $1,250,000 purchase price of the insider warrants
was
added to the proceeds of our IPO and is held in the trust account pending our
completion of one or more business combinations. If we do not complete one
or
more business combinations that meet the criteria described in the prospectus
relating to the IPO, then the $1,250,000 purchase price of the insider warrants
will become part of the liquidation amount distributed to our public
stockholders from our trust account and the insider warrants will become
worthless.
The
holders of a majority of all of (i) the shares of common stock owned or held
by
our sponsors,officers and directors; and (ii) the shares of common stock
issuable upon exercise of the insider warrants will be entitled to make up
to
two demands that we register these securities pursuant to a registration rights
agreement. Such holders may elect to exercise these registration rights at
any
time commencing on or after the date on which these securities are released
from escrow. In addition, these stockholders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent
to
the date on which these securities are released from escrow. We will bear the
expenses incurred in connection with the filing of any such registration
statements.
Because
the insider warrants sold in the Regulation D private placement were originally
issued pursuant to an exemption from registration requirements under the federal
securities laws, the holders of the warrants purchased in the Regulation D
private placement will be able to exercise their warrants even if, at the time
of exercise, a prospectus relating to the common stock issuable upon exercise
of
such warrants is not current. Our insider warrants will
become freely tradable only after they are registered pursuant to a registration
rights agreement to be signed on or before the date of this
prospectus.
In
order
to protect the amounts held in the trust account, our sponsor has agreed to
indemnify us for claims of creditors, vendors, service providers and target
businesses that have not executed a valid and binding waiver of their right
to
seek payment of amounts due to them out of the trust account. As further
assurance our sponsor will have the necessary funds required to meet these
indemnification obligations, the managing members of our sponsor have agreed
to
jointly and severally indemnify the trust in the event the sponsor is unable
to
comply with its indemnification obligations. We have a fiduciary obligation
to
pursue Messrs. Pratt and Swets to enforce their indemnification obligations,
and
intend to pursue such actions as and when we deem appropriate; however, there
can be no assurance they will be able to satisfy those obligations, if required
to do so. As a result, we cannot assure you the per share distribution from
the
trust account, if we liquidate, will not be less than $7.91, plus interest
then
held in the trust account.
Our
sponsor has advanced an aggregate of $100,000 to us as of the effective date
of
the registration statement to cover expenses related to this offering, such
as
SEC registration fees, FINRA registration fees and legal and accounting fees
and
expenses. The loan was repaid without interest and was repaid from the gross
proceeds of our IPO in October 2007.
FMG
Investors LLC, our sponsor, has agreed to provide us with a limited recourse
revolving line of credit under which we may have up to $250,000 of outstanding
borrowings at any time. The revolving line of credit terminates upon the earlier
of the completion of a business combination or the cessation of our corporate
existence (as such borrowings may be used to pay costs, expenses and claims
in
connection with any such dissolution and liquidation). The revolving line of
credit bears no interest and has no recourse against the funds in the trust
account, which funds will be distributed to the public stockholders if we do
not
consummate a business combination within the requisite time periods. It is
possible we could use a portion of the borrowings under the limited recourse
revolving line of credit to make a deposit, down payment or fund a “no-shop”
provision with respect to a particular proposed business combination. In the
event we were ultimately required to forfeit such funds (whether as a result
of
our breach of the agreement relating to such payment or otherwise), we may
not
have a sufficient amount of working capital available to pay expenses related
to
finding a suitable business combination without securing additional financing.
If we were unable to secure additional financing, we would most likely fail
to
consummate a business combination in the allotted time and would be forced
to
liquidate and dissolve.
We
will
reimburse our officers and directors, subject to board approval, for any
reasonable out-of-pocket business expenses incurred by them in connection with
certain activities on our behalf such as identifying and investigating possible
target acquisitions and business combinations. There is no limit on the amount
of out-of-pocket expenses reimbursable by us, which will be reviewed only by
our
board or a court of competent jurisdiction if such reimbursement is challenged.
Accountable out-of-pocket expenses incurred by our officers and directors will
not be repaid out of proceeds held in the trust account until these proceeds
are
released to us upon the completion of a business combination, provided there
are
sufficient funds available for reimbursement after such
consummation.
Other
than the reimbursable out-of-pocket expenses payable to our officers and
directors, no compensation or fees of any kind, including finders, consulting
fees or other similar compensation, will be paid to any of our initial
stockholders, sponsor, officers or directors, or to any of their respective
affiliates, prior to or with respect to a business combination.
None
of
our sponsor, officers or directors will receive reimbursement for any
out-of-pocket expenses incurred by them to the extent such expenses exceed
the
amount held outside of the trust account unless the business combination is
consummated and there are sufficient funds available for reimbursement after
such consummation. The financial interest of such persons could influence their
motivation in selecting a target business and thus, there may be a conflict
of
interest when determining whether a particular business combination is in the
stockholders’ best interest.
After
the
consummation of a business combination, if any, to the extent our management
remains as officers of the resulting business, some of our officers and
directors may enter into employment agreements, the terms of which shall be
negotiated and which we expect to be comparable to employment agreements with
other similarly situated companies. Further, after the consummation of a
business combination, if any, to the extent our directors remain as directors
of
the resulting business, we anticipate that they will receive compensation
comparable to directors at other similarly situated companies.
All
ongoing and future transactions between us and any of our officers and directors
or their respective affiliates, including loans by our officers and directors,
will be on terms believed by us to be no less favorable than are available
from
unaffiliated third parties. Such transactions or loans, including any
forgiveness of loans, will require prior approval by a majority of our
disinterested “independent” directors or the members of our board who do not
have an interest in the transaction, in either case who had access, at our
expense, to our attorneys or independent legal counsel. We will not enter into
any such transaction unless our disinterested “independent” directors determine
that the terms of such transaction are no less favorable to us than those that
would be available to us with respect to such a transaction from unaffiliated
third parties.
Each
of
our sponsor, officers and directors also entered into a letter agreement with
us
and Pali Capital pursuant to which, among other things:
|
|
·
|
each
agreed to vote all shares of common stock owned by him in accordance
with
the majority of the shares purchased in the IPO in connection with
the
stockholder vote on our proposed initial business
combination;
|
|
|
·
|
if
we fail to consummate a business combination by October 4, 2009,
each
agreed to take all reasonable actions within his power to cause us
to
liquidate as soon as reasonably
practicable;
|
|
|
·
|
each
waived any and all rights he may have to receive any distribution
of cash,
property or other assets from the trust account as a result of such
liquidation with respect to his shares of common stock (and, in the
case
of the sponsor, the insider
warrants);
|
|
|
·
|
each
agreed to present to us for our consideration, prior to presentation
to
any other person or entity, any suitable opportunity to acquire an
operating business, until the earlier of our consummation of a business
combination, our liquidation or until such time as he ceases to be
an
officer or director of ours, subject to any pre-existing fiduciary
obligations he might have;
|
|
|
·
|
each
agreed that we could not consummate any business combination which
involves a company which is affiliated with the sponsor or any of
our
officers and directors unless we obtain an opinion from an independent
investment banking firm reasonably acceptable to Pali Capital that
the
business combination is fair to our stockholders from a financial
perspective;
|
|
|
·
|
each
agreed that he and his affiliates will not be entitled to receive
and will
not accept any compensation for services rendered to us prior to,
or in
connection with, the consummation of our business combination;
and
|
|
|
·
|
each
agreed that he and his affiliates will not be entitled to receive
or
accept a finder’s fee or any other compensation in the event he or his
affiliates originate a business
combination.
|
Fund
Management Group LLC, an affiliate of Gordon G. Pratt, our chairman of the
board, chief executive officer and president, has agreed that, through the
acquisition of a target business, it will make available to us a small amount
of
office space and certain office and secretarial services, as we may require
from
time to time. We have agreed to pay Fund Management Group $7,500 per month
for
these services.
During
2007, FMG Investors LLC advanced an aggregate of $100,000 to us to cover
expenses related to our initial public offering. The loan was payable without
interest and was repaid from the gross proceeds of our IPO in October 2007.
Other
than the $7,500 per-month administrative fee and reimbursable out-of-pocket
expenses payable to our officers and directors, no compensation or fees of
any
kind, including finders and consulting fees, will be paid to any of our Founders
or to any of their respective affiliates for services rendered to us prior
to,
or for any services they render in order to effectuate, the consummation of
a
business combination.
All
ongoing and future transactions between us and any of our officers and directors
or their respective affiliates, will be on terms believed by us to be no less
favorable than are available from unaffiliated third parties and will require
prior approval in each instance by a majority of the members of our board who
do
not have an interest in the transaction.
|
Item
14.
|
Principal
Accounting Fees and
Services.
|
During
the fiscal year ended December 31, 2007, the firm of Rothstein, Kass &
Company, P.C., or RKCO, was our principal accountant. RKCO manages and
supervises the audit and audit staff, and is exclusively responsible for the
opinion rendered in connection with its examination. The following is a summary
of fees paid or to be paid to RKCO for services rendered.
Audit
Fees
The
aggregate fees billed by RKCO for professional services rendered for the audit
of our financial statements from the date of our inception through
December 31, 2007 and for services performed in connection with the
Company’s registration statement on Form S-1 filed in 2007, were approximately
$45,000.
Audit-Related
Fees
Other
than the fees described under the caption, “Audit Fees” above, RKCO did not bill
any fees for services rendered to us during fiscal year ended December 31,
2007 for assurance and related services in connection with the audit or review
of our financial statements.
Tax
Fees
None.
All
Other Fees
There
were no fees billed by Rothstein, Kass & Company, P.C. for professional
services other than audit services and audit-related services rendered from
the
date of our inception through December 31, 2007.
PART
IV
|
Item
15.
|
Exhibits,
Financial Statement
Schedules.
|
FMG
ACQUISITION CORP.
(a
corporation in the development state)
Financial
Statements
For
the period from May 22, 2007 to December 31, 2007
Contents
Report
of Independent Registered Public Accounting Firm
Audited
Financial Statements
Balance
Sheet
Statement
of Operations
Statement
of Stockholders’ Equity
Statement
of Cash Flows
Notes
to Financial Statements
Exhibits.
We
hereby
file as part of this Annual Report on Form 10-K the Exhibits listed in the
attached Exhibit Index. Exhibits which are incorporated herein by reference
can
be inspected and copied at the public reference facilities maintained by the
SEC, 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of such
materials also be obtained from the Public Reference Section of the SEC, 100
F
Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website
at www.sec.gov.
|
Exhibit
No.
|
Description
|
|
1.1
|
Form
of Underwriting Agreement (2)
|
| |
|
|
3.1
|
Certificate
of Incorporation (1)
|
| |
|
|
3.2
|
Form
of Amended and Restated Certificate of Incorporation.
(1)
|
| |
|
|
3.3
|
By
Laws. (1)
|
| |
|
|
4.1
|
Specimen
Unit Certificate. (2)
|
| |
|
|
4.2
|
Specimen
Common Stock Certificate. (2)
|
| |
|
|
4.3
|
Specimen
Warrant Certificate. (2)
|
| |
|
|
4.4
|
Form
of Unit Purchase Option to be granted to Pali Capital, Inc.
(1)
|
| |
|
|
4.5
|
Form
of Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant. (1)
|
| |
|
|
10.1
|
Form
of Investment Management Trust Account Agreement between Continental
Stock
Transfer & Trust Company and the Registrant. (1)
|
| |
|
|
10.2
|
Form
of Securities Escrow Agreement among the Registrant, Continental
Stock
Transfer & Trust Company, and the Initial Stockholders.
(1)
|
| |
|
|
10.3
|
Form
of Registration Rights Agreement among the Registrant and Initial
Stockholders. (1)
|
| |
|
|
10.4
|
Form
of Letter Agreement by and between the Registrant and Gordon G. Pratt.
(1)
|
| |
|
|
10.5
|
Form
of Letter Agreement by and between the Registrant and Larry G. Swets,
Jr.
(1)
|
| |
|
|
10.6
|
Form
of Letter Agreement by and between the Registrant and FMG Investors
LLC.
(1)
|
| |
|
|
10.7
|
Form
of Letter Agreement by and between the Registrant and Thomas D. Sargent.
(1)
|
| |
|
|
10.8
|
Form
of Letter Agreement by and between the Registrant and David E. Sturgess.
(1)
|
| |
|
|
10.9
|
Form
of Letter Agreement by and between the Registrant and James R. Zuhlke.
(1)
|
| |
|
|
10.10
|
Form
of Letter Agreement by and between the Registrant and John Petry.
(1)
|
| |
|
|
10.11
|
Administrative
Services Agreement between the Registrant and Fund Management Group
LLC.
(1)
|
| |
|
|
10.12
|
Subscription
Agreement between the Registrant and the Sponsor. (1)
|
| |
|
|
10.13
|
Promissory
Note, dated May 22, 2007, issued to FMG Investors LLC in the amount
of
$100,000. (1)
|
| |
|
|
10.14
|
Subordinated
Revolving Line of Credit Agreement by and between FMG Acquisition
Corp.
and FMG Investors LLC in the amount of $250,000. (2)
|
| |
|
|
14
|
Code
of Business Conduct and Ethics. (1)
|
| |
|
|
23
|
Consent
of Rothstein Kass. (2)
|
| |
|
|
24
|
Power
of Attorney (Included on Signature Page).
|
| |
|
|
31
|
Rule
13a-14(a) / 15(d)-14(c) Certifications. *
|
| |
|
|
32
|
Section
1350 Certifications. *
|
|
(1)
|
Incorporated
by reference to the corresponding exhibit filed with the Registration
Statement on Form S-1 (File No. 333-143466) with the SEC on June
4,
2007.
|
|
(2)
|
Incorporated
by reference to the corresponding exhibit filed with the Registration
Statement on Form S-1 (File No. 333-143466) with the SEC on July
12,
2007
|
*Filed
herewith
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
| |
|
|
| |
FMG
ACQUISITION CORP.
|
|
|
|
| |
By: |
/s/ Gordon
G. Pratt |
| |
Name: |
Gordon G. Pratt |
| |
Title:
|
Chairman, Chief Executive
Officer and President |
| |
|
(principal
executive officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
Date
|
| |
|
|
|
|
/s/ Gordon G.
Pratt
Gordon
G. Pratt
|
|
Chairman,
Chief Executive Officer and President
(principal
executive officer)
|
March
28, 2008
|
|
/s/
Larry G.
Swets,
Jr.
Larry
G. Swets, Jr.
|
|
Chief
Financial Officer, Executive Vice President,
Secretary,
Treasurer, and Director
(principal
financial and accounting officer)
|
March
28, 2008
|
|
/s/ Thomas D.
Sargent
Thomas
D. Sargent
|
|
Director
|
March
28, 2008
|
|
/s/
David E.
Sturgess
David
E. Sturgess
|
|
Director
|
March
28, 2008
|
|
/s/ James R.
Zuhlke
James
R. Zuhlke
|
|
Director
|
March
28, 2008
|
FMG
Acquisition Corp.
(a
corporation in the development stage)
Index
to
Financial Statements
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
| |
|
|
Financial
Statements:
|
|
|
|
|
|
Balance
Sheet
|
F-3
|
| |
|
|
Statement
of Operations
|
F-4
|
| |
|
|
Statement
of Stockholders’ Equity
|
F-5
|
| |
|
|
Statement
of Cash Flows
|
F-6
|
| |
|
|
Notes
to Financial Statements
|
F-7
- F-14
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders of
FMG
Acquisition Corp.
We
have
audited the accompanying balance sheet of FMG Acquisition Corp. (a corporation
in the development stage) (the “Company”) as of December 31, 2007 and the
related statements of operations, stockholders’ equity, and cash flows for the
period from May 22, 2007 (date of inception) to December 31, 2007. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2007, and the results of its operations and its cash flows for the period
from
May 22, 2007 (date of inception) to December 31, 2007, in conformity with
generally accepted accounting principles in the United States of
America.
/s/
Rothstein, Kass & Company, P.C.
Roseland,
New Jersey
March
27,
2008
|
|
|
(a
corporation in the development stage)
|
| |
|
|
|
|
|
BALANCE
SHEET
|
| |
|
December
31, 2007
|
|
| |
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
| |
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$
|
71,274
|
|
|
Prepaid
expenses
|
|
|
|
|
|
54,075
|
|
| |
|
|
|
|
|
125,349
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Cash
held in Trust Account
|
|
|
|
|
|
37,720,479
|
|
|
Deferred
tax asset
|
|
|
|
|
|
32,210
|
|
|
|
|
|
|
|
|
37,752,689
|
|
| |
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
|
|
$
|
37,878,038
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities, accounts
payable and accrued expenses
|
|
|
|
|
$
|
174,344
|
|
| |
|
|
|
|
|
|
|
|
Long-term
liabilities, deferred
underwriters' fee
|
|
|
|
|
|
1,514,760
|
|
| |
|
|
|
|
|
|
|
|
Common
stock, subject to possible redemption,
|
|
|
|
|
|
|
|
|
1,419,614
shares, at redemption value
|
|
|
|
|
|
11,232,133
|
|
| |
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $.0001 par value; 1,000,000 shares authorized; none
issued
|
|
|
|
|
|
-
|
|
|
Common
stock, $.0001 par value, authorized 20,000,000 shares;
5,917,031
|
|
|
|
|
|
|
|
|
shares
issued and outstanding, (including 1,419,614 shares subject
to
|
|
|
|
|
|
|
|
|
possible
redemption)
|
|
|
|
|
|
602
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
24,873,742
|
|
|
Earnings
accumulated during the development stage
|
|
|
|
|
|
82,457
|
|
|
Total
stockholders' equity
|
|
|
|
|
|
24,956,801
|
|
| |
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
$
|
37,878,038
|
|
See
accompanying notes to the financial statements.
|
FMG
ACQUISITION CORP.
|
|
(a
corporation in the development stage)
|
| |
|
|
|
|
|
|
STATEMENT
OF OPERATIONS
|
| |
|
|
|
|
|
|
For
the period May 22, 2007 (date of inception) to December 31,
2007
|
| |
|
|
|
|
|
| |
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
Formation
and operating costs
|
|
|
114,266
|
|
|
Loss
from operations
|
|
|
(114,266
|
)
|
| |
|
|
|
|
|
Interest
income
|
|
|
268,228
|
|
|
Income
before provision for income taxes
|
|
|
153,962
|
|
| |
|
|
|
|
|
Provision
for income taxes
|
|
|
71,505
|
|
|
Net
income applicable to common stockholders
|
|
$
|
82,457
|
|
| |
|
|
|
|
|
Maximum
number of shares subject to possible redemption:
|
|
|
|
|
|
Weighted
average number of common shares,
|
|
|
|
|
|
basic
and diluted
|
|
|
519,680
|
|
| |
|
|
|
|
Net
income per common share, for
shares subject to possible
redemption
|
|
|
-
|
|
Approximate
weighted average number of common shares
outstanding
(not subject to possible redemption)
|
|
|
|
|
|
Basic
|
|
|
2,879,226
|
|
|
Diluted
|
|
|
3,258,383
|
|
|
Net
income per common share not subject to possible redemption,
|
|
|
|
|
|
Basic
|
|
$
|
0.030
|
|
|
Diluted
|
|
$
|
0.027
|
|
See
accompanying notes to the financial
statements.
|
FMG
ACQUISITION CORP.
|
|
(a
corporation in the development stage)
|
| |
|
|
|
|
|
|
|
|
|
|
|
STATEMENT
OF STOCKHOLDERS' EQUITY
|
| |
|
|
|
|
|
|
|
|
|
|
|
For
the period May 22, 2007 (date of inception) to December 31,
2007
|
| |
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued to existing shareholders
|
|
|
|
|
|
1,183,406
|
|
|
|
|
$
|
129
|
|
|
|
|
$
|
24,871
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
25,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250,000
|
|
|
|
|
|
|
|
|
|
|
|
1,250,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 4,733,625 units on October 11, 2007 at
a price of $8 per unit, net of underwriters' discount
and offering costs (including 1,419,614
shares subject to possible
redemption)
|
|
|
|
|
|
4,733,625
|
|
|
|
|
|
473
|
|
|
|
|
|
34,830,904
|
|
|
|
|
|
|
|
|
|
|
|
34,831,377
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, subject to possible redemption,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,419,614
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,232,133
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,232,133
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,457
|
|
|
|
|
|
82,457
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2007
|
|
|
|
|
|
5,917,031
|
|
|
|
|
$
|
602
|
|
|
|
|
$
|
24,873,742
|
|
|
|
|
$
|
82,457
|
|
|
|
|
$
|
24,956,801
|
|
See
accompanying notes to the financial
statements.
|
|
|
(a
corporation in the development stage)
|
| |
|
|
|
STATEMENT
OF CASH FLOWS
|
|
For
the period May 22, 2007 (date of inception) to December 31,
2007
|
|
| |
|
|
|
|
Cash
flows provided by operating activities
|
|
|
|
|
Net
income
|
|
$ |
82,457
|
|
|
Adjustments
to reconcile net income to net cash provided by
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
(
Deferred income tax (benefit)
|
|
|
(32,210
|
)
|
|
Increase
(decrease) in cash attributable to changes
|
|
|
|
|
|
in
operating assets and liabilities:
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(54,075
|
)
|
|
Accounts
payable and accrued expenses
|
|
|
174,344
|
|
| |
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
170,516
|
|
| |
|
|
|
|
|
Cash
used in investing activities, change
in restricted cash
|
|
|
(37,720,479
|
)
|
| |
|
|
Cash
flows from financing activities
|
|
|
|
|
|
Proceeds
from notes payable, stockholders
|
|
|
100,000
|
|
|
Repayment
of notes payable, stockholders
|
|
|
(100,000
|
)
|
|
Proceeds
from issuance of common stock to initial stockholders
|
|
|
25,000
|
|
|
Proceeds
from issurance of warrants in private placement
|
|
|
1,250,000
|
|
|
Gross
proceeds from public offering
|
|
|
37,869,000
|
|
|
Payments
for underwriters' discount and offering cost
|
|
|
(1,522,863
|
)
|
|
Proceeds
from issuance of underwriters purchase option
|
|
|
100
|
|
| |
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
37,621,237
|
|
| |
|
|
|
|
|
Net
increase in cash
|
|
|
71,274
|
|
| |
|
|
|
|
|
Cash,
beginning
of period
|
|
|
-
|
|
| |
|
|
|
|
|
Cash,
end
of period
|
|
$ |
71,274
|
|
| |
|
|
|
|
|
Supplemental
schedule of non-cash financing activities:
|
|
|
|
|
|
Accrual
of deferred underwriters' fees
|
|
$ |
1,514,760
|
|
| |
|
|
|
|
See
accompanying notes to the financial
statements.
FMG
Acquisition Corp.
(a
corporation in the development stage)
Notes
to Financial Statements
NOTE
A—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
FMG
Acquisition Corp. (a corporation in the development stage) (the “Company”) was
incorporated in Delaware on May 22, 2007. The Company was formed to acquire
a
business operating in or providing services to the insurance industry through
a
merger, capital stock exchange, asset acquisition, stock purchase or other
similar business combination. The Company has neither engaged in any operations
nor generated revenue to date, with the exception of interest income held in
the
Trust Account. The Company is considered to be in the development stage as
defined in Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting
and Reporting By Development Stage Enterprises,
and is
subject to the risks associated with activities of development stage companies.
The Company has selected December 31st as its fiscal year-end.
The
Company’s management has broad discretion with respect to the specific
application of the net proceeds of the public offering of Units (as defined
in
Note C below) (the “Offering”), although substantially all of the net proceeds
of the Offering are intended to be generally applied toward consummating a
business combination with (or acquisition of) a business operating in or
providing services to the insurance industry (“Business Combination”).
Furthermore, there is no assurance that the Company will be able to successfully
effect a Business Combination. Since the closing of the Offering, approximately
99% of the gross proceeds, after payment of certain amounts to the underwriters,
is being held in a trust account (“Trust Account”) and invested in U.S.
“government securities” defined as any Treasury Bill issued by the United States
government having a maturity of one hundred and eighty (180) days or less or
any
open ended investment company registered under the Investment Company Act of
1940 that holds itself out as a money market fund and bears the highest credit
rating issued by a United States nationally recognized rating agency, until
the
earlier of (i) the consummation of its first Business Combination or (ii) the
distribution of the Trust Account as described below. The remaining proceeds,
as
well as up to $1,200,000 of post tax interest income earned on the Trust
Account, may be used to pay for business, legal and accounting due diligence
on
prospective acquisitions and continuing general and administrative expenses.
The
Company, after signing a definitive agreement for the acquisition of a target
business, will submit such transaction for stockholder approval. In the event
that 30% or more of the outstanding stock (excluding, for this purpose, those
shares of common stock issued prior to the Offering) vote against the Business
Combination and exercise their conversion rights described below, the Business
Combination will not be consummated. Public stockholders voting against a
Business Combination will be entitled to convert their stock into a pro rata
share of the Trust Account (including the additional 4% fee of the gross
proceeds payable to the underwriters upon the Company’s consummation of a
Business Combination), including any interest income earned on cash and cash
equivalents held in the Trust Account (net of taxes payable and the amount
distributed to the Company to fund its working capital requirements) on their
pro rata share, if the business combination is approved and consummated.
However, voting against the Business Combination alone will not result in an
election to exercise a stockholder’s conversion rights. A stockholder must also
affirmatively exercise such conversion rights at or prior to the time the
Business Combination is voted upon by the stockholders. All of the Company’s
stockholders prior to the Proposed Offering, including all of the directors
and
officers of the Company, have agreed to vote all of the shares of common stock
held by them in accordance with the vote of the majority in interest of all
other stockholders of the Company.
NOTE
A—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS (CONTINUED)
In
the
event that the Company does not consummate a Business Combination by October
11,
2009, the proceeds held in the Trust Account will be distributed to the
Company’s Public Stockholders, excluding the existing stockholders to the extent
of their initial stock holdings. In the event of such distribution, 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 Unit in the Offering (assuming no value is attributed
to the Warrants contained in the Units offered in the Offering, discussed in
Note C).
NOTE
B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation:
The
accompanying financial statements are presented in U.S. dollars and have been
prepared in accordance with accounting principles generally accepted in the
United State of America ("U.S. GAAP") and pursuant to the accounting and
disclosure rules and regulations of the Securities Exchange Commission (the
"SEC").
Development
stage company:
The
Company complies with the reporting requirements of SFAS No. 7, “Accounting and
Reporting by Development Stage Enterprises.” At
December 31, 2007, the Company had not commenced operations. All activity from
the period May 22, 2007 (date of inception) through December 31, 2007 relates
to
the Company’s formation and the public offering described below. The Company
will not generate any operating revenues until after completion of its initial
business combination, at the earliest. The Company will generate non-operating
income in the form of interest income on cash and cash equivalents held in
the
Trust Account.
Net
income per common share:
The
Company complies with accounting and disclosure requirements of SFAS No. 128,
“Earnings Per Share”. Basic earnings per common share is computed by dividing
the net income applicable to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted income per common share
reflects the potential dilution assuming common shares were issued upon the
exercise of outstanding “in the money” warrants and the proceeds thereof were
used to purchase common shares at the average market price during the
period.
The
Company’s statement of operations includes a presentation of earning per share
for common stock subject to possible redemption in a manner similar to the
two-class method of earnings per share. The basic and diluted net income per
common share amount for the maximum number of shares subject to possible
redemption is calculated by dividing interest income attributable to common
shares subject to redemption (nil for the period from May 22, 2007 to
December 31, 2007) by the weighted average number of shares subject to
possible redemption. The basic and diluted net income per common share amount
for the shares outstanding not subject to possible redemption is calculated
by
dividing the income, exclusive of the net interest income attributable to common
shares subject to redemption, by the weighted average number of shares not
subject to possible redemption.
At
December 31, 2007, the Company had outstanding warrants to purchase
5,983,625 shares of common stock.
NOTE
B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Redeemable
common stock:
The
Company accounts for redeemable common stock in accordance with Emerging Issue
Task Force Topic D-98 “Classification
and Measurement of Redeemable Securities”.
Securities that are redeemable for cash or other assets are classified outside
of permanent equity if they are redeemable at the option of the holder. In
addition, if the redemption causes a liquidation event, the redeemable
securities should not be classified outside of permanent equity. As discussed
in
Note A, the Business Combination will only be consummated if a majority of
the
shares of common stock voted by the Public Stockholders are voted in favor
of
the Business Combination and Public Stockholders holding less than 30% of common
shares sold in the Offering exercise their redemption rights. As further
discussed in Note A, if a Business Combination is not consummated by October
11,
2009 the Company will liquidate. Accordingly, 1,419,614 shares of common stock
have been classified outside of permanent equity at redemption value.
The
Company recognizes changes in the redemption value immediately as they occur
and
adjusts the carrying value of the redeemable common stock to equal its
redemption value at the end of each reporting period. The redemption value
is a
factor of the Public Stockholder’s pro-rata share of proceeds held in trust. Of
the amount held in trust, up to $1,200,000 of post tax interest income earned
on
the Trust Account may be used by the Company to pay for business, legal and
accounting due diligence on prospective acquisitions and continuing general
and
administrative expenses. Therefore, interest earned on the Trust Account may
not
impact the redemption value to the extent it will be utilized by the Company.
At
December 31, 2007, the per share redemption value was approximately
$7.91.
Common
stock:
In
August
2007, the Board of Directors of the Company approved a 1.15-for-1 stock split
in
the form of a stock dividend of 0.15 shares of common stock for every one share
of common stock issued and outstanding as of August 13, 2007. All transactions
and disclosures in the financial statements, related to the Company’s common
stock, have been adjusted to reflect the effects of the stock
dividend.
Upon
consummation of the Offering, the Company’s initial stockholders (“Initial
Stockholders”), who owned 100% of the Company’s issued and outstanding common
stock prior to the Offering, forfeited a pro-rata portion of their shares of
common stock (an aggregate of 110,344 shares of common stock) as a result of
the
underwriters’ election not to exercise the balance of a purchase option (See
Note F). Such ownership interests were adjusted upon consummation of the
Offering to reflect their aggregate ownership of 20% of the Company’s issued and
outstanding common stock (an aggregate of 1,183,406 shares of common stock).
Concentration
of credit risk:
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist of cash accounts in financial institutions, which at times, may
exceed the Federal depository insurance coverage of $100,000. The Company has
not experienced losses on these accounts and management believes the Company
is
not exposed to significant risks on such accounts.
NOTE
B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair
value of financial instruments:
The
fair
value of the Company’s assets and liabilities, which qualify as financial
instruments under SFAS No. 107, “Disclosure About Fair Value of Financial
Instruments,” approximates the carrying amounts presented in the accompanying
balance sheet.
Use
of estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company’s
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Income
taxes:
The
Company complies with SFAS No. 109, “Accounting for Income Taxes,” which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible amounts, based
on
enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
Effective
May 22, 2007, the Company adopted the provisions of the Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). There
were no unrecognized tax benefits as of December 31, 2007. FIN 48 prescribes
a
recognition threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken
in a
tax return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities.
The
Company recognizes accrued interest and penalties related to unrecognized tax
benefits as income tax expense. No amounts were accrued for the payment of
interest and penalties at May 22, 2007 (date of inception). There was no change
to this balance at December 31, 2007. Management is currently unaware of any
issues under review that could result in significant payments, accruals or
material deviations from its position. The adoption of the provisions of FIN
48
did not have a material impact on the Company’s financial position, results of
operations and cash flows as of and for the period ended December 31,
2007.
Securities
held in trust:
Investment
securities consist of United States Treasury securities. The Company classifies
its securities as held-to-maturity in accordance with SFAS No. 115, “Accounting
for Certain Debt and Equity Securities.” Held-to-maturity securities are those
securities which the Company has the ability and intent to hold until maturity.
Held-to-maturity treasury securities are recorded at amortized cost and adjusted
for the amortization or accretion of premiums or discounts.
NOTE
B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A
decline
in the market value of held-to-maturity securities below cost that is deemed
to
be other than temporary, results in an impairment that reduces the carrying
costs to such securities’ fair value. The impairment is charged to earnings and
a new cost basis for the security is established. To determine whether an
impairment is other than temporary, the Company considers whether it has the
ability and intent to hold the investment until a market price recovery and
considers whether evidence indicating the cost of the investment is recoverable
outweighs evidence to the contrary. Evidence considered in this assessment
includes the reasons for the impairment, the severity and the duration of the
impairment, changes in value subsequent to year-end, forecasted performance
of
the investee, and the general market condition in the geographic area or
industry the investee operates in.
Premiums
and discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective-interest
method. Such amortization and accretion is included in the “interest Income”
line item in the consolidated statement of operations. Interest income is
recognized when earned.
Recently
issued accounting standards:
In
December 2007, the FASB issued SFAS 141(R), "Business Combinations). SFAS 141(R)
provides companies with principles and requirements on how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, liabilities assumed, and any noncontrolling interest in the acquiree
as well as the recognition and measurement of goodwill acquired in a business
combination. SFAS 141(R) also requires certain disclosures to enable users
of
the financial statements to evaluate the nature and financial effects of the
business combination. Acquisition costs associated with the business combination
will generally be expensed as incurred. SFAS 141(R) is effective for business
combinations occurring in fiscal years beginning after December 15, 2008, which
will require the Company to adopt these provisions for business combinations
occurring in fiscal 2009 and thereafter. Early adoption of SFAS 141(R) is not
permitted.
Management
does not believe that any other recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect
on
the Company’s financial statements.
NOTE
C— OFFERING
On
October 11, 2007 the Company sold 4,733,625 units (“Units”) at an offering price
of $8.00 per Unit. Each Unit consists of one share of the Company’s common
stock, $0.0001 par value, and one redeemable common stock purchase warrant
(“Warrant”). Each Warrant will entitle the holder to purchase from the Company
one share of common stock at an exercise price of $6.00 commencing on the later
of (a) October 4, 2008 or (b) the completion of a Business Combination with
a
target business or the distribution of the Trust Account, and will expire
October 4, 2011. The Warrants are redeemable at a price of $0.01 per Warrant
upon 30 days prior notice after the Warrants become exercisable, only in the
event that the last sale price of the common stock is at least $11.50 per share
for any 20 trading days within a 30 trading day period ending on the third
business day prior to the date on which notice of redemption is given.
NOTE
D—RELATED PARTY TRANSACTIONS
On
May
24, 2007 the Company issued a $100,000 unsecured promissory note to a principal
stockholder and affiliate of the Company’s officer, FMG Investors LLC. The note
was non-interest bearing and was repaid on October 11, 2007.
The
Company has received a limited recourse revolving line of credit totaling
$250,000 made available by FMG Investors LLC. The revolving line of credit
terminates upon the earlier of the completion of a business combination or
October 4, 2009 (as
such
borrowings may be used to pay costs, expenses and claims in connection with
any
such dissolution and liquidation). The revolving line of credit is non-interest
bearing. As of December 31, 2008, the Company had no borrowings against this
revolving line of credit.
The
Company has accrued operating expenses in the amount of $7,292 due to FMG
Investors LLC relating to administrative and travel costs.
The
Company presently occupies office space provided by an affiliate of our Chairman
and Chief Executive Officer. Such affiliate has agreed that, until the
acquisition of a target business by the Company, it will make such office space,
as well as certain office and secretarial services, available to the Company,
as
may be required by the Company from time to time. The Company has agreed to
pay
such affiliate $7,500 per month for such services.
Certain
of the directors and officers of the Company purchased through FMG Investors
LLC, in a private placement, 1,250,000 warrants immediately prior to the
Offering at a price of $1.00 per warrant (an aggregate purchase price of
approximately $1,250,000) from the Company and not as part of the Offering.
They
have also agreed that these warrants purchased by them will not be sold or
transferred until 90 days after completion of a Business Combination.
NOTE
E—INCOME TAXES
For
the
period May 22, 2007 (date of inception) to December 31, 2007, the components
of
the provision for income taxes (benefit) are as follows:
|
|
|
For
the period
|
|
|
|
|
May
22, 2007
|
|
|
|
|
(date
of inception) to
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
Federal
|
|
$
|
78,000
|
|
|
State
|
|
|
26,000
|
|
|
Deferred:
|
|
|
|
|
|
Federal
|
|
|
(32,000
|
)
|
|
|
|
|
|
|
|
I
|
|
$
|
72,000
|
|
The
Company has not begun its trade or business for U.S. tax purposes.
Accordingly, it could not yet recognize losses for start-up expenditures. As
a
result, a deferred tax asset of approximately $32,000 at December 31, 2007
was
established for these start-up expenditures.
The
effective income tax rate of 46% differs from the federal statutory rate of
34%
principally due to the effect of state income taxes and deferred federal taxes.
NOTE
F—COMMITMENTS
The
Company paid an underwriting discount of 3% of the public unit offering price
to
the underwriters at the closing of the Offering, with an additional 4% fee
of
the gross offering proceeds payable upon the Company’s consummation of a
Business Combination.
The
Company sold to Pali Capital, Inc, for $100, as additional compensation, an
option to purchase up to a total of 450,000 units at a per-unit price of $10.00.
The units are issuable upon exercise of this option are also identical to those
offered in the Offering. The sale was accounted for as an equity transaction.
Accordingly, there was no net impact on the Company’s financial position or
results of operations, except for the recording of the $100 proceeds from the
sale.
The
Company has determined, based upon a Black-Scholes model, that the fair value
of
the option on the date of sale would be approximately $2.32 per unit, or
$1,044,000 in total, using an expected life of five years, volatility of 34.9%
and a risk-free interest rate of 3.69 %.
In
accordance with Statement of Financial Accounting Standard No. 123R, Share
Based
Payments (SFAS 123R), the cost of services received in exchange for an award
of
equity instruments is to be measured based on the grant-date fair value of
those
instruments. Because the Company does not have a trading history, the Company
needed to estimate the potential volatility of its common stock price, which
will depend on a number of factors which cannot be ascertained at this time.
SFAS 123R requires the Company to measure the option based on an appropriate
industry sector index instead of the expected volatility of its share price.
The
volatility calculation of 34.9% is based on the five year average volatility
for
a group of the 20 smallest insurance companies in the Russell 2000 (“Index”).
The Company referred to the Index because management believes that the average
volatility is a reasonable benchmark to use in estimating the expected
volatility of the Company’s common stock post-business combination. Although an
expected life of five years was taken into account for purposes of assigning
a
fair value to the option, if the Company does not consummate a business
combination within the prescribed time period and liquidates, the option would
become worthless.
Although
the purchase option and its underlying securities have been registered under
the
registration statement, the purchase option provides for registration rights
that permit the holder of the purchase option to demand that a registration
statement will be filed with respect to all or any part of the securities
underlying the purchase option within five years of October 4, 2007. Further,
the holders of the purchase option will be entitled to piggy - back registration
rights in the event we undertake a subsequent registered offering within seven
years of the completion of the proposed offering.
The
Company granted the underwriter a 45-day option to purchase up to 675,000
additional units to cover the over-allotment. The underwriter used 233,625
of
the additional units at the time of closing and did not exercise the balance
of
the option.
NOTE
G—PREFERRED STOCK
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined
from
time to time by the Board of Directors. As of December 31, 2007, the Company
had
not issued shares of preferred stock. The Company’s certificate of incorporation
prohibits it, 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.
NOTE
E - MARKETABLE SECURITIES
The
carrying amount, including accrued interest, gross unrealized holding losses,
and fair value of held-to-maturity securities at December 31, 2007 were as
follows:
| |
|
Carrying
amount
|
|
Gross
unrealized holding gains
|
|
Fair
value
|
|
|
Held-to-maturity:
U.
S. Treasury securities
|
|
$
|
37,647,185
|
|
$
|
73,294
|
|
$
|
37,720,479
|
|
F-14