Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the year ended December 31, 2008
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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 001-33721
Inter-Atlantic Financial, Inc.
(Exact name of Registrant as specified in its charter)
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| Delaware
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20-8237170 |
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| (State or other jurisdiction of incorporation)
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(IRS Employer Identification Number) |
400 Madison Ave.
New York, New York 10017
(Address of principal executive offices)
(212) 581-2000
(Registrant’s telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
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| Title of each class
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Name of each exchange
on which registered |
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| Units, each consisting of one share of Common Stock, $0.0001 par value, and one Warrant
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NYSE Amex |
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| Common Stock included in the Units
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NYSE Amex |
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| Warrants included in the Units
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NYSE Amex |
Securities registered pursuant to Section 12(g) of the Act:
None
(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 þ
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 þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment of this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “larger accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
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| Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting companyþ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the
Act). Yes þ No o
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the
registrant computed by reference to the closing sales price for the registrant’s common stock on
March 12, 2009 as reported on the NYSE Amex was approximately $54.0 million.
In determining the market value of the voting stock held by any non-affiliates, shares of common
stock of the registrant beneficially owned by directors, officers and holders of more than 10% of
the outstanding shares of common stock of the registrant have been excluded. This determination of
affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares of common stock outstanding as of March 12, 2009 was 10,485,300.
Forward-Looking Statements
This report, and the information incorporated by reference in it, include “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our
forward-looking statements include, but are not limited to, statements regarding our expectations,
hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that
refer to projections, forecasts or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking statements. The words “anticipates,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,”
“potential,” “predict,” “project,” “should,” “would” and similar expressions may identify
forward-looking statements, but the absence of these words does not mean that a statement is not
forward-looking. Forward-looking statements in this report may include, for example, statements
about our:
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ability to complete a combination with one or more target businesses; |
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success in retaining or recruiting, or changes required in, our management or
directors following a business combination; |
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potential inability to obtain additional financing to complete a business
combination; |
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limited pool of prospective target businesses; |
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potential change in control if we acquire one or more target businesses for stock; |
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public securities’ limited liquidity and trading; |
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failure to list or the delisting of our securities from the NYSE Amex or inability
to have our securities listed on the NYSE Amex following a business combination; |
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use of proceeds not in trust or available to us from interest income on the trust
account balance; or |
The forward-looking statements contained or incorporated by reference in this report are based
on our current expectations and beliefs concerning future developments and their potential effects
on us and speak only as of the date of such statement. There can be no assurance that future
developments affecting us will be those that we have anticipated. These forward-looking statements
involve a number of risks, uncertainties (some of which are beyond our control) or other
assumptions that may cause actual results or performance to be materially different from those
expressed or implied by these forward-looking statements. These risks and uncertainties include,
but are not limited to, those factors described under the heading “Risk Factors.” Should one or
more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect,
actual results may vary in material respects from those projected in
these forward-looking statements. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise,
except as may be required under applicable securities laws.
References in this report to “we,” “us” or “our company” refer to Inter-Atlantic Financial,
Inc. References to “public stockholders” refer to purchasers of our securities by persons other
than our founders in, or subsequent to, our initial public offering.
3
PART I
ITEM 1. Business
General
We are a blank check company organized under the laws of the State of Delaware. We were
formed for the purpose of acquiring, through a merger, a capital stock exchange, asset acquisition,
stock purchase or other similar business combination, an unidentified operating business in the
financial services industry or a business deriving a majority of its revenues from providing
services to financial services companies including for example, payment processing companies and
technology providers. We believe we are qualified to select an attractive acquisition target
because of our officers’ and directors’ over 150 years of aggregate experience with both public and
private companies in the financial services industry. Our efforts in identifying a prospective
target business will not be limited to a particular geographic location.
On October 9, 2007, we completed our initial public offering (“IPO”) of 7,500,000 Units. Each
Unit consists of one share of our common stock, par value $0.0001 per share, (the “Common Stock”)
and one warrant entitling the holder to purchase one share of our Common Stock at an exercise price
of $4.50. The public offering price of each Unit was $8.00 and we generated gross proceeds of
$60,000,000 in the IPO. On October 16, 2007, we consummated the closing of 1,110,300 Units
pursuant to the underwriters’ over-allotment option which generated gross proceeds of $8,882,400.
Of the $68,882,400 in gross proceeds from the IPO and the exercise of the over-allotment option:
(i) we deposited $66,215,928 into a trust account at American Stock Transfer & Trust Company as
trustee, which proceeds were invested in money market funds meeting certain conditions under Rule
2a-7 promulgated under the Investment Company Act of 1940, and included $2,755,296 of contingent
underwriting discount; (ii) the underwriters received $2,066,472 as underwriting discount
(excluding the contingent underwriting discount); and (iii) we retained approximately $600,000 for
offering expenses and working capital. In addition, we deposited into the trust account $2,300,000
that we received from the issuance and sale of an aggregate of 2,100,000 warrants to our executive
officers and directors and 200,000 warrants to one of our stockholders. For a more complete
discussion of our financial information, see the section appearing elsewhere in our Annual Report
on Form 10-K entitled “Selected Financial Data.”
Within the universe of potential targets in the financial services industry, including service
providers to the industry, we believe that companies in the financial technology sector are
attractive and financial technology companies are an important focus of ours. We may also consider
target businesses in any other area of financial services.
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While our primary focus is on prospective target businesses in or related to the financial
services industry in the United States, we may also consider these acquisition opportunities
internationally.
In evaluating a prospective target business, our management will consider, among other
factors, the following:
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experience and skill of management and availability of additional personnel; |
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financial condition, including profitability, cash flow, the recurrence of revenue
and the results of operations; |
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competitive position and barriers to entry; |
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ability to retain and grow the customer base; |
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stage of development of the products, processes or services; |
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proprietary features and degree of intellectual property or other protection of the
products, processes or services; |
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regulatory environment; |
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costs, approvals and accounting impact associated with effecting the business
combination; and |
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relative valuations of similar publicly traded companies. |
In seeking a business combination, we intend to utilize cash derived from the proceeds of the
IPO and over-allotment, as well as our capital stock, debt, or a combination of cash, capital stock
and debt, and there is no limit on the issuance of capital stock or incurrence of debt we may
undertake in effecting a business combination. In the event a business combination is consummated,
all sums remaining in our trust account will be released to us immediately thereafter, and there
will be no restriction on our use of such funds.
While we may seek to effect business combinations with more than one target business, our
initial business combination must be with a target business or businesses whose fair market value
is at least equal to 80% of the amount in our trust account (less underwriting compensation of
$2,755,296) at the time of such acquisition. Consequently, it is likely that we will have the
ability to effect only a single 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 the amount in our trust account (less deferred underwriting compensation of
$2,755,296) or more than one target business at the same time. We could seek to fund such business
combinations by raising additional funds through the sale of our securities or through
loan arrangements. In addition, we may pay for such business combinations, in part or in
whole, by issuance of our securities. It is possible 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.
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We are paying a monthly fee of $7,500 to Inter-Atlantic Management Services LLC, an affiliate
of certain of the officers and directors, for general and administrative services, including but
not limited to receptionist, secretarial and general office services. Inter-Atlantic Management
Services LLC, together with its affiliate companies, is referred to herein as Inter-Atlantic Group.
This arrangement shall continue until the earliest to occur of:
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the consummation of a business combination; |
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24 months after the completion of the IPO; and |
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the date on which we determine to dissolve and liquidate our trust account as part
of our plan of dissolution and liquidation. |
Our officers and directors did not receive any compensation in the IPO and will not receive
any compensation for services rendered to us prior to, or in connection with, the consummation of a
business combination. Our officers and directors will be entitled to reimbursement for
out-of-pocket expenses incurred by them or their affiliates on our behalf.
Prior to the closing of the IPO, our officers, directors and a shareholder collectively
purchased a combined total of 2,300,000 warrants at a price of $1.00 per warrant for a total of
$2,300,000.
Management Team
Messrs. Lerner, Lichten, Hammer and Baris are affiliated with Inter-Atlantic Group, a New York
based private equity firm specializing in the financial services industry. Until 2007, Mr. Daras
was CEO of one of Inter-Atlantic Group’s portfolio companies, and prior to that was a Partner at
Inter-Atlantic Group. Mr. Galasso is an independent consultant that conducts business with
Inter-Atlantic Group from time to time and Mr. Gaebler has worked with Inter-Atlantic Group
affiliates in the past on unrelated matters. Mr. Galasso has served as a senior executive officer
in the payments industry including as Chairman and Chief Executive Officer of NetSpend Corporation,
a portfolio company of Inter-Atlantic Group. While each of these individuals is also a member of
our management team or board of directors, no voting arrangement exists among these individuals
with respect to our securities. They have been integral in all investing activity, advisory
activity, capital raising and strategic planning engaged in by Inter-Atlantic Group.
Inter-Atlantic Group generally refers to a collection of affiliated companies and partnerships,
including two Bermuda-domiciled private equity funds, their general partners and Inter-Atlantic
Management Services LLC, the main operating company. Prior to 2001, Inter-Atlantic Group served
the financial services industry through mergers and acquisitions advisory services, capital
raising, strategic planning and corporate restructuring for domestic and offshore companies. In
2001, the firm divested its broker-dealer subsidiary, Guggenheim Securities, LLC, in order to focus
its efforts on making investments in the financial services sector. In
addition, Inter-Atlantic Group has been a senior strategic advisor to a prominent insurance
company for the past 14 years. The limited partners of the two private equity funds are a small
group of prominent institutional investors.
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Inter-Atlantic Group’s investment committee consists of Messrs. Lerner, Lichten, Hammer, Baris
and Michael P. Esposito Jr., a former employee of the firm who is currently a director and owner of
the general partners of the Inter-Atlantic Group funds.
Our stockholders at the time of the IPO were our officers, our board members, our advisors,
and Mr. Esposito and are referred to in this report as our initial stockholders.
Although both Inter-Atlantic Group and we intend to invest in companies in the financial
services industry, there are differences in the size of such targeted investment and the type of
companies in which the entities are focused on investing. Inter-Atlantic Group has not made
investments in excess of $10 million. By comparison, our amended and restated certificate of
incorporation requires that our initial business combination be with a business or business whose
fair market value is at least equal to 80% of the balance in the trust account (less deferred
underwriting compensation of $2,755,296). Based on the trust account balance of $68,515,928
resulting from the net offering proceeds of the IPO, over-allotment and the sale of the founders’
warrants, we would be required to effect an initial business combination with a business whose fair
market value is at least 80% ($52,608,506, or $36,831,214 assuming the maximum common share
redemption of 29.99%).
We will not enter into a business combination with any company which Inter-Atlantic Group
currently has or previously had a financial interest in. To minimize any conflicts, or the
appearance of conflicts, subject to their respective fiduciary obligations, each of Inter-Atlantic
Group and Messrs. Lerner, Baris, Lichten and Hammer has granted us a right of first refusal with
respect to any company or business in the financial services industry whose fair market value is at
least equal to 80% of the balance of the trust account (less deferred underwriting compensation of
$2,755,296), which we refer to as a Company Potential Target. Pursuant to this right of first
refusal, subject to their respective fiduciary obligations, each of these persons and
Inter-Atlantic Group has agreed that he or it will not enter into any agreement to acquire majority
voting control of a Company Potential Target until our committee of independent directors has had a
reasonable period of time to determine whether or not to pursue the opportunity. This right of
first refusal expires upon the earlier of (i) our consummation of an initial business combination
or (ii) 24 months after the consummation of the IPO. Messrs. Galasso and Weinhoff will be
responsible for enforcing this right of first refusal.
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Effecting a Business Combination
General
We are not presently engaged in, and we will not engage in, any substantive commercial
business for an indefinite period of time. We intend to utilize cash derived from the proceeds of
the IPO, the sale of the founders’ warrants, our capital stock, debt or a combination of these in
effecting a business combination. Although substantially all of the net proceeds of the IPO are
intended to be generally applied toward effecting a business combination, the proceeds are not
otherwise being designated for any more specific purposes. 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 selected a target business
To date, we have not selected any target business for a business combination.
Sources of target businesses
Target business candidates are being brought to our attention from various unaffiliated
sources, including investment bankers, attorneys, accountants, venture capital funds, private
equity funds, leveraged buyout funds, management buyout funds, brokers, financial services industry
executives and consultants and other members of the financial community. We have made it known
that we are seeking a business combination candidate by a variety of means. Sources are being
directly contacted by management since the IPO. Our initial stockholders, officers and directors
as well as their affiliates also bring to our attention target business candidates. We
periodically engage the services of professional firms that specialize in business acquisitions, in
which event we may pay a finder’s fee or other compensation. The terms of any such arrangements
will be negotiated with such persons on an arm’s length basis and applicable agreements will be
disclosed to our stockholders in the proxy materials we provide in connection with any proposed
business combination. In no event, however, will we pay any of our existing officers or directors
or any entity with which they are affiliated any finder’s fee or other compensation for services
rendered to us prior to or in connection with the consummation of a business combination. In
addition, none of our officers or directors will receive any finder’s fee, consulting fees or any
similar fees or other compensation in connection with any business combination other than any
compensation or fees to be received for any services provided following such business combination.
Although we are not under any contractual obligation to engage any of the underwriters or Scura,
Rise & Partners LLC, a financial advisory firm, to provide any services for us after the IPO, any
of the underwriters or Scura, Rise & Partners LLC may, among other things, introduce us to
potential target businesses or assist us in raising additional capital, as needs may arise in the
future. If any of the underwriters or Scura, Rise & Partners LLC provide services to us, we may
pay such entity fair and reasonable fees that would be determined at that time in arm’s length
negotiations.
Selection of a target business and structuring of a business combination
Subject to the requirement that our initial business combination must be with a target
business with a fair market value that is at least 80% of the amount in our trust account (less
deferred underwriting compensation of $2,755,296) at the time of such acquisition, our management
will have virtually unrestricted flexibility in identifying and selecting a prospective target
business.
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Prior to agreeing to a business combination, we will conduct an extensive due diligence review
which will encompass, among other things, meetings with incumbent management, where applicable, and
inspection of facilities, as well as review of financial and other information which will be made
available to us.
We will endeavor to structure a business combination so as to achieve the most favorable tax
treatment to us, the target business and both companies’ stockholders. We cannot assure you,
however, that the Internal Revenue Service or appropriate state tax authorities, as applicable,
will agree with our tax treatment of the business combination.
The time and costs required to select and evaluate a target business and to structure and
complete the business combination cannot presently be ascertained with any degree of certainty.
Any costs incurred with respect to the identification and evaluation of a prospective target
business with which a business combination is not ultimately completed will result in a loss to us
and reduce the amount of capital available to otherwise complete a business combination. 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 or directors or any
entity with which they are affiliated any finder’s fee or other compensation for services rendered
to us prior to or in connection with the consummation of a business combination, other than the
$7,500 payable monthly in the aggregate to Inter-Atlantic Management Services LLC, an affiliate of
certain of the officers and directors, for office space and certain general and administrative
services.
Fair Market Value of Target Business
The initial target business that we acquire must have a fair market value equal to at least
80% of the amount in our trust account (less deferred underwriting compensation of $2,755,296) at
the time of such acquisition. There is no limitation on our ability to raise funds privately or
through loans that would allow us to acquire a target business or businesses with a fair market
value in an amount considerably greater than 80% of the amount in our trust account (less deferred
underwriting compensation of $2,755,296) at the time of acquisition. If we acquire less than 100%
of one or more target businesses in our initial business combination, the aggregate fair market
value of the portion or portions we acquire must equal at least 80% of our net assets at the time
of such initial business combination. In no instance will we acquire less than majority voting
control of a target business. However, in the case of a reverse merger or other similar
transaction in which we issue a substantial number of new shares, our stockholders immediately
prior to such transaction may own less than a majority of our shares subsequent to such
transaction. The fair market value of such business 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, and the price for which comparable businesses have
recently been sold. If our board is not able to independently determine that the target business
has a sufficient fair market value, we will obtain an opinion from an unaffiliated, independent
investment banking firm which is a member of the Financial Industry Regulatory Authority with
respect to the satisfaction of such criteria. We will not be required to obtain an opinion from an
investment banking firm as to the fair market value of a proposed business combination if our board
of directors independently determines that the target business has sufficient fair market value.
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Probable lack of business diversification
While we may seek to effect business combinations with more than one target business, our
initial business combination must be with a target business or target businesses which satisfy the
minimum valuation standard at the time of such acquisition, as discussed above. Consequently, it
is probable that we will have the ability to effect only a single business combination, although
this may entail the simultaneous acquisition of several compatible operating businesses or assets.
Unlike other entities which may have the resources to complete several business combinations of
entities operating in multiple industries or multiple areas of a single industry, it is probable
that we will not have the resources to diversify our operations or benefit from the possible
spreading of risks or offsetting of losses. By consummating a business combination with only a
limited number of entities, our lack of diversification may:
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leave us solely dependent upon the performance of a single business; and |
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result in our dependency upon the development or market acceptance of a single or
limited number of products or services. |
Additionally, 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 closely related
businesses is contingent upon the simultaneous closings of the other acquisitions.
Limited ability to evaluate the target business’ management
If our officers and directors are to remain associated with us following a business
combination, they may be involved in different capacities than at present, and we may employ other
personnel following the business combination. Although we intend to closely scrutinize such
individuals, we cannot assure you that our assessment will prove to be correct. In addition, we
cannot assure you that new members that join our management following a business combination will
have the necessary skills, qualifications or abilities to help manage a public company.
Opportunity for stockholder approval of business combination
Prior to the completion of a business combination, we will submit the transaction to our
stockholders for approval, even if the nature of the acquisition is such as would not ordinarily
require stockholder approval under applicable state law. In connection with 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, which, among other
matters, will include a description of the operations of the target business and certain required
financial information regarding the business.
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In connection with the vote required for any business combination, all of our initial
stockholders, including all of our officers and directors, have agreed to vote their respective
shares of common stock owned by them immediately prior to the IPO in accordance with the majority
of the shares of common stock voted by the public stockholders. Initial stockholders who purchase
shares of common stock in the IPO or after the IPO have agreed to vote such
shares in favor of any proposed business combination. Although we do not know for certain the
factors that would cause our initial stockholders to purchase our securities, we believe that some
of the factors they would consider are: (i) the trading price of our securities, (ii) their
aggregate investment in our securities, (iii) whether it appears that a substantial number of
public stockholders are voting against a proposed business combination, and (iv) their interest in
the target business once the target business has been identified. Any shares acquired by such
individuals in the IPO or in the aftermarket will be voted in favor of the business combination.
Accordingly, any purchase of our shares by our officers and directors in the IPO or in the
aftermarket could influence the result of a vote submitted to our shareholders in connection with a
business combination by making it more likely that a business combination would be approved. In
addition, given the interest that our initial stockholders have in a business combination being
consummated, it is possible that our initial stockholders will acquire securities from public
stockholders who have elected to redeem their shares of our common stock (as described below) in
order to change their vote and insure that the business combination will be approved (which could
result in a business combination being approved even if, after the announcement of the business
combination, 30% or more of our public stockholders would have elected their redemption rights, or
51% of our public stockholders would have voted against the business combination, but for the
purchases made by our initial stockholders). We will proceed with the business combination only if
a majority of the shares of common stock cast at the meeting are voted in favor of the business
combination, and public stockholders owning 29.99% or less of the shares sold in the IPO exercise
their redemption rights. This is different than the traditional blank check company structure and
makes it more likely that a business combination will be approved. Voting against the business
combination alone will not result in redemption of a stockholder’s shares into a pro rata share of
our trust account. Such stockholder must have also exercised its redemption rights described
below. As a result of our higher redemption threshold, we may have less cash available to complete
a business combination. Because we will not know how many stockholders may exercise such
redemption rights, we will need to structure a business combination that requires less cash, or we
may need to arrange third party financing to help fund the transaction in case a larger percentage
of stockholders exercise their redemption rights than we expect. Alternatively, to compensate for
the potential shortfall in cash, we may be required to structure the business combination, in whole
or in part, using the issuance of our stock as consideration. Accordingly, this increase in the
customary redemption threshold may hinder our ability to consummate a business combination in the
most efficient manner or to optimize our capital structure.
Redemption rights
At the time we seek stockholder approval of any business combination, we will offer each
public stockholder (other than initial stockholders) the right to have such stockholder’s shares of
common stock redeemed for cash if the stockholder votes against the business combination and the
business combination is approved and completed. The actual per-share redemption price will be
equal to the quotient determined by dividing (i) the amount of our trust account (inclusive of
interest earned thereon, if any, less (x) any amount necessary to pay accrued federal, state or
local income tax on such interest, calculated as of two business days prior to the consummation of
the business combination, and (y) up to an aggregate amount of $1,100,000 of the interest earned on
our trust account, net of taxes payable, which will be released to us upon our demand by (ii) the
total
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number of
shares of public common stock outstanding at that date. An eligible stockholder may request redemption 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. Stockholders will not be requested to tender their shares of common
stock before a business combination is consummated. If a business combination is consummated,
redeeming stockholders will be sent instructions on how to tender their shares of common stock and
when they should expect to receive the redemption amount. In order to ensure accuracy in
determining whether or not the redemption threshold has been met, each redeeming stockholder must
continue to hold their shares of common stock until the consummation of the business combination.
We will not charge redeeming stockholders any fees in connection with the tender of shares for
redemption. If a stockholder votes against the business combination but fails to properly exercise
his or her redemption rights, such stockholder will not have his or her shares of common stock
redeemed for his or her pro rata distribution of the trust account. Any request for redemption,
once made, may be withdrawn at any time up to the date of the meeting. Public stockholders who
redeem their stock into their share of our trust account still have the right to exercise the
warrants that they received as part of the units. We will not complete any business combination if
public stockholders, owning more than 29.99% of the shares, exercise their redemption rights. Even
if 29.99% or less of the stockholders, as described above, exercise their redemption rights, we may
be unable to consummate a business combination if such redemption leaves us with funds less than a
fair market value equal to at least 80% of the amount in our trust account (excluding any funds
held for the benefit of any of the underwriters and taxes payable) at the time of such acquisition,
which amount is required for our initial business combination. In such event we may be forced to
either find additional financing to consummate such a business combination, consummate a different
business combination or dissolve, liquidate and wind up.
Investors who choose to remain as stockholders and do not exercise their redemption rights
will have assumed the entire cost of the offering, including the underwriters’ discount (but not
including the deferred compensation owed to Morgan Joseph & Co.). The additional cost per share
allocable to such remaining stockholders would be $0 if none of the shares sold in the IPO are
redeemed, and approximately $0.15 per share if the maximum number of shares which may be redeemed
are redeemed.
Dissolution and liquidation if no business combination
Our amended and restated certificate of incorporation provides that we will continue in
existence only until October 9, 2009. This provision may not be amended without the affirmative
vote of 95% of the shares issued in the IPO except in connection with the consummation of a
business combination. If we have not completed a business combination by such date, our corporate
existence will cease except for the purposes of winding up our affairs and liquidating, pursuant to
Section 278 of the Delaware General Corporation Law. This has the same effect as if our board of
directors and stockholders had formally voted to approve our dissolution pursuant to Section 275 of
the Delaware General Corporation Law. Accordingly, limiting our corporate existence to a specified
date as permitted by Section 102(b)(5) of the Delaware General Corporation Law removes the
necessity to comply with the formal procedures set forth in Section 275 (which would have required
our board of directors and stockholders to
formally vote to approve our dissolution and liquidation and to have filed a certificate of
dissolution with the Delaware Secretary of State). We view this provision terminating our
corporate life by October 9, 2009 as an obligation to our stockholders and will not take any action
to amend or waive this provision to allow us to survive for a longer period of time except in
connection with the consummation of a business combination.
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If we are unable to complete a business combination by October 9, 2009, we will distribute to
all of our public stockholders, in proportion to their respective equity interests, an aggregate
sum equal to the amount in the trust account, inclusive of interest, if any, net of taxes, and up
to $1,100,000 which may be used to fund our working capital requirements, plus any remaining net
assets (subject to our obligations under Delaware law to provide for claims of creditors as
described below). We would notify the trustee of the trust account to begin liquidating such
assets promptly after such date and anticipate it will take no more than 10 business days to
effectuate such distribution.
Our initial stockholders have waived their rights to participate in any such distribution or
any liquidation distribution with respect to their initial shares. In addition, Morgan Joseph &
Co. has agreed to waive their rights to the $2,755,296 of deferred underwriting compensation
deposited in our trust account in any such distribution or any liquidation distribution. There
will be no distribution from the trust account or otherwise with respect to our warrants which will
expire worthless. We will pay the costs of liquidation and dissolution (currently anticipated to
be no more than approximately $15,000) from our remaining assets outside of the trust account. We
believe there should be sufficient funds available, outside of the trust account as well as from
interest earned on the trust account and released to us as working capital, in addition to monies
available pursuant to the Company’s limited recourse revolving line of credit, to fund the $15,000
in costs and expenses. To the extent sufficient funds are not available, Messrs. Lerner, Daras,
Baris, Hammer and Lichten have agreed to indemnify us, however, we cannot assure you that they will
be able to satisfy these obligations.
Our public stockholders will be entitled to receive funds from the trust account only in the
event of the liquidation of the trust account or if they seek to convert their respective shares
into cash upon a business combination which the stockholder voted against and which is completed by
us. In no other circumstances will a stockholder have any right or interest of any kind to or in
the trust account.
If we were to expend all of the net proceeds of the IPO and over-allotment, other than the
proceeds deposited in the trust account, and without taking into account interest, if any, earned
on the trust account, the initial per-share liquidation price would be $7.96, or $0.04 less than
the per-unit offering price of $8.00. Any creditor’s claims against the trust account (which would
include vendors and service providers we have engaged to assist us in any way in connection with
our search for a target business and that are owed money by us, as well as target businesses
themselves) will have higher priority than the claims of our public stockholders. Messrs. Lerner,
Daras, Baris, Hammer and Lichten have agreed to indemnify us, jointly and severally pro rata
according to their comparative beneficial interests in our company immediately prior to the IPO,
for our debts to vendors, or to any prospective target business, if we do not obtain a valid and
enforceable waiver from that vendor or prospective target business of its rights or claims to the
trust account and only to the extent necessary to ensure that such claims do not reduce the
amount in the trust account. However, we cannot assure you that they will be able to satisfy
those obligations, if they are required to do so. As a result, we cannot assure you that the
per-share distribution from the trust account, if we liquidate, will not be less than $7.96, plus
interest then held in the trust account, if any.
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Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is
filed against us which is not dismissed, the proceeds held in the trust account could be subject to
applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims
of third parties with priority over the claims of our stockholders. To the extent any bankruptcy
claims deplete the trust account, we cannot assure you we will be able to return to our public
stockholders at least $7.96 per share.
Under the Delaware General Corporation Law, stockholders may be held liable for claims by
third parties against a corporation to the extent of distributions received by them in a
dissolution. If the corporation complies with certain procedures set forth in Section 280 of the
Delaware General Corporation Law intended to ensure that it makes reasonable provision for all
claims against it, including a 60-day notice period during which any third-party claims can be
brought against the corporation, a 90-day period during which the corporation may reject any claims
brought, and an additional 150-day waiting period before any liquidating distributions are made to
stockholders, any liability of stockholders with respect to a liquidating distribution is limited
to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the
stockholder, and any liability of the stockholder would be barred after the third anniversary of
the dissolution. However, as stated above, it is our intention to make liquidating distributions
to our stockholders as soon as reasonably possible after October 9, 2009 and, therefore, we do not
intend to comply with those procedures. As such, our stockholders could potentially be liable for
any claims to the extent of distributions received by them and any liability of our stockholders
may extend well beyond the third anniversary of such date. Because we will not be complying with
Section 280, Section 281(b) of the Delaware General Corporation Law requires us to adopt a plan of
dissolution 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. However, because we are a blank check company, rather
than an operating company, and our operations are currently limited to searching for prospective
target businesses to acquire, the only likely claims to arise would be from our vendors and service
providers (such as accountants, lawyers, investment bankers, etc.) and potential target businesses.
As described above, we are obligated to have all significant vendors and service providers and all
prospective target businesses execute agreements with us waiving any and all right, title, interest
or claim of any kind they may have in or to any monies held in the trust account. The
determination of which vendors are deemed significant will be made by our management but will
include any investment bankers, legal advisors, accounting firms and business consultants we hire
in connection with a business combination. Based on representations made to us by our indemnifying
officers and directors, we currently believe that they have substantial means to fund any shortfall
in our trust account to satisfy their foreseeable indemnification obligations, but we have not
asked them to reserve for such eventuality. The indemnification obligations may be substantially
greater than our indemnifying officers and directors currently foresee or expect. Their financial
resources may also deteriorate in the future. Hence, we cannot assure you that our officers and
directors will be able to satisfy those obligations. Moreover, because we will obtain the waiver
agreements described above, the funds
held in trust should be excluded from the claims of any creditors who executed such agreements
in connection with any bankruptcy proceeding. However, such agreements may or may not be
enforceable. As such, our stockholders could potentially be liable for any claims to the extent of
distributions received by them in a dissolution and any liability of our stockholders may extend
beyond the third anniversary of such dissolution.
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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 in our dissolution. Furthermore, because we intend to distribute the
proceeds held in the trust account to our public stockholders promptly after October 9, 2009, this
may be viewed or interpreted as giving preference to our public stockholders over any potential
creditors with respect to access to or distributions from our assets. Additionally, our board may
be viewed as having breached their fiduciary duties to our creditors and/or may have acted in bad
faith, and thereby exposing itself and our company to claims of punitive damages, by paying public
stockholders from the trust account prior to addressing the claims of creditors. We cannot assure
you that claims will not be brought against us for these reasons.
Amended and restated certificate of incorporation
Our amended and restated certificate of incorporation sets forth certain requirements and
restrictions relating to the IPO that shall apply to us until the consummation of a business
combination. Specifically, it provides that:
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prior to the consummation of our initial business combination, we will submit such
business combination to our stockholders for approval; |
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we may consummate our initial business combination if: (i) approved by a majority
of the shares of common stock voted by the public stockholders and (ii) public
stockholders owning less than 30% of the shares of common stock purchased by the public
stockholders in the IPO exercise their redemption rights; |
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if our initial business combination is approved and consummated, public stockholders
who voted against the business combination and exercised their redemption rights will
receive their pro rata share of the trust account; |
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if a business combination is not consummated by October 9, 2009, then we will
dissolve and distribute to all of our public stockholders their pro rata share of the
trust account; and |
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we may not initially consummate any other merger, capital stock exchange, stock
purchase, asset acquisition or similar transaction other than a business combination
that meets the conditions specified in this report, including the requirement that such
combination be with one or more operating businesses that have a fair market value,
either individually or collectively, equal to at least 80% of our net assets at the
time of such business combination. |
15
Our amended and restated certificate of incorporation requires that we obtain the affirmative
vote of holders of 95% of the shares issued in the IPO to amend certain provisions of our amended
and restated certificate of incorporation. However, the validity of such supermajority voting
provisions under Delaware law has not been settled. A court could conclude that such supermajority
voting consent requirement constitutes a practical prohibition on amendment in violation of the
stockholders’ implicit rights to amend the corporate charter. In that case, certain provisions of
the amended and restated certificate of incorporation would be amendable without such supermajority
consent and any such amendment could reduce or eliminate the protection afforded to our
stockholders. However, we view the foregoing provisions as obligations to our stockholders, and we
will not take any action to waive or amend any of these provisions.
Competition for Target Businesses
In identifying, evaluating and selecting a target business, we may encounter intense
competition from other entities having a business objective similar to ours. Many of these
entities are well established and have extensive experience identifying and effecting business
combinations directly or through affiliates. Many of these competitors possess greater technical,
human and other resources than us and our financial resources will be relatively limited when
contrasted with those of many of these competitors. Our ability to compete in acquiring certain
sizable target businesses will be limited by our available financial resources. This inherent
competitive limitation gives others an advantage in pursuing the acquisition of a target business.
Further:
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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 redeem for 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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our outstanding warrants, and the future dilution they potentially represent, may
not be viewed favorably by certain target businesses; and |
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the requirement to acquire assets or an operating business that has a fair market
value equal to at least 80% of the amount in our trust account (less deferred
underwriting compensation of $2,755,296) 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. |
Additionally, we face competition from other blank-check companies, a number of which may
consummate a business combination in any industry they choose. We may therefore be subject to
competition from these companies, which are seeking to consummate a business plan
similar to ours and which will, as a result, increase demand for privately-held companies to
combine with companies structured similarly to ours. Further, it may be the case that there are
only a limited number of attractive target businesses available to such entities or that many
privately-held target businesses may not be inclined to enter into business combinations with
publicly held blank check companies like us.
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Any of these factors may place us at a competitive disadvantage in negotiating a business
combination. Our management believes, however, that our status as a public entity and potential
access to the United States public equity markets may give us a competitive advantage over
privately-held entities having a similar business objective as us in acquiring a target business
with significant growth potential on favorable terms.
If we effect a business combination, there will be, in all likelihood, intense competition
from competitors of the target business. We cannot assure you that, subsequent to a business
combination, we will have the resources or ability to compete effectively.
Conflicts of Interest
Our shareholders should be aware of the following potential conflicts of interest:
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None of our officers or directors is required to commit their full time to our
affairs and, accordingly, they may have conflicts of interest in allocating management
time among various business activities. |
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In the course of their other business activities, our officers and directors may
become aware of investment and business opportunities which may be appropriate for
presentation to us as well as the other entities with which they are affiliated. They
may have conflicts of interest in determining to which entity a particular business
opportunity should be presented. In particular, several of our officers and directors
are affiliated with Inter-Atlantic Group, a private equity firm specializing in
financial services investments. Mr. Galasso is an independent consultant in the
payments industry who conducts business with Inter-Atlantic Group and certain other
firms. Mr. Daras is part of a separate investment group formed to analyze investment
opportunities in distressed banks. Mr. Weinhoff, one of our directors, serves on the
board of directors of two insurance companies. Mr. Gaebler has business interests
unrelated to us. Accordingly, such officers and directors may become subject to
conflicts of interest regarding us and other business ventures in which they may be
involved, which conflicts may have an adverse effect on our ability to consummate a
business transaction. |
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Our officers and directors may in the future become affiliated with entities engaged
in business activities similar to those intended to be conducted by us. |
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Since our officers and directors own shares of our common stock that will be
released from escrow only if a business combination is completed and may own warrants
that will expire worthless if a business combination is not consummated, these persons
may have a conflict of interest in determining whether a particular
target business is appropriate to effect a business combination. The personal and
financial interests of our officers and directors may influence their motivation in
identifying and selecting a target business and timely completing a business
combination and securing release of their shares. |
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If we were to make a deposit, down payment or fund a “no shop” provision in
connection with a potential business combination, we may have insufficient funds
available outside of the trust to pay for due diligence, legal, accounting and other
expenses attendant to completing a business combination. In such event, our initial
stockholders may have to incur such expenses in order to proceed with the proposed
business combination. As part of any such combination, such initial stockholders may
negotiate the repayment of some or all of any such expenses, including the $500,000
limited recourse revolving line of credit which bears interest at the federal funds
target interest rate (0-0.25% as of December 31, 2008), which if not agreed to by the
target business’s management, could cause our management to view such potential
business combination unfavorably, thereby resulting in a conflict of interest.
Repayment of the line of credit is payable prior to the business combination solely
from the $1,100,000 of interest earned on the trust account which is available for
working capital, solely to the extent there is more than $7.96 per share in the trust
account. |
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While any or all members of our management may remain associated with us after
consummation of the business combination, either as officers or directors, there is the
possibility that no members of our management team will remain associated with us after
the consummation of the business combination. In addition, there has not been any
determination that any specific members of management will remain associated with the
combined company post-business combination. It is more likely that some of our members
of our management will remain as directors rather than officers post-business
combination. However, we do not yet know which members of our management may remain
associated with us after consummation of the business combination, and what their roles
will be, because such a decision will be based on a variety of factors, including the
experience and skill set of the target business’ management, the experience and skill
set of each of our members of management as it relates to the target business, the
industry and geographic location of the business post-business combination and the
ability of members of our management to negotiate terms with the target business as
part of any such business combination. If our management negotiates to be retained
post business combination as a condition to any potential business combination, their
financial interests, including compensation arrangements, could influence their
motivation in selecting, negotiating and structuring a transaction with a target
business, and such negotiations may result in a conflict of interest. |
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All of our officers and directors paid less for their shares of common stock than
public shareholders, and as a result, they may be able to profit on a business
combination which would be unprofitable to our public shareholders. |
18
In general, officers and directors of a corporation incorporated under the laws of the State
of Delaware are required to present business opportunities to a corporation if:
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the corporation could financially undertake the opportunity; |
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the opportunity is within the corporation’s line of business; and |
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it would not be fair to the corporation and its stockholders for the opportunity not
to be brought to the attention of the corporation. |
Accordingly, as a result of other business affiliations, our officers and directors may have
similar legal obligations relating to presenting business opportunities meeting the above-listed
criteria to multiple entities. In addition, conflicts of interest may arise when our board
evaluates a particular business opportunity with respect to the above-listed criteria. We cannot
assure you that any of the above mentioned conflicts will be resolved in our favor.
Although we are not under any contractual obligation to engage any of the underwriters or
Scura, Rise & Partners LLC, a financial advisory firm, to provide any services for us after the
IPO, and have no present intent to do so, any of the underwriters or Scura, Rise & Partners LLC
may, among other things, introduce us to potential target businesses or assist us in raising
additional capital, as needs may arise in the future. If any of the underwriters or Scura, Rise &
Partners LLC provide services to us after the IPO, we may pay such entity fair and reasonable fees
that would be determined at that time in arm’s length negotiations. Any such negotiations could
result in a conflict of interest.
Each of our officers and directors has, or may come to have, to a certain degree, other
fiduciary obligations. In addition all of our officers and directors have fiduciary obligations to
those companies on whose board of directors they may sit. To the extent that they identify
business opportunities that may be suitable for the entities to which they owe a fiduciary
obligation, our officers and directors will honor those fiduciary obligations. Accordingly, they
may not present opportunities to us that otherwise may be attractive to us unless the entities to
which they owe a fiduciary obligation and any successors to such entities have declined to accept
such opportunities. In addition, subject to these fiduciary duties, each of our officers and
directors and Inter-Atlantic Group have granted us a right of first refusal with respect to a
Company Potential Target (as defined below).
Messrs. Lerner, Baris, Lichten and Hammer are affiliates of Inter-Atlantic Group, a private
equity firm that invests in financial services companies. As a result, we believe that there is a
risk of a conflict between our operations and Inter-Atlantic Group’s operations. To minimize any
conflicts, or the appearance of conflicts, subject to their respective fiduciary obligations, each
of Inter-Atlantic Group and Messrs. Lerner, Baris, Lichten and Hammer has granted us a right of
first refusal with respect to any company or business in the financial services industry whose fair
market value is at least equal to 80% of the balance of the trust account (less deferred
underwriting compensation of $2,755,296), which we refer to as a Company Potential Target.
Pursuant to this right of first refusal, subject to their respective fiduciary obligations, each of
these persons and Inter-Atlantic Group has agreed that he or it will not enter into any agreement
to acquire majority voting control of a Company Potential Target until our committee of
independent directors has had a reasonable period of time to determine whether or not to
pursue the opportunity. This right of first refusal commenced after the consummation of the IPO
and will expire upon the earlier of (i) our consummation of an initial business combination or (ii)
October 9, 2009. Messrs. Galasso and Weinhoff will be responsible for enforcing this right of
first refusal.
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Additionally, certain of our officers and directors are directors of companies, both public
and private, which may perform business activities in the financial services industry similar to
those which we may perform after consummating a business combination.
In connection with the vote required for any business combination, all of our initial
stockholders, including all of our officers and directors, have agreed to vote their respective
shares of common stock in the same manner as a majority of the public stockholders who vote at the
special or annual meeting called for the purpose of approving a business combination. In addition,
all of our initial stockholders have agreed to waive their respective rights to participate in any
liquidation of our trust account (except with respect to shares of our common stock acquired by
them in connection with the IPO, overallotment exercise or in the aftermarket) in connection with a
dissolution occurring upon our failure to consummate a business combination as well as to vote any
shares each owns for any plan of dissolution and liquidation submitted to our stockholders.
We will not enter into a business combination with any company which Inter-Atlantic Group
currently has or previously had a financial interest in. To further minimize potential conflicts
of interest, we also have agreed not to consummate a business combination with an entity which is
affiliated with any of our officers and directors. As a result, we will not enter into a business
combination with any entity of which members of our board of directors also serve on the board of
directors.
In addition, our officers and directors have agreed not to become officers, directors or
principal stockholders of other blank check companies, which are engaged in, or in the event of the
business combination, will be engaged in business activities similar to those intended to be
conducted by us until the earlier of completion of a business combination or dissolution of our
company.
We are obligated to have all significant vendors and service providers and all prospective
target businesses execute agreements with us waiving any and all right, title, interest or claim of
any kind they may have in or to any monies held in the trust account. Messrs. Lerner, Daras,
Baris, Hammer and Lichten have agreed to indemnify us, jointly and severally pro rata according to
their comparative beneficial interests in our company immediately prior to the IPO, for any loss,
liability, claim, damage and expense to the extent necessary to ensure that the proceeds in the
trust account are not reduced by the claims of target businesses or claims of vendors or other
entities that are owed money by us for services rendered or contracted for or products sold to us.
However, because members of our management have agreed to this indemnification, they may be
deterred from entering into agreements with certain vendors on our behalf where there is a
significant potential indemnification obligation. In addition, members of management, due to their
indemnification obligations, may be motivated to enter into a business combination with a
potential target business which agrees to pay any outstanding obligations of our company. We
cannot assure you these conflicts will be resolved in our favor.
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Employees
We have four executive officers, three of whom are also members of our Board of Directors.
These individuals are not obligated to contribute any specific number of hours per week and intend
to devote only as much time as they deem necessary to our affairs. The amount of time they will
devote in any time period will vary based on the availability of suitable target businesses to
investigate. We do not intend to have any full time employees prior to the consummation of a
business combination.
ITEM 1A. Risk Factors
An investment in our securities involves a high degree of risk. An investor should consider
carefully all of the material risks described below, together with the other information contained
in this Report before making a decision to invest in our securities. If any of the following
events occur, our business, financial condition and operating results may be materially adversely
affected. In that event, the trading price of our securities could decline, and a security holder
could lose all or part of its investment.
Risks Associated With Our Company
We are a newly formed company with no operating history and, accordingly, an investor does not have
any basis on which to evaluate our ability to achieve our business objective.
We are a recently formed company with no operating results to date. Since we do not have any
operations or an operating history, an investor does not have any basis upon which to evaluate our
ability to achieve our business objective, which is to acquire, merge with, engage in a capital
stock exchange with, purchase all or substantially all of the assets of, or engage in any other
similar business combination with a single domestic and/or foreign operating entity, or one or more
related or unrelated operating entities in the financial services sector. At the time of our IPO
we did not have any specific merger, capital stock exchange, asset acquisition or other business
combination under consideration or contemplation and we did not, nor did anyone on our behalf,
contact any potential target business or had any discussions, formal or otherwise, with respect to
such a transaction. We will not generate any revenues or income, other than interest 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 forced to dissolve and liquidate before a business combination our warrants will expire
worthless.
If we are unable to complete a business combination and are forced to dissolve, liquidate and
wind up, there will be no amount payable upon such liquidation with respect to our outstanding
warrants and, accordingly, the warrants will expire worthless.
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Our shareholders are not entitled to protections normally afforded to investors of blank check
companies including the ability to receive all interest earned on the amount held in trust.
Since the net proceeds of the IPO are intended to be used to complete a business combination
with a target business that has not been identified, we may be deemed to be a “blank check” company
under the United States securities laws. However, since we had net tangible assets in excess of
$5,000,000 upon the consummation of the IPO and filed a Current Report on Form 8-K with the SEC
upon consummation of the IPO, including audited financial statements demonstrating this fact, we
are exempt from rules promulgated by the SEC to protect investors of blank check companies such as
Rule 419. Accordingly, investors are not afforded the benefits or protections of those rules, such
as entitlement to all the interest earned on the funds deposited into our trust account. Because
we are not subject to Rule 419, all of the interest earned on the funds deposited in our trust
account has been released to us to date to fund our working capital and will not be available at
all to those public stockholders redeeming in connection with a business combination.
Because there are numerous companies with a business plan similar to ours seeking to effectuate a
business combination, it may be more difficult for us to complete a business combination.
Based upon publicly available information, we have identified approximately 173 blank check
companies that have completed initial public offerings since August 2003. Of these companies, only
72 have completed a business combination, while 36 have liquidated or will be liquidating. The
remaining approximately 65 blank check companies have more than $13.9 billion in trust and are
seeking to complete business acquisitions. Of these companies, only 18 have announced that they
have entered into definitive agreements or letters of intent with respect to potential business
combinations but have not yet consummated business combinations. Furthermore, the fact that only
72 of such companies have completed business combinations and only 18 other of such companies have
entered into definitive agreements or letters of intent for business combinations, and 36 have
liquidated or will be liquidating, may be an indication that there are only a limited number of
attractive targets available to such entities or that many targets are not inclined to enter into a
transaction with a blank check company, and therefore we also may not be able to consummate a
business combination within the prescribed time period. If we are unable to consummate a business
combination within the prescribed time period, our purpose will be limited to dissolving,
liquidating and winding up.
The fact that we will proceed with the business combination if public stockholders holding less
than 30% of the shares sold in the IPO exercise their redemption rights may hinder our ability to
consummate a business combination in the most efficient manner or to optimize our capital
structure.
We will proceed with the business combination if public stockholders holding less than 30% of
the shares sold in the IPO exercise their redemption rights. As a result of our redemption
threshold, we may have less cash available to complete a business combination. Because we will not
know how many stockholders may exercise such redemption rights, we will need to structure a
business combination meeting the 80% of our net assets test that requires less cash, or we may need
to arrange third party financing to help fund the transaction in case a larger percentage of
stockholders exercise their redemption rights than we expect. Alternatively, to compensate for the
potential shortfall in cash, we may be required to structure the business combination, in whole or
in part, using the issuance of our stock as consideration. Accordingly, this redemption
threshold of 30% may hinder our ability to consummate a business combination in the most
efficient manner or to optimize our capital structure.
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The terms on which we may effect a business combination can be expected to become less favorable as
we approach our 24 month deadline.
Pursuant to our certificate of incorporation, if we do not effect a business combination by
October 9, 2009, our corporate existence will cease except for the purpose of winding up our
affairs and liquidating.
Any entity with which we negotiate, or attempt to negotiate, a business combination, will, in
all likelihood, be aware of this time limitation and can be expected to negotiate accordingly. In
such event, we may not be able to reach an agreement with any proposed target prior to such period
and any agreement that is reached may be on terms less favorable to us than if we did not have the
time period restriction set forth above. Additionally, as the 24 month time period draws closer,
we may not have the desired amount of leverage in the event any new information comes to light
after entering into definitive agreements with any proposed target but prior to consummation of a
business transaction.
If third parties bring claims against us, the proceeds held in trust could be reduced and the
per-share liquidation price received by stockholders from our trust account as part of our
stockholder-approved plan of dissolution and liquidation will be less than $7.96 per share.
Our placing of funds in trust may not protect those funds from third party claims against us.
Although we are obligated to have all significant vendors, prospective target businesses or other
entities with which we execute agreements waive any and all right, title, interest or claim of any
kind in or to any monies held in our trust account for the benefit of our public stockholders,
there is no guarantee that if they execute such agreements that they would be prevented from
bringing claims against our trust account including but not limited to fraudulent inducement,
breach of fiduciary responsibility and 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 our trust account. The determination of which vendors will be
deemed significant will be made by our management but will include any investment bankers, legal
advisors and accounting firms we hire in connection with a business combination.
Accordingly, any creditor’s claims against the trust account will take priority over the
claims of our public stockholders and the per-share liquidation price could be less than the $7.96
per share held in our trust account, plus interest if any (net of any taxes due on such interest,
which taxes, if any, shall be paid from our trust account and net of any amounts released to us as
working capital, or to fund costs associated with our plan of dissolution and liquidation if we do
not consummate a business combination). If we are unable to complete a business combination and
are forced to dissolve and liquidate, Messrs. Lerner, Daras, Baris, Hammer and Lichten will be
personally liable to ensure that the proceeds in our trust account are not reduced by the claims of
various vendors, prospective target businesses or other entities that are owed money by us for any
reason, including for services rendered or products sold to us, to the extent necessary to ensure
that such claims do not reduce the amount in our trust account in order to preserve a $7.96
per-share liquidation price. We cannot assure you that these directors and executive officers will
be able to satisfy those obligations. These indemnifying officers and directors have agreed
to indemnify us for any and all claims to the extent necessary to ensure that the proceeds in the
trust account are not reduced by the claims of vendors, service providers and prospective target
businesses.
23
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 claims of
third parties with priority over the claims of our public stockholders. To the extent bankruptcy
claims deplete our trust account, we cannot assure you we will be able to return to our public
stockholders the liquidation amounts due them.
Certain of our current officers and directors may resign (i) upon consummation of a business
combination or (ii) if they are deemed to not be “independent” based upon the rules of the NYSE
Amex or the Securities and Exchange Act of 1934. As a result, management of the prospective target
business may become in charge of our day-to-day operations. We cannot assure you that our
assessment of these individuals will prove to be correct.
Our ability to effect a business combination will be totally dependent upon the efforts of our
officers and directors. The future role of our officers and directors in the target business,
however, cannot presently be ascertained. Certain of our current officers and directors may resign
(i) upon consummation of a business combination or (ii) if they are deemed to not be “independent”
based upon the rules of the NYSE Amex or the Securities and Exchange Act of 1934. Although it is
possible that some of our officers and directors will remain associated with the target business
following a business combination, it is likely that some or all of the management of the target
business at the time of the business combination will remain in place. Although we intend to
closely scrutinize the management of a prospective target business in connection with evaluating
the desirability of effecting a business combination, we cannot assure you that our assessment of
management will prove to be correct.
Our management will only remain with the combined company after consummation of the business
combination if, among other things, they are able to negotiate terms with the combined company as
part of any such combination.
While any or all members of our management have expressed a willingness to remain associated
with us after consummation of the business combination, either as officers or directors, there is
the possibility that no members of our management team will remain associated with us after the
consummation of the business combination. In addition, there has not been any determination that
any specific members of management will remain associated with the combined company post-business
combination. It is more likely that some of our members of our management will remain as directors
rather than officers post-business combination. However, we do not yet know which members of our
management may remain associated with us after consummation of the business combination, and what
their roles will be, because such a decision will be based on a variety of factors, including the
experience and skill set of the target business’ management, the experience and skill set of each
of our members of management as it relates to the target business, the industry and geographic
location of the business post-business combination and the ability of members of our management to
negotiate
terms with the target business as part of any such business combination. If any members of
our management negotiate to be retained post business combination as a condition to any potential
business combination, such person’s financial interests, including compensation arrangements, could
influence such person’s motivation in selecting, negotiating and structuring a transaction with a
target business, and such negotiations may result in a conflict of interest.
24
Our officers and directors may in the future become affiliated with entities engaged in business
activities similar to those intended to be conducted by us and accordingly, may have conflicts of
interest in determining which entity a particular business opportunity should be presented to.
None of our officers or directors have ever been associated with a “blank check” company.
However, our officers and directors may in the future become affiliated with entities, other than
“blank check” companies, engaged in business activities similar to those intended to be conducted
by us. Additionally, our officers and directors may become aware of business opportunities which
may be appropriate for presentation to us as well as the other entities to which they owe fiduciary
duties. Accordingly, they may have conflicts of interest in determining to which entity a
particular business opportunity should be presented. We cannot assure you that these conflicts
will be resolved in our favor.
Our stockholders may be held liable for claims by third parties against us to the extent of
distributions received by them.
Our certificate of incorporation provides that we will continue in existence only until
October 9, 2009. If we have not completed a business combination by such date and amended this
provision in connection therewith, pursuant to the Delaware General Corporation Law, our corporate
existence will cease except for the purposes of winding up our affairs and liquidating. Under
Sections 280 through 282 of the Delaware General Corporation Law, stockholders may be held liable
for claims by third parties against a corporation to the extent of distributions received by them
in a dissolution. If the corporation complies with certain procedures intended to ensure that it
makes reasonable provision for all claims against it, including a 60-day notice period during which
any third-party claims can be brought against the corporation, a 90-day period during which the
corporation may reject any claims brought, and an additional 150-day waiting period before any
liquidating distributions are made to stockholders, any liability of stockholders with respect to a
liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim
or the amount distributed to the stockholder, and any liability of the stockholder would be barred
after the third anniversary of the dissolution.
However, it is our intention to make liquidating distributions to our stockholders within 10
business days after the 24 month period and, therefore, we do not intend to comply with those
procedures. Because we will not be complying with these procedures, we are required, pursuant to
Section 281(b) 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. However, because we are a blank check company, rather than an operating company, and our
operations are limited to searching for prospective target businesses to acquire, the only likely
claims to arise would be from our vendors (such as accountants,
lawyers, investment bankers) or
25
potential target businesses. As described above, we intend to have all
significant vendors, service providers and prospective target businesses execute agreements with us
waiving any and all right, title, interest or claim of any kind in or to any monies held in our
trust account. Based on representations made to us by our indemnifying officers and directors, we
currently believe that they have substantial means to fund any shortfall in our trust account to
satisfy their foreseeable indemnification obligations, but we have not asked them to reserve for
such eventuality. The indemnification obligations may be substantially greater than our
indemnifying officers and directors currently foresee or expect. Their financial resources may
also deteriorate in the future. Hence, we cannot assure you that our officers and directors will
be able to satisfy those obligations. In addition, because we will not be complying with Section
280, our public stockholders could potentially be liable for any claims to the extent of
distributions received by them in a dissolution and any such liability of our stockholders will
likely extend beyond the third anniversary of such dissolution. Accordingly, we cannot assure you
that third parties will not seek to recover from our public stockholders amounts owed to them by
us.
We will dissolve and liquidate if we do not consummate a business combination.
Pursuant to, among other documents, our certificate of incorporation, if we do not complete a
business combination within 24 months after the consummation of the IPO our corporate existence
will cease except for purposes of winding-up our affairs and liquidating. We view this obligation
to dissolve and liquidate as an obligation to our public stockholders and neither we nor our board
of directors will take any action to amend or waive any provision of our certificate of
incorporation to allow us to survive for a longer period of time if it does not appear we will be
able to consummate a business combination within the foregoing time period. Upon dissolution, we
will distribute to all of our public stockholders, in proportion to their respective equity
interest, an aggregate sum equal to the amount in our trust account (net of taxes payable and that
portion of the interest earned previously released to us). Our initial stockholders have waived
their rights to participate in any liquidation distribution with respect to their initial shares
and have agreed to vote in favor of any plan of dissolution and liquidation which we will present
to our stockholders for vote. There will be no distribution from our trust account with respect to
our warrants which will expire worthless. We will pay the costs of our dissolution and liquidation
and we estimate such costs to be approximately $15,000. We believe there should be sufficient
funds available either outside of our trust account or made available to us out of the net interest
earned on our trust account and released to us as working capital, to fund this cost, although we
cannot give any assurances thereof. To the extent sufficient funds are not available, Messrs.
Lerner, Daras, Baris, Hammer and Lichten have agreed to indemnify us, however, we cannot assure you
that they will be able to satisfy these obligations. Upon notice from us, the trustee of our trust
account will liquidate the investments constituting our trust account and will turn over the
proceeds to our transfer agent for distribution to our public stockholders as part of our
stockholder-approved plan of dissolution and liquidation. Concurrently, we shall pay, or reserve
for payment, from interest released to us from our trust account if available, our liabilities and
obligations, although we cannot give you assurances that there will be sufficient funds for such
purpose. The amounts held in our trust account may be subject to claims by third parties, such as
vendors, prospective target business or other entities, if we do not obtain valid and enforceable
waivers.
26
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 with respect to
the shares of 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. Redemption of the warrants could force the warrant holders (i) to
exercise the warrants and pay the exercise price thereafter 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.
Although we are required to use our best efforts to have an effective registration statement
covering the issuance of the shares underlying the warrants at the time that our warrant holders
exercise their warrants, we cannot guarantee that a registration statement will be effective, in
which case our warrant holders may not be able to exercise our warrants and the warrants may expire
worthless.
Holders of our warrants will be able to exercise the warrant only if (i) a current
registration statement under the Securities Act of 1933 relating to the shares of our common stock
underlying the warrants is then effective and (ii) such shares are qualified for sale or exempt
from qualification under the applicable securities law 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 underlying the warrants following completion of the IPO to the extent required
by federal securities law, and we intend to comply with such undertaking, we cannot assure you that
we will be able to do so. In addition, we have agreed to use our reasonable efforts to register
the shares underlying the warrants under the blue sky laws of the states of residence of the
exercising warrant holders, to the extent an exemption is not available. The value of the warrants
may be greatly reduced if a registration statement covering the shares 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 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. We are not obligated to pay cash
or other consideration to the holders of the warrants in such circumstances and the warrants can
become, and later expire, worthless. 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.
27
Existing shareholders who purchased warrants in the private placement may be able to exercise their
warrants at a time when the public purchasers may not.
Because the founders’ warrants sold in the private placement prior to the IPO were originally
issued pursuant to an exemption from registration requirements under the federal securities laws,
the founders’ warrants are exercisable even if, at the time of exercise, a prospectus relating to
the common stock issuable upon exercise of such warrants is not current. As described above, the
holders of the public warrants will not be able to exercise them unless we have a current
registration statement covering the shares issuable upon their exercise.
We may issue shares of our capital stock or debt securities to complete a business combination,
which would reduce the equity interest of our stockholders and likely cause a change in control of
our ownership.
Our certificate of incorporation authorizes the issuance of up to 49,000,000 shares of common
stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par value $.0001 per
share. There are 26,554,400 authorized but unissued shares of our common stock available for
issuance (after appropriate reservation for the issuance of shares upon full exercise of our
outstanding warrants and the underwriters’ unit purchase option) and all of the 1,000,000 shares of
preferred stock available for issuance. Although we have no commitments as of the date of this
report to issue our securities, we may issue a substantial number of additional shares of our
common stock 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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• |
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may significantly reduce the equity interest of our public investors; |
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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 also result in the
resignation or removal of our present officers and directors; and |
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• |
|
may significantly and immediately adversely affect prevailing market prices for our
common stock. |
Additionally, parts of the financial services industry are capital intensive, traditionally
using substantial amounts of indebtedness to finance acquisitions and working capital needs. If we
finance the purchase of assets or operations through the issuance of debt securities, it could
result in:
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• |
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default and foreclosure on our assets if our operating revenues after a business
combination were insufficient to pay our debt obligations; |
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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; |
28
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• |
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our immediate payment of all principal and accrued interest, if any, if the debt
security was payable on demand; and |
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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. |
For a more complete discussion of the possible structure of a business combination, see the
section above entitled “Effecting a business combination — Selection of a target business and
structuring of a business combination.”
We may have insufficient resources to cover our operating expenses and the expenses of consummating
a business combination.
Immediately after the IPO and over-allotment, the Company had $1.6 million (including the
$500,000 which can be drawn from our limited recourse revolving line of credit at the federal funds
target interest rate (0-0.25% as of December 31, 2008) and up to $1,100,000 of interest we may earn
on funds in our trust account) available from the proceeds of the IPO, over-allotment and the
pre-offering private placement of the founders’ warrants, to cover our operating expenses for the
next 24 months and to cover the expenses incurred in connection with a business combination. This
amount was based on management’s estimates of the costs needed to fund our operations for 24 months
and consummate a business combination. Those estimates may prove inaccurate. As of December 31,
2008, we have used approximately $886,361 of these funds. If we do not have sufficient proceeds
available to fund our expenses, we may be forced to obtain additional financing, either from our
management or the initial stockholders or from third parties. We may not be able to obtain
additional financing and our initial stockholders and management are not obligated to provide any
additional financing. If we do not have sufficient proceeds and cannot find additional financing,
we may be forced to dissolve and liquidate as part of our stockholder-approved plan of dissolution
and liquidation prior to consummating a business combination.
Our ability to effect a business combination and to execute any potential business plan afterwards
will be dependent upon the efforts of our officers and directors some of whom may join us following
a business combination and whom we would have only a limited ability to evaluate.
Our ability to effect a business combination will be dependent upon the efforts of our
officers and directors. While any or all members of our management may remain associated with us
after consummation of the business combination, either as officers or directors, there is the
possibility that no members of our management team will remain associated with us after the
consummation of the business combination. In addition, there has not been any determination that
any specific members of management will remain associated with the combined company post-business
combination. It is more likely that some of our members of our management will remain as directors
rather than officers post-business combination. However, we do not yet know which members of our
management may remain associated with us after consummation of the business combination, and what
their roles will be, because such a decision will be based on a variety of factors, including the
experience and skill set of the
29
target
business’ management, the experience and skill set of each of our members of management as it relates to the target
business, the industry and geographic location of the business post-business combination and the
ability of members of our management to negotiate terms with the target business as part of any
such business combination. In addition, we may employ other personnel following the business
combination. While we intend to closely scrutinize any additional individuals we engage after a
business combination, we cannot guarantee that our assessment of these individuals will prove to be
correct. Moreover, our current management will only be able to remain with the combined company
after the consummation of a business combination if they are able to negotiate terms with the
combined company as part of any such combination. If we were to acquire a target business in an
all-cash transaction, it would be more likely that current members of management 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 management would remain with the combined company
unless it was negotiated as part of the transaction via the acquisition agreement, an employment or
consulting agreement or other arrangement. The determination to remain as officers of the
resulting business will be determined prior to the completion of the transaction and will depend
upon the appropriateness or necessity of our current management to remain. In making the
determination as to whether our current management should remain with us following the business
combination, management will analyze the experience and skill set of the target business’
management and negotiate as part of the business combination that certain members of our current
management remain if it is believed that it is in the best interests of the combined company
post-business combination. If our management negotiates to be retained post-business combination
as a condition to any potential business combination, such negotiations may result in a conflict of
interest.
If any of the underwriters or Scura, Rise & Partners LLC provides services to us in the future, we
may pay them fair and reasonable fees that would be determined at that time in arm’s length
negotiations. Any such negotiations could result in a conflict of interest.
Although we are not under any contractual obligation to engage any of the underwriters or
Scura, Rise & Partners LLC, a financial advisory firm, to provide any services for us after the
IPO, any of the underwriters or Scura, Rise & Partners LLC may, among other things, introduce us to
potential target businesses or assist us in raising additional capital, as needs may arise in the
future. If any of the underwriters or Scura, Rise & Partners LLC provide services to us after the
IPO, we may pay such entity fair and reasonable fees that would be determined at that time in arm’s
length negotiations. Any such negotiations could result in a conflict of interest.
Our officers and directors may allocate their time to other businesses thereby causing conflicts of
interest in their determination as to how much time to devote to our affairs. This 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
may result in a conflict of interest in allocating their time between our operations and other
businesses. We do not intend to have any full time employees prior to the consummation of a
business combination. Each of our officers and directors are engaged in several other business
endeavors and are not obligated to contribute any specific number of hours per week to our affairs.
If our officers and directors’ other business affairs require them to devote more
substantial amounts of time to such affairs, it could limit their ability to devote time to
our affairs and could have a negative impact on our ability to consummate a business combination.
We cannot assure you that these conflicts will be resolved in our favor.
30
All of our directors own shares of our common stock which will not participate in the liquidation
of our trust account as part of our stockholder-approved plan of dissolution and liquidation and
therefore they may have a conflict of interest in determining whether a particular target business
is appropriate for a business combination.
All of our officers and directors, other than David Gaebler, own our stock and all of our
officers and directors, other than David Gaebler, own warrants purchased in a private placement
consummated prior to the IPO, but have waived their right to the liquidation of our trust account
as part of our stockholder-approved plan of dissolution and liquidation with respect to those
shares (including shares issuable upon exercise of the warrants) upon the liquidation of our trust
account to our public stockholders if we are unable to complete a business combination. The shares
and warrants owned by these persons (including our officers and directors) will be worthless if we
do not consummate a business combination. The personal and financial interests of these officers
and directors may influence their motivation in identifying and selecting a target business and
completing a business combination in a timely manner. Consequently, these officers and directors’
discretion in identifying and selecting a suitable target business may result in a conflict of
interest when determining whether the terms, conditions and timing of a particular business
combination are appropriate and in our stockholders’ best interest.
Our initial stockholders will not receive reimbursement for any out-of-pocket expenses incurred by
them to the extent that such expenses exceed the amount available outside our trust account unless
the business combination is consummated and therefore they may have a conflict of interest.
Our initial stockholders will not receive reimbursement for any out-of-pocket expenses
incurred by them to the extent that such expenses exceed the amount available outside our trust
account, unless the business combination is consummated. The amount of available proceeds was
based on management estimates of the capital needed to fund our operations for 24 months and to
consummate a business combination. Those estimates may prove to be inaccurate. 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.
If our common stock becomes subject to the Securities and Exchange Commission’s penny stock rules,
broker-dealers may experience difficulty in completing customer transactions and trading activity
in our securities may be adversely affected.
If at any time we have net tangible assets of less than $5,000,000 and our common stock has a
market price per share of less than $5.00, transactions in our common stock may be subject to the
“penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended. Under these
rules, broker-dealers who recommend such securities to persons other than institutional accredited
investors must:
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• |
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make a special written suitability determination for the purchaser; |
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• |
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receive the purchaser’s written agreement to a transaction prior to sale; |
31
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• |
|
provide the purchaser with risk disclosure documents which identify certain risks
associated with investing in “penny stocks” and which describe the market for these
“penny stocks” as well as a purchaser’s legal remedies; and |
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• |
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obtain a signed and dated acknowledgment from the purchaser demonstrating that the
purchaser has actually received the required risk disclosure document before a
transaction in a “penny stock” can be completed. |
If our common stock becomes subject to these rules, broker-dealers may find it difficult to
effectuate customer transactions and trading activity in our securities may be adversely affected.
As a result, the market price of our securities may be depressed, and it may be more difficult to
sell our securities.
It is probable our initial business combination will be with a single target business, which may
cause us to be solely dependent on a single business and a limited number of products or services.
Additionally, we may face obstacles to completing simultaneous acquisitions.
Our initial business combination must be with a business or businesses with a collective fair
market value of at least 80% of the amount in our trust account (excluding $2,755,296 of deferred
compensation) at the time of such acquisition, which amount is required as a condition to the
consummation of our initial business combination. We may not be able to acquire more than one
target business because of various factors, including the amount of funds available to consummate a
business combination, possible complex accounting issues, which would include generating pro forma
financial statements reflecting the operations of several target businesses as if they had been
combined, and numerous logistical issues, which could include attempting to coordinate the timing
of negotiations, proxy statement disclosure and closings with multiple target businesses.
In addition, we may not have sufficient management, financial and other resources to
effectively investigate the business and affairs of multiple acquisition candidates simultaneously
or to negotiate the terms of multiple acquisition agreements at the same time which could result in
a failure to properly evaluate multiple acquisitions. Further, we would also be exposed to the
risk that conditions to closings with respect to the acquisition of one or more of the target
businesses would not be satisfied bringing the fair market value of the initial business
combination below the required fair market value of 80% of the amount in our trust account
(excluding $2,755,296 to be held for the benefit of Morgan Joseph & Co. and taxes payable)
threshold. Accordingly, while it is possible we may attempt to effect our initial business
combination with more than one target business, we are more likely to choose a single target
business if deciding between one target business meeting such 80% threshold and comparable multiple
target business candidates collectively meeting the 80% threshold. Consequently, it is probable
that, unless the purchase price consists substantially of our equity, we will have the ability to
complete only the initial business combination with the net proceeds of the IPO, over-
allotment, and the pre-offering private placement of the founders’ warrants. Accordingly, the
prospects for our success 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 or services. |
32
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.
The ability of our stockholders to exercise their redemption rights may not allow us to effectuate
the most desirable business combination or optimize our capital structure.
At the time we seek stockholder approval of any business combination, we will offer each
public stockholder the right to have such stockholder’s shares of common stock redeemed for cash if
the stockholder votes against the business combination and the business combination is approved and
completed. 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
redemption rights, we may either need to reserve part of our trust account for possible payment
upon such redemption, or we may need to arrange third party financing to help fund our business
combination in case a larger percentage of stockholders exercise their redemption rights than we
expected. Therefore, we may not be able to consummate a business combination that requires us to
use all of the funds held in our trust account as part of the purchase price, or we may end up
having a leverage ratio that is not optimal for our business combination. This may limit our
ability to effectuate the most attractive business combination available to us.
We will not be required to obtain an opinion from an investment banking firm as to the fair market
value of a proposed business combination if our board of directors independently determines that
the target business has sufficient fair market value.
The initial target business that we acquire must have a fair market value equal to at least
80% of the amount in our trust account (excluding $2,755,296 of deferred compensation to be held
for the benefit of Morgan Joseph & Co. and taxes payable) at the time of such acquisition. There
is no limitation on our ability to raise funds privately or through loans that would allow us to
acquire a target business or businesses with a fair market value in an amount considerably greater
than 80% of the amount in our trust account (excluding $2,755,296 of deferred compensation to be
held for the benefit of Morgan Joseph & Co. and taxes payable) at the time of such acquisition.
The fair market value of such business 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, and the price for which comparable businesses have recently
been sold. If our board is not able to independently determine that the target business has a
sufficient fair market value, we will obtain an opinion from an unaffiliated, independent
investment banking firm which is a member of the Financial Industry Regulatory
Authority, or FINRA, with respect to the satisfaction of such criteria. We will not be
required to obtain an opinion from an investment banking firm as to the fair market value of a
proposed business combination if our board of directors independently determines that the target
business has sufficient fair market value.
33
Our initial business combination will be considerably larger than management’s recent investment
experience at Inter-Atlantic Group.
Inter-Atlantic Group has not recently made investments in excess of $10 million. By
comparison, our amended and restated certificate of incorporation requires that our initial
business combination be with a business or businesses that have a fair market value at least equal
to 80% of the balance in the trust account (less deferred underwriting compensation of $2,755,296).
Based on the trust account balance of $68,515,928 resulting from the net offering proceeds of the
IPO, over-allotment and the sale of the founders’ warrants, we would be required to effect an
initial business combination with a business whose fair market value is at least 80% ($52,608,506,
or $36,831,214 assuming the maximum common share redemption of 29.99%).
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 that the net proceeds of the IPO will be sufficient to allow us to
consummate a business combination, in as much as we have not yet selected any prospective target
business, we cannot ascertain the capital requirements for any particular transaction. If the net
proceeds of the IPO 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 (which in our case may be up to 30% of the shares held by public stockholders), we
will be required to seek additional financing. We cannot assure you that such financing would be
available on acceptable terms, if at all. To the extent that additional financing proves to be
unavailable when needed to consummate a particular business combination, we would be compelled to
restructure the transaction or abandon that particular business combination and seek an alternative
target business candidate. In addition, if we consummate a business combination, we may require
additional financing to fund the operations or growth of the target business. The failure to
secure additional financing could have a material adverse effect on the continued development or
growth of the target business. None of our officers, directors or stockholders is required to
provide any financing to us in connection with or after a business combination.
Our initial stockholders, including our officers and directors, control a substantial interest in
us and thus may influence certain actions requiring stockholder vote.
Our stockholders immediately prior to the IPO (including all of our officers and directors)
collectively owned approximately 18% of our issued and outstanding shares of common stock as of
February 3, 2009, and thus may influence certain actions requiring stockholder vote.
34
We are dependent upon interest earned on our trust account and our subordinated revolving line of
credit to fund our search for a target company and consummation of a business combination.
We are dependent upon our $500,000 limited recourse revolving line of credit and up to
$1,100,000 of interest earned on the proceeds held in our trust account (net of taxes payable) to
provide us with the working capital we need to search for a target company and consummate a
business combination. While we are entitled to a portion of the interest earned on our trust
account in excess of the amount necessary to allow for a $7.96 per share liquidation price to our
public stockholders for such purpose, interest rates are at historically low level and we may not
have sufficient funds available to complete a business combination. In such event, we would need
to borrow funds from our insiders or others or be forced to dissolve, liquidate and wind up.
Our founders’ warrants are non-redeemable provided they are held by the initial purchasers or their
permitted transferees, which could provide such purchasers the ability to realize a larger gain
than our public warrant holders.
The warrants held by our public warrant holders (including the warrants subject to the
underwriters’ unit purchase option) may be called for redemption 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 to each warrant
holder; |
| |
• |
|
if, and only if, the last sale price of the shares 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; and |
| |
• |
|
if there is an effective registration statement allowing for the resale of shares
underlying the warrants. |
As a result of the founders’ warrants not being subject to the redemption features that our
publicly-held warrants are subject to, holders of the founders’ warrants, or their permitted
transferees, could realize a larger gain than our public warrant holders.
35
Our outstanding warrants and unit purchase option may have an adverse effect on the market price of
our shares and make it more difficult to effect a business combination.
In connection with the IPO and over-allotment, and in connection with the sale of 2,300,000
founders’ warrants, we issued warrants to purchase 10,910,300 shares. We also issued an option to
purchase 525,000 units to Morgan Joseph & Co. which, if exercised, will result in the issuance of
an additional 525,000 shares and 525,000 warrants. To the extent we issue shares to effect a
business combination, the potential for the issuance of substantial numbers of additional shares
upon exercise of these warrants and option could make us a less attractive
acquisition vehicle in the eyes of a target business as such securities, when exercised, will
increase the number of issued and outstanding shares and reduce the value of the shares issued to
complete the business combination. In addition, the potential for the issuance of substantial
numbers of additional shares upon exercise of these warrants and options could make our
shareholders vote against a potential transaction and exercise their redemption rights.
Accordingly, our warrants and Morgan Joseph & Co.’s unit purchase option may make it more difficult
to effectuate a business combination or increase the cost of the target business. Additionally,
the sale, or even the possibility of sale, of the shares underlying the warrants and unit purchase
option could have an adverse effect on the market price for our securities or on our ability to
obtain future public financing. If and to the extent these warrants and unit purchase option are
exercised, unit holders may experience dilution to their holdings.
If our initial stockholders and purchasers of the founders’ warrants exercise their registration
rights, it may have an adverse effect on the market price of our shares and the existence of these
rights may make it more difficult to effect a business combination.
Our initial stockholders are entitled to require us to register the resale of their shares at
any time after the date on which their shares are released from escrow, which, except in limited
circumstances, will not be before one year from the consummation of a business combination. In
addition, the holders of the founders’ warrants can demand that we register those warrants and the
underlying shares at anytime after the date on which their shares are released from escrow, which,
except in limited circumstances, will not be before the consummation of a business combination. If
our initial stockholders and the holders of the founders’ warrants exercise their registration
rights with respect to all of their shares and warrants, then there will be an additional 1,875,000
shares and 2,300,000 warrants or up to 2,300,000 shares issued upon exercise of the founders’
warrants that will be eligible for trading in the public market. The presence of this additional
number of securities eligible for trading in the public market may have an adverse effect on the
market price of our shares. 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 these registration
rights and the potential future effect their exercise may have on the trading market for our
shares.
The NYSE Amex may delist our securities from trading on its exchange, which could limit investors’
ability to effect transactions in our securities and subject us to additional trading restrictions.
Our securities are listed on the NYSE Amex, a national securities exchange. We cannot assure
you that our securities will continue to be listed on the NYSE Amex in the future. In addition, in
connection with a business combination, it is likely that the NYSE Amex may require us to file a
new listing application and meet its initial listing requirements, as opposed to its more lenient
continued listing requirements. We cannot assure you that we will be able to meet those initial
listing requirements at that time.
36
In February 2009, we received notice from the NYSE Amex that we were not in compliance with
Section 704 of the NYSE Amex Company Guide because we did not hold an
annual meeting of stockholders during the year ended December 31, 2008. On March 10, 2009, we
submitted a plan to the Exchange in which we advised the Exchange that we intend to hold an annual
meeting of our stockholders as promptly as practicable, but in no event later than August 11, 2009.
If following receipt and evaluation of the plan, the Exchange determines that we have made a
reasonable demonstration of an ability to regain compliance with the continued listing standards,
our plan will be accepted we will be able to continue our listing. If our plan is not accepted,
the Exchange could initiate delisting procedures against us.
If the NYSE Amex delists our securities from trading on its exchange in the future, we could
face significant material adverse consequences, including:
| |
• |
|
a decreased ability to consummate a business combination; |
| |
• |
|
a limited availability of market quotations for our securities; |
| |
• |
|
a determination that our common stock is a “penny stock,” which would require
brokers trading in our common stock to adhere to more stringent rules, possibly
resulting in a reduced level of trading activity in the secondary trading market for
our common stock; |
| |
• |
|
a more limited amount of news and analyst coverage for our company; |
| |
• |
|
a decreased ability to issue additional securities or obtain additional financing in
the future; |
| |
• |
|
a decreased ability of our securityholders to sell their securities in certain
states; and |
| |
• |
|
restrictions on the nature of our investments. |
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.
We may be deemed to be an investment company, as defined under Sections 3(a)(1)(A) and (C) of
the Investment Company Act of 1940, as amended, or the Investment Company Act, because, prior to
the consummation of a business combination, we may be viewed as engaging in the business of
investing in securities (in this case United States government securities as described below)
having a value exceeding 40% of our total assets. If we are deemed to be an investment company
under the Investment Company Act, our activities may be restricted which, among other problems, may
make it difficult for us to complete a business combination. Such restrictions include:
| |
• |
|
restrictions on the nature of our investments; and |
| |
• |
|
restrictions on the issuance of securities. |
37
In addition, we may have imposed upon us burdensome requirements, including:
| |
• |
|
registration as an investment company; |
| |
• |
|
adoption of a specific form of corporate structure; and |
| |
• |
|
reporting, record keeping, voting, proxy and disclosure requirements and other rules
and regulations. |
However, we do not believe that our anticipated principal activities will subject us to the
Investment Company Act. To this end, the proceeds held in trust may only be invested by the trust
agent in “government securities” with specific maturity dates or in money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company 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 Investment Company Act. Our securities are not intended for
persons who are seeking a return on investments in government securities. Our trust account and
the purchase of government securities for our 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, our dissolution
and return of the funds held in this trust account to our public stockholders as part of our plan
of dissolution and liquidation. Notwithstanding our belief that we are not required to comply with
the requirements of such act, in the event that the stockholders do not approve a plan of
dissolution and liquidation and the funds remain in our trust account for an indeterminable amount
of time, we may be considered to be an investment company and thus required to comply with such
act. If we were deemed to be subject to the act, compliance with these additional regulatory
burdens would require additional expense that we have not allotted for.
Since we have not currently selected a prospective target business with which to complete a
business combination, investors in our securities are unable to currently ascertain the merits or
risks of the target business’ operation.
Since we have not yet selected a prospective target, investors in our securities have no
current basis to evaluate the possible merits or risks of the target business’ operations. To the
extent we complete a business combination with a financially unstable company, an entity in its
development stage and/or an entity subject to unknown or unmanageable liabilities, we may be
affected by numerous risks inherent in the business operations of those entities. Although our
management will endeavor to evaluate the risks inherent in a particular target business, we cannot
assure you that we will properly ascertain or assess all of the significant risk factors. We also
cannot assure you that an investment in our securities will not ultimately prove to be less
favorable to investors than a direct investment, if an opportunity were available, in a target
business.
38
Since we are not an operating company, upon consummation of a business combination, we will not
benefit from the synergies typically associated with many business combinations, and as a result,
potential target companies may favor other potential purchasers over us.
A benefit of many business combinations is economies of scale in which the acquiring company
can reduce costs by eliminating redundant operations and utilizing the resources of both entities
to run the combined company more efficiently. Because we are not an operating company, upon
consummation of a business combination, we will not benefit from these and other synergies often
associated with business combinations and, as a result, potential target companies may favor other
potential purchasers over us.
Risks Related To Select Financial Services Organizations
As mentioned elsewhere herein, we were formed for the purpose of acquiring a company in the
financial services industry or businesses deriving a majority of their revenues from providing
services to financial services companies, including for example, payment processing companies and
technology providers.
We may be subject to significant regulatory requirements in connection with our efforts to acquire
a financial services organizations.
Acquisitions of financial services organizations are often subject to significant regulatory
requirements and consents, and we will not be able to consummate a business combination with
certain types of financial services organizations without complying with applicable laws and
regulations and obtaining required governmental or client consents. For example, if we were to
attempt to acquire or acquire control of an investment management firm, we may have to obtain
consents of the firm’s investment management clients or enter into new contracts with them, and
there is no assurance that we would be able to obtain such consents or enter into new contracts.
If our acquisition target were an insurance company, state insurance commissioners in the states
where the insurance company does business would review an acquisition transaction and could prevent
it by withholding their consent. The acquisition of a business in other sectors of the financial
services industry may require similar approvals or consents. We may not receive any such required
approvals or we may not receive them in a timely manner, including as a result of factors or
matters beyond our control.
Financial services organizations often face substantial on-going regulation and, after acquiring a
financial services organization, we may face legal liability and reduced revenues and profitability
if our services are not regarded as compliant or for other reasons.
In addition to the regulatory requirements for banking organizations, many financial services
organizations are subject to extensive regulation. Many regulators, including United States
government agencies and self-regulatory organizations, as well as state securities commissions and
attorneys general, are empowered to conduct administrative proceedings and investigations that can
result in, among other things, censure, fine, the issuance of cease-and-desist orders, prohibitions
against engaging in some lines of business or the suspension or expulsion of a broker-dealer or
investment adviser. The requirements imposed by regulators are designed to ensure the integrity of
the financial markets and to protect customers and other third parties who deal with financial
services firms and are not designed to protect our stockholders.
Governmental and self-regulatory organizations impose and enforce regulations on financial
services companies. United States self-regulatory organizations adopt rules, subject to
approval by the SEC, that govern aspects of the financial services industry and conduct
periodic examinations of the operations of registered broker-dealers and investment advisors.
39
This regulatory environment is also subject to modifications and further regulations. New
laws or regulations or changes in the enforcement of existing laws or regulations applicable to us
also may adversely affect our business, and our ability to function in this environment will depend
on our ability to constantly monitor and react to these changes.
After the consummation of a business combination, we may face strong competition from financial
services firms, many of whom may have the ability to offer clients a wider range of products and
services than we may be able to offer, which could lead to pricing pressures that could materially
adversely affect our revenue and profitability.
After consummation of a business combination in the financial services industry, we may
compete with other firms — both domestic and foreign — in a number of areas, including the quality
of our employees, transaction execution, our products and services, innovation, reputation and
price. We may fail to attract new business and we may lose clients if, among other reasons, we are
not able to compete effectively. We will also face significant competition as the result of
consolidation in this industry. In the past several years, there has been substantial
consolidation and convergence among companies in the financial services industry. In particular, a
number of large commercial banks, insurance companies and other broad-based financial services
firms have merged with other financial institutions. Many of these firms have the ability to offer
a wide range of products such as loans, deposit-taking and insurance, brokerage, investment
management and investment banking services, which may enhance their competitive position. They
also have the ability to support investment banking with commercial banking, insurance and other
financial services revenue in an effort to gain market share, which could result in pricing
pressure on other businesses. The passage of the Gramm-Leach-Bliley Act in 1999 reduced barriers
to large institutions providing a wide range of financial services products and services. We
believe, in light of increasing industry consolidation and the regulatory overhaul of the financial
services industry, that competition will continue to increase from providers of financial services
products.
Operational risks may disrupt our business, result in regulatory action against us or limit our
growth.
Financial services businesses are dependent on communications and information systems,
including those of vendors. Any failure or interruption of these systems, whether caused by fire,
other natural disaster, power or telecommunications failure, act of terrorism or war or otherwise,
could materially adversely affect operating results. After the consummation of a business
combination, we will need to continue to make investments in new and enhanced information systems.
Interruption or loss of our information processing capabilities or adverse consequences from
implementing new or enhanced systems could have a material adverse effect on our business and the
price of our common stock and warrants. As our information system providers revise and upgrade
their hardware, software and equipment technology, we may encounter difficulties in integrating
these new technologies into our business. Additionally, our systems may be subject to infiltration
by unauthorized persons. If our systems or facilities were infiltrated and damaged by unauthorized
persons, our clients could experience data loss, financial
loss and significant business interruption. If that were to occur, it could have a material
adverse effect on our business, financial condition and results of operations.
40
The financial services industry has inherent risks, which may affect our net income and revenues.
The financial services business is, by its nature, subject to numerous and substantial risks.
Consequently, our net income and revenues are likely to be subject to wide fluctuations, reflecting
the effect of many factors, many of which have been unfavorable recently, including:
| |
• |
|
general economic conditions; |
| |
• |
|
the level and volatility of interest rates and equity prices; |
| |
• |
|
competitive conditions; |
| |
• |
|
liquidity of global markets; |
| |
• |
|
international and regional political conditions; |
| |
• |
|
regulatory and legislative developments; |
| |
• |
|
monetary and fiscal policy; |
| |
• |
|
availability and cost of capital; |
| |
• |
|
technological changes and events; |
| |
• |
|
outcome of legal proceedings; |
| |
• |
|
changes in currency values; |
| |
• |
|
size, volume and timing of transactions. |
These and other factors could affect the stability and liquidity of the markets in which
financial services businesses operate.
41
Many financial services firms face credit risks which, if not properly managed, could cause
revenues and net income to decrease.
Many types of financial services firms, including banks and broker-dealers, lend funds to
their customers. Among the risks all lenders face is the risk that some of their borrowers will
not repay their loans. The ability of borrowers to repay their obligations may be adversely
affected by factors beyond our control, including local and general economic and market conditions.
A substantial portion of the loans may be secured by liens on real estate or securities. These
same factors may adversely affect the value of real estate and securities as collateral. If we
enter into a business combination with a firm that makes loans, we would maintain an allowance for
loan losses to reflect the level of losses determined by management to be inherent in the loan
portfolio. However, the level of the allowance and the amount of the provisions would only be
estimates based on management’s judgment, and actual losses incurred could materially exceed the
amount of the allowance or require substantial additional provisions to the allowance, either of
which would likely have a material adverse effect on our revenues and net income.
Many financial services firms are subject to interest rate risk and variations in interest rates
may negatively affect our financial performance.
Changes in the interest rate environment may reduce our profits. Banks and other financial
services firms realize income from the differential, or “spread,” between the interest earned on
loans, securities and other interest earning assets, and interest paid on deposits, borrowings and
other interest bearing liabilities. Net interest spreads are affected by the difference between
the maturities and repricing characteristics of interest earning assets and interest bearing
liabilities. In addition, loan volume and yields are affected by market interest rates on loans.
We cannot assure you that we can minimize our interest rate risk. Accordingly, changes in levels
of market interest rates could materially and adversely affect our net interest spread, asset
quality, loan origination volume and overall profitability.
ITEM 1B. Unresolved Staff Comments
None.
42
ITEM 2. Properties
We maintain executive offices at 400 Madison Avenue, New York, New York, 10017. The costs for
this space are included in the $7,500 per-month fee Inter-Atlantic Management Services, LLC charges
us for general and administrative services, including but not limited to receptionist, secretarial
and general office services, pursuant to a letter agreement between us and Inter-Atlantic Group, an
affiliate of certain of the officers and directors. This agreement shall continue until the
earliest to occur of: (i) consummation of a business combination, (ii) October 9, 2009 and (iii)
the date on which we determine to dissolve and liquidate our trust account as part of our plan of
dissolution and liquidation. We believe, based on rents and fees for similar services in New York,
New York, that the fee charged by Inter-Atlantic Group is at least as favorable as we could have
obtained from an unaffiliated person.
We consider our current office space adequate for our current operations.
ITEM 3. Legal Proceedings
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our security holders through the solicitation of
proxies or otherwise during the twelve months ended December 31, 2008.
43
PART II
|
|
|
| ITEM 5. |
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
Our equity securities trade on the NYSE Amex. Each of our units consists of one share of
common stock and one warrant and trades on the NYSE Amex under the symbol “IAN.U.” On October 23,
2007, the warrants and common stock underlying our units began to trade separately on the NYSE Amex
under the symbols “IAN.WS” and “IAN,” respectively. Each warrant entitles the holder to purchase
one share of our common stock at a price of $4.50 commencing on the later of our consummation of a
business combination or October 2, 2008, provided in each case that there is an effective
registration statement covering the shares of common stock underlying the warrants in effect. The
warrants expire on October 2, 2011, unless earlier redeemed.
The following table sets forth, for the fourth quarter of the year ended December 31, 2008,
the high and low closing sales price of our units, common stock and warrants as reported on the
NYSE Amex. Prior to October 3, 2007, there was no established public trading market for our
securities.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Units |
|
|
Common Stock |
|
|
Warrants |
|
| Quarter Ended |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
December 31, 2007 |
|
$ |
8.25 |
|
|
$ |
8.00 |
|
|
$ |
7.34 |
|
|
$ |
7.25 |
|
|
$ |
0.95 |
|
|
$ |
0.84 |
|
December 31, 2008 |
|
$ |
7.59 |
|
|
$ |
7.10 |
|
|
$ |
7.35 |
|
|
$ |
7.05 |
|
|
$ |
0.20 |
|
|
$ |
0.02 |
|
September 30, 2008 |
|
$ |
7.76 |
|
|
$ |
7.60 |
|
|
$ |
7.62 |
|
|
$ |
7.27 |
|
|
$ |
0.35 |
|
|
$ |
0.25 |
|
June 30, 2008 |
|
$ |
7.89 |
|
|
$ |
7.45 |
|
|
$ |
7.57 |
|
|
$ |
7.29 |
|
|
$ |
0.40 |
|
|
$ |
0.28 |
|
March 31, 2008 |
|
$ |
8.10 |
|
|
$ |
7.57 |
|
|
$ |
7.48 |
|
|
$ |
7.26 |
|
|
$ |
0.87 |
|
|
$ |
0.30 |
|
Holders of Common Equity
As of March 12, 2009, there was five holder of record of our units, seventeen holders of
record of our warrants and twenty one holders of record of our common stock. Such numbers do not
include beneficial owners holding shares, warrants or units through nominee names.
Dividends
We have not paid any dividends on our common stock to date and we do not intend to pay cash
dividends prior to the consummation of a business combination. After we complete a business
combination, the payment of dividends will depend on our revenues and earnings, if any, capital
requirements and general financial condition. The payment of dividends after a business
combination will be within the discretion of our then-board of directors. Our board of directors
currently intends to retain any earnings for use in our business operations and, accordingly, we do
not anticipate the board declaring any dividends in the foreseeable future.
44
Recent Sales of Unregistered Securities
(a) During the past three years, we sold the following shares of common stock without
registration under the Securities Act:
| |
|
|
|
|
| Stockholders |
|
Number of Shares(1) |
|
|
|
|
|
|
Andrew S. Lerner(2) |
|
|
450,000 |
|
Stephen B. Galasso(3) |
|
|
281,250 |
|
D. James Daras |
|
|
225,000 |
|
Brett G. Baris |
|
|
225,000 |
|
Robert M. Lichten |
|
|
225,000 |
|
Frederick S. Hammer |
|
|
225,000 |
|
Carter Rise |
|
|
119,531 |
|
Matthew D. Vertin |
|
|
119,531 |
|
Inter-Atlantic Management Services LLC(4) |
|
|
4,688 |
|
|
|
|
|
|
Total |
|
|
1,875,000 |
|
| |
|
|
| (1) |
|
Does not reflect certain resales of our common shares which occurred in July 2007 and
September 2007. |
| |
| (2) |
|
Includes 90,000 shares beneficially owned by Mr. Lerner’s children and other family members. |
| |
| (3) |
|
The beneficial owner is the Stephen and Linda Galasso Family Trust. |
| |
| (4) |
|
These shares were subsequently sold by Inter-Atlantic Management Services LLC to Samuel J.
Weinhoff, our director, at cost. |
Such shares were issued on January 31, 2007 in connection with our organization pursuant to
the exemption from registration contained in Section 4(2) of the Securities Act. The shares issued
to the individuals and entities above were sold for an aggregate offering price of $25,000 at an
average purchase price of approximately $0.013 per share. No underwriting discounts or commissions
were paid with respect to such sales.
Prior to the closing of the IPO, our officers and directors, collectively purchased a combined
total of 2,100,000 warrants and one of our stockholders purchased 200,000 warrants, each at a price
of $1.00 per warrant for a total of $2,300,000. The warrants were sold pursuant to the exemption
from registration contained in Section 4(2) of the Securities Act.
Contemporaneous with the closing of the IPO, we also issued an option to purchase 525,000
units to Morgan Joseph & Co in exchange for $100, which, if exercised, will result in the issuance
of an additional 525,000 shares and 525,000 warrants. The option was sold pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act.
Securities Authorized for Issuance Under Equity Compensation Plans
We have no compensation plans under which equity securities are authorized for issuance.
45
Use of Proceeds from our Initial Public Offering
On October 9, 2007, we completed our IPO of 7,500,000 Units. Each Unit consists of one share
of our common stock, par value $0.0001 per share, (the “Common Stock”) and one warrant entitling
the holder to purchase one share of our Common Stock at a price of $4.50. The public offering
price of each Unit was $8.00, and we generated gross proceeds of $60,000,000 in the IPO. On
October 16, 2007, we consummated the closing of 1,110,300 Units pursuant to the underwriters’
over-allotment option which generated gross proceeds of 8,882,400. Of the $68,882,400 in gross
proceeds from the IPO and the exercise of the over-allotment option: (i) we deposited $66,215,928
into a trust account maintained by American Stock Transfer & Trust Company, as trustee, which
proceeds were invested in money market funds meeting certain conditions under Rule 2a-7 promulgated
under the Investment Company Act of 1940, and included $2,755,296 of contingent underwriting
discount; (ii) the underwriters received $2,066,472 as underwriting discount (excluding the
contingent underwriting discount); and (iii) we retained approximately $600,000 for offering
expenses. In addition, we deposited into the trust account $2,300,000 that we received from the
issuance and sale of an aggregate of 2,100,000 warrants to our executive officers and directors and
200,000 warrants to one of our stockholders. Morgan Joseph & Co, Inc., acted as representatives of
the underwriters. The securities sold in the offering were registered under the Securities Act of
1933 on a registration statement on Form S-1 (333-140690) that was declared effective on October 2,
2007.
ITEM 6. Selected Financial Data
The following table summarizes the relevant financial data for our business and should be read
with our financial statements, which are included in this report. We have not had any significant
operations to date, so only balance sheet data is presented.
| |
|
|
|
|
|
|
|
|
| |
|
As of |
|
|
As of |
|
| |
|
December 31, |
|
|
December 31, |
|
| Balance Sheet Data: |
|
2008 |
|
|
2007 |
|
Working capital (deficiency) |
|
$ |
58,826 |
|
|
$ |
(323,348 |
) |
Total assets |
|
|
68,848,977 |
|
|
|
68,948,688 |
|
Total liabilities |
|
|
22,530,367 |
|
|
|
22,953,199 |
|
Value of common stock which may be redeemed
for cash ($7.96 per share) |
|
|
20,547,927 |
|
|
|
20,547,927 |
|
Stockholders’ equity |
|
$ |
46,318,610 |
|
|
$ |
45,995,489 |
|
|
|
|
| ITEM 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Inter-Atlantic Financial, Inc. is a blank check company formed on January 12, 2007, for the
purpose of acquiring, through a merger, a capital stock exchange, asset acquisition, stock purchase
or other similar business combination of an unidentified domestic and/or foreign operating business
in the financial services industry or businesses deriving a majority of their revenues from
providing services to financial services companies, including for example, payment processing
companies and technology providers.
46
On October 9, 2007, we completed our initial public offering (“IPO”) of 7,500,000 Units. Each
Unit consists of one share of our common stock, par value $0.0001 per share, (the “Common Stock”)
and one warrant entitling the holder to purchase one share of our Common Stock at a price of $4.50.
The public offering price of each Unit was $8.00, and we generated gross proceeds of $60,000,000
in the IPO. On October 16, 2007, we consummated the closing of 1,110,300 Units pursuant to the
underwriters’ over-allotment option which generated gross proceeds of $8,882,400. Of the
$68,882,400 in gross proceeds from the IPO and the exercise of the over-allotment option: (i) we
deposited $66,215,928 into a trust account maintained by American Stock Transfer & Trust Company,
as trustee, which proceeds were invested in money market funds meeting certain conditions under
Rule 2a-7 promulgated under the Investment Company Act of 1940, and included $2,755,296 of
contingent underwriting discount; (ii) the underwriters received $2,066,472 as underwriting
discount (excluding the contingent underwriting discount); and (iii) we retained approximately
$600,000 for offering expenses. In addition, we deposited into the trust account $2,300,000 that
we received from the issuance and sale of an aggregate of 2,100,000 warrants to our executive
officers and directors and 200,000 warrants to one of our stockholders.
Our trust account is invested in a money market fund that invests in short-term US Treasury
securities. The recent decline in short-term interest rates has decreased the interest income
generated by the funds held in trust. As a result, our expectation of future interest income is
significantly lower than anticipated. As of February 20, 2009, the funds held in trust earned
interest at an annual interest rate of .28%, based on a 7-day average yield.
We intend to utilize cash (derived from the proceeds of the IPO, overallotment, and
pre-offering private placement of the founders’ warrants), our capital stock, debt or a combination
of cash, capital stock and debt, in effecting a business combination. The issuance of additional
capital stock, including upon conversion of any convertible debt securities we may issue, or the
incurrence of debt could have material consequences on our business and financial condition. The
issuance of additional shares of our capital stock (including upon conversion of convertible debt
securities):
| |
• |
|
may significantly reduce the equity interest of our stockholders; |
| |
• |
|
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 may also result in the resignation or
removal of one or more of our present officers and directors; and |
| |
• |
|
may significantly and immediately adversely affect prevailing market prices for our
common stock. |
47
Similarly, if we issued debt securities, it could result in:
| |
• |
|
default and foreclosure on our assets if our operating revenues after a business
combination 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 may use substantially all of the funds held in the trust account, less the payment due the
underwriter for the deferred underwriting discount, to acquire a target business. However, as long
as we consummate a business combination with one or more target acquisitions with a fair market
value equal to at least 80% of our net assets (excluding the amount held in the trust account
representing the underwriters’ deferred discount), we may use the assets in the trust account for
any purpose we may choose. To the extent that our capital stock or debt is used in whole or in
part as consideration to consummate a business combination, the remaining proceeds from the trust
account will be used as working capital, including director and officer compensation,
change-in-control payments or payments to affiliates, or to finance the operations of the target
business, make other acquisitions and pursue our growth strategies.
We will seek stockholder approval before we effect any business combination, even if the
nature of the acquisition would not ordinarily require stockholder approval under applicable state
law. In connection with the vote required for any business combination, all of our initial
stockholders, including all of our officers and directors, have agreed to vote the shares of common
stock owned by them immediately before the IPO in accordance with the majority of the shares of
common stock voted by the public stockholders. Any shares acquired in the aftermarket by initial
stockholders will be voted in favor of the business combination. We will proceed with a business
combination only if a majority of the shares of common stock cast at the meeting are voted in favor
of the business combination and public stockholders owning 29.99% or less of the shares sold in the
IPO exercise their redemption rights described below. This redemption threshold is different from
the traditional blank check company structure and makes it more likely that the business
combination may be approved, even if a significant number of shareholders do not approve the
transaction. Voting against the business combination alone will not result in redemption of a
stockholder’s shares into a pro rata share of our trust account. Such stockholder must have also
exercised its redemption rights described below. Even if 29.99% or less of the stockholders, as
described above, exercise their redemption rights, we may be unable to consummate a business
combination if such redemption leaves us with funds less than a fair market value equal to at least
80% of the amount in our trust account (excluding any funds held for the benefit of any of the
underwriters and taxes payable) at the time of such acquisition which amount is required for our
initial business combination. In such event, we may be forced to either find additional financing
to consummate such a business combination, consummate a different business combination or dissolve,
liquidate and wind up. The Company has agreed not to lower the redemption threshold below 29.99%
in connection with the negotiation of a business combination.
48
As indicated in the accompanying financial statements, at December 31, 2008, we had $32,248 in
cash plus $9,390 of interest income available from our trust property. Further, we have incurred
and expect to continue to incur costs in pursuit of our financing and acquisition plans. We cannot
assure you that our plan to consummate a business combination will be successful.
For the period from January 12, 2007 (inception) through December 31, 2008, we had net income
of approximately $590,000, attributable to interest income of approximately $1,651,000 offset by
operating costs and income taxes of approximately $603,000 and $458,000, respectively. For the
twelve months ended December 31, 2008, we had net income of approximately $323,000, attributable to
interest income of approximately $1,050,000 offset by operating costs and income taxes of
approximately $447,000 and $280,000, respectively. We have neither engaged in any operations nor
generated any operating revenues to date, other than in connection with our initial public
offering. Our entire activity since inception has been to prepare for an consummate our initial
public offering and to identify and investigate targets for a business combination. We will not
generate any operating revenues until consummation of a business combination. We will generate
non-operating income in the form of interest income on cash and cash equivalents.
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements and have never
established any special purpose entities. We have not guaranteed any debt or commitments of other
entities or entered into any options on non-financial assets.
Contractual Obligations
We do not have any long term debt, capital lease obligations, operating lease obligations,
purchase obligations or other long term liabilities.
Liquidity and Capital Resources
We will use substantially all of the net proceeds of the IPO, the overallotment, the
pre-offering private placement of the founders’ warrants, as well as interest, if any, on the funds
in our trust account released to us including those funds held in trust, to acquire a target
business, including identifying and evaluating prospective acquisition candidates, selecting the
target business, and structuring, negotiating and consummating the business combination. The
proceeds held in our trust account (exclusive of any funds held for the benefit of the underwriters
or used to pay public stockholders who have exercised their redemption rights) may be used as
consideration to pay the sellers of a target business with which we ultimately complete a business
combination or, if there is insufficient funds not held in trust, to pay other expenses relating to
such transaction such as reimbursement to insiders for out-of-pocket expenses, third party due
diligence expenses or potential finders fees, in each case only upon the consummation of a business
combination. Any amounts not paid as consideration to the sellers of the target business may be
used to finance operations of the target business or to effect other acquisitions, as determined by
our board of directors at that time. To the extent our capital stock is used in whole or in part
as consideration to effect a business combination, the proceeds held in our trust
account as well as any other net proceeds not expended will be released to us and will be used
to finance the operations of the target business.
49
At December 31, 2008, we had cash outside of the trust account of $32,248, cash held in the
trust account of approximately $68,500,000, a $211,000 deferred tax asset, accrued expenses and
offering costs of approximately $54,000, no income taxes payable and total liabilities of
approximately $22,500,000 (which includes approximately $20,500,000 of common stock which is
subject to possible redemption and approximately $2,000,000 of deferred underwriters’ fees).
Although we cannot be sure, we believe that we have funds sufficient to allow us to operate at
least until October 9, 2009, including (i) the unused portion of $1,100,000 of the interest earned
on funds in our trust account (net of taxes payable) which will be released to us, and (ii) up to
$500,000 from the Company’s limited recourse revolving line of credit which will be repayable prior
to the consummation of the business combination solely from the $1,100,000 of interest earned on
the trust account which is available for working capital, assuming that a business combination is
not consummated during that time. Up to $1,100,000 of the interest earned on our trust account
(net of taxes payable) is being released to us to fund our working capital requirements and is
available to fund the costs associated with such plan of dissolution and liquidation (which we
currently estimate to be no more than $15,000) if we do not consummate a business combination. The
rate of interest earned on our trust account has decreased recently and will fluctuate through the
duration of our trust account, therefore the interest that will accrue on our trust account during
the time it will take to identify a target and complete an acquisition may not be sufficient to
fund our working capital requirements.
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 offering of debt or equity securities if such funds were required to consummate a business
combination. Such debt securities may include a working capital revolving debt facility or a
longer term debt facility.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair
value of a financial instrument. These changes may be the result of various factors, including
interest rates, foreign exchange rates, commodity prices and/or equity prices. $68,500,000 of
the net offering proceeds (which includes $2,700,000 of the proceeds attributable to the
underwriters’ discount plus the $2,300,000 of proceeds from the private placement of warrants) has
been placed into a trust account maintained by American Stock Transfer, acting as trustee. The
proceeds held in trust will only be invested in either short-term securities issued or guaranteed
by the United States having a rating in the highest investment category granted thereby by a
recognized credit rating agency at the time of acquisition, short-term tax exempt municipal bonds
issued by governmental entities located within the United States or in money market funds otherwise
meeting the conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940. Thus,
we are subject to market risk primarily through the effect of changes in interest rates on
government securities, which have declined since our IPO. The effect of other changes, such as
foreign exchange rates, commodity prices and/or equity prices, does not pose significant market
risk to us.
50
ITEM 8. Financial Statements and Supplementary Data
Index to Inter-Atlantic Financial, Inc. Financial Statements
51
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Inter-Atlantic Financial, Inc.
We have audited the accompanying balance sheets of Inter-Atlantic Financial, Inc. (a corporation in
the development stage) (the “Company”) as of December 31, 2008 and 2007, and the related statements
of operations and cash flows for the year ended December 31, 2008, and for the periods from January
12, 2007 (inception) to December 31, 2008 and 2007, and statement of stockholders’ equity from
January 12, 2007 (inception) to December 31, 2008. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits 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 audits
provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as
a going concern. As discussed in Note A to the financial statements, the Company will face a
mandatory liquidation if a business combination is not consummated by October 9, 2009, which raises
substantial doubt about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Inter-Atlantic Financial, Inc. (a corporation in the
development stage) as of December 31, 2008 and 2007, and the results of its operations and its cash
flows for the year ended December 31, 2008, and for the periods from January 12, 2007 (inception)
to December 31, 2008 and 2007, in conformity with accounting principles generally accepted in the
United States of America.
Rothstein,
Kass & Company, P.C.
Roseland, New Jersey
March 4, 2009
52
Inter-Atlantic Financial, Inc.
(a corporation in the development stage)
BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
32,248 |
|
|
$ |
6,967 |
|
Prepaid insurance |
|
|
29,250 |
|
|
|
146,250 |
|
Prepaid income taxes |
|
|
51,061 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
112,559 |
|
|
|
153,217 |
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
|
Investments held in Trust Account |
|
|
68,525,418 |
|
|
|
68,725,471 |
|
Deferred tax asset |
|
|
211,000 |
|
|
|
70,000 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
68,736,418 |
|
|
|
68,795,471 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
68,848,977 |
|
|
$ |
68,948,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current Liabilities |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
20,833 |
|
|
$ |
35,250 |
|
Accrued offering costs |
|
|
|
|
|
|
146,755 |
|
Income taxes payable |
|
|
|
|
|
|
248,000 |
|
Delaware franchise tax payable |
|
|
32,900 |
|
|
|
46,560 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
53,733 |
|
|
|
476,565 |
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities |
|
|
|
|
|
|
|
|
Deferred underwriters’ fee |
|
|
1,928,707 |
|
|
|
1,928,707 |
|
Common stock, subject to possible conversion,
2,582,229 shares at conversion value,
approximately $7.96 per share |
|
|
20,547,927 |
|
|
|
20,547,927 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
22,530,367 |
|
|
|
22,953,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value; 1,000,000
shares authorized; none issued |
|
|
|
|
|
|
|
|
Common stock, $.0001 par value, 49,000,000
shares authorized;
10,485,300 issued and outstanding |
|
|
1,049 |
|
|
|
1,049 |
|
Additional paid-in capital |
|
|
45,727,725 |
|
|
|
45,727,725 |
|
Earnings accumulated during the development
stage |
|
|
589,836 |
|
|
|
266,715 |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
46,318,610 |
|
|
|
45,995,489 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
68,848,977 |
|
|
$ |
68,948,688 |
|
|
|
|
|
|
|
|
53
Inter-Atlantic Financial, Inc.
(a corporation in the development stage)
STATEMENTS OF
OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
For the Period from |
|
|
For the Period from |
|
| |
|
|
|
|
January 12, 2007 |
|
|
January 12, 2007 |
|
| |
|
Year Ended |
|
|
(inception) through |
|
|
(inception) through |
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Formation and
administrative costs |
|
|
446,683 |
|
|
|
156,678 |
|
|
|
603,361 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(446,683 |
) |
|
|
(156,678 |
) |
|
|
(603,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
1,049,804 |
|
|
|
601,393 |
|
|
|
1,651,197 |
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes |
|
|
603,121 |
|
|
|
444,715 |
|
|
|
1,047,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
280,000 |
|
|
|
178,000 |
|
|
|
458,000 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
323,121 |
|
|
$ |
266,715 |
|
|
$ |
589,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum number of shares
subject to possible
conversion: |
|
|
|
|
|
|
|
|
|
|
|
|
Approximate weighted
average number of
shares |
|
|
2,582,000 |
|
|
|
606,000 |
|
|
|
1,609,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate weighted
average number of common
shares outstanding (not
subject to possible
conversion): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
7,903,000 |
|
|
|
3,290,000 |
|
|
|
5,632,000 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
11,698,000 |
|
|
|
4,168,000 |
|
|
|
7,994,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share
not subject to possible
conversion: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.04 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.03 |
|
|
$ |
0.06 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
Income per common share
subject to possible
conversion: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
54
Inter-Atlantic Financial, Inc.
(a corporation in the development stage)
STATEMENT OF STOCKHOLDERS’ EQUITY
For the period from January 12, 2007 (inception) to December 31, 2008
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional |
|
|
During the |
|
|
|
|
| |
|
Common Stock |
|
|
Paid-in- |
|
|
Development |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stage |
|
|
Total |
|
Balances at January 12, 2007 (inception) |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Issuance of common stock to founders on January 12, 2007 at approximately $.01
per share
|
|
|
1,875,000 |
|
|
|
188 |
|
|
|
24,812 |
|
|
|
|
|
|
|
25,000 |
|
Issuance of warrants in private placement |
|
|
|
|
|
|
|
|
|
|
2,300,000 |
|
|
|
|
|
|
|
2,300,000 |
|
Sale of 8,610,300 units (including the 1,110,300 units pursuance to the
over-allotment option) at a price of
$8.00 per unit, net of underwriters’
discount and offering expenses
(including 2,582,229 shares subject to
possible conversion) |
|
|
8,610,300 |
|
|
|
861 |
|
|
|
63,950,740 |
|
|
|
|
|
|
|
63,951,601 |
|
Reclassification of common stock subject to possible conversion, 2,582,229 shares |
|
|
|
|
|
|
|
|
|
|
(20,547,927 |
) |
|
|
|
|
|
|
(20,547,927 |
) |
Issuance of underwriters’ purchase option |
|
|
|
|
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
100 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266,715 |
|
|
|
266,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007 |
|
|
10,485,300 |
|
|
$ |
1,049 |
|
|
$ |
45,727,725 |
|
|
$ |
266,715 |
|
|
$ |
45,995,489 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323,121 |
|
|
|
323,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008 |
|
|
10,485,300 |
|
|
$ |
1,049 |
|
|
$ |
45,727,725 |
|
|
$ |
589,836 |
|
|
$ |
46,318,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
Inter-Atlantic Financial, Inc.
(a corporation in the development stage)
STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
For the Period |
|
|
For the Period |
|
| |
|
|
|
|
|
from January 12, |
|
|
from January 12, |
|
| |
|
|
|
|
|
2007 (inception) |
|
|
2007 (inception) |
|
| |
|
Year Ended |
|
|
through |
|
|
through |
|
| |
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
323,121 |
|
|
$ |
266,715 |
|
|
$ |
589,836 |
|
Adjustment to reconcile net income to net cash and
cash equivalents provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit |
|
|
(141,000 |
) |
|
|
(70,000 |
) |
|
|
(211,000 |
) |
Increase (decrease) in cash attributable to
changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid insurance |
|
|
117,000 |
|
|
|
(146,250 |
) |
|
|
(29,250 |
) |
Prepaid income taxes |
|
|
(51,061 |
) |
|
|
|
|
|
|
(51,061 |
) |
Accrued expenses |
|
|
(14,417 |
) |
|
|
35,250 |
|
|
|
53,733 |
|
Income taxes payable |
|
|
(248,000 |
) |
|
|
248,000 |
|
|
|
|
|
Delaware franchise tax payable |
|
|
(13,660 |
) |
|
|
46,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(28,017 |
) |
|
|
380,275 |
|
|
|
352,258 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Principal deposited in Trust Account |
|
|
|
|
|
|
(68,516,028 |
) |
|
|
(68,516,028 |
) |
Interest reinvested in Trust Account |
|
|
(1,049,571 |
) |
|
|
(601,320 |
) |
|
|
(1,650,891 |
) |
Redemptions from Trust Account |
|
|
1,249,624 |
|
|
|
391,877 |
|
|
|
1,641,501 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
200,053 |
|
|
|
(68,725,471 |
) |
|
|
(68,525,418 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock to founders |
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
Proceeds from notes payable, affiliate |
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
Proceeds of public offering |
|
|
|
|
|
|
68,882,400 |
|
|
|
68,882,400 |
|
Proceeds from issuance of warrants in private placement |
|
|
|
|
|
|
2,300,000 |
|
|
|
2,300,000 |
|
Proceeds from issuance of underwriters’ purchase option |
|
|
|
|
|
|
100 |
|
|
|
100 |
|
Repayment of notes payable, affiliate |
|
|
|
|
|
|
(250,000 |
) |
|
|
(250,000 |
) |
Payments of offering costs and underwriters’ fees |
|
|
(146,755 |
) |
|
|
(2,855,337 |
) |
|
|
(3,002,092 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(146,755 |
) |
|
|
68,352,163 |
|
|
|
68,205,408 |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
25,281 |
|
|
|
6,967 |
|
|
|
32,248 |
|
Cash and cash equivalents, beginning of period |
|
|
6,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
32,248 |
|
|
$ |
6,967 |
|
|
$ |
32,248 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information,
cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
720,110 |
|
|
$ |
— |
|
|
$ |
720,110 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred underwriters’ fees |
|
$ |
— |
|
|
$ |
1,928,707 |
|
|
$ |
1,928,707 |
|
|
|
|
|
|
|
|
|
|
|
Accrued offering costs |
|
$ |
— |
|
|
$ |
146,755 |
|
|
$ |
146,755 |
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in the public offering
reclassified to mezzanine debt for common stock
subject to possible conversion |
|
$ |
— |
|
|
$ |
20,547,927 |
|
|
$ |
20,547,927 |
|
|
|
|
|
|
|
|
|
|
|
56
Inter-Atlantic Financial, Inc.
(a corporation in the development stage)
Notes to Financial Statements
NOTE A—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Inter-Atlantic Financial, Inc. (a corporation in the development stage) (the “Company”) was
incorporated under the laws of the State of Delaware on January 12, 2007. The Company was formed
to acquire an operating business 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, including interest income
earned on cash equivalents held in a trust account (described below). 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. All activity for the period from
January 12, 2007 (inception) through December 31, 2008 relates to the Company’s formation, capital
rasing activities, and consummating a business combination.
The registration statement for the Company’s initial public offering (the “Offering”) was
declared effective on October 2, 2007. The Company consummated the Offering on October 9, 2007 and
the underwriters for the Offering (the “Underwriters”) exercised a portion of their over-allotment
option on October 16, 2007 (Note B). The Company’s management has broad discretion with respect to
the specific application of the proceeds of the Offering and the over-allotment option exercise,
although substantially all of the net proceeds of the Offering and the over-allotment option
exercise are intended to be applied toward consummating a business combination with (or acquisition
of) an operating business (“Business Combination”). There is no assurance that the Company will be
able to successfully affect a Business Combination. Upon the consummation of the Offering and
over-allotment exercise, approximately 99.5% of the gross proceeds, after payment of certain
amounts to the Underwriters and including $2,300,000 of proceeds from the sale of 2,300,000
warrants to the Company’s founders at a price of $1.00 per warrant in a pre-offering private
placement immediately prior to the Offering, was placed in a trust account (“Trust Account”) and
invested in, directly or through money market funds, either short-term securities issued or
guaranteed by the United States government having a rating in the highest investment category
granted thereby by a recognized credit rating agency at the time of acquisition or short-term tax
exempt municipal bonds issued by governmental entities located within the United States and
otherwise meeting the condition under Rule 2a-7 promulgated under the Investment Company Act of
1940. The proceeds have been and will be held in the Trust Account until the earlier of (i) the
consummation of the Company’s initial Business Combination or (ii) the Company’s dissolution and
liquidation of the Trust Account as described below. Up to $1,100,000 of interest income earned
from the Trust Account, net of taxes payable, will be available to pay for business, legal and
accounting due diligence on prospective acquisitions and continuing general and administrative
expenses.
57
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
Company’s outstanding common stock, par value $0.0001 per share (the “Common Stock”)
(excluding, for this purpose, those shares of shares of Common Stock issued prior to the
Offering) vote against the Business Combination and exercise their redemption rights described
below, the Business Combination will not be consummated.
Stockholders other than the founders (as defined below) (“Public Stockholders”) voting against
a Business Combination will be entitled to redeem their shares of Common Stock for a cash amount
equal to 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 earned (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 redemption rights. A stockholder must also
affirmatively exercise such redemption rights at or prior to the time the Business Combination is
voted upon by the stockholders. Each of the Company’s stockholders prior to the Offering
(collectively, the “Founders”), including all of the directors of the Company, have agreed to vote
their respective shares of Common Stock in accordance with the majority of the shares of Common
Stock voted by the Public Stockholders. Accordingly, Public Stockholders holding up to 29.99% of
the aggregate number of shares owned by all Public Stockholders may seek redemption of their shares
in the event of a Business Combination. Such Public Stockholders are entitled to receive their per
share interest in the Trust Account computed without regard to the shares held by the Founders.
Accordingly, a portion of the net proceeds from the Offering and over-allotment exercise (29.99% of
the amount held in the Trust Account) has been classified as Common Stock subject to possible
conversion in the accompanying balance sheets.
In the event that the Company does not consummate a Business Combination by October 9, 2009,
the proceeds held in the Trust Account will be distributed to the Company’s stockholders, excluding
the Founders to the extent of their initial stock holdings. The mandatory liquidation raises
substantial doubt about the Company’s ability to continue as a going concern.
NOTE B—INITIAL PUBLIC OFFERING AND OVER-ALLOTMENT OPTION EXERCISE
On October 9, 2007, the Company completed its initial public offering (the “IPO”) of 7,500,000
Units. Each Unit consists of one share of common stock and one warrant entitling the holder to
purchase one share of the Company’s Common Stock at a price of $4.50. The public offering price of
each Unit was $8.00 and the Company generated gross proceeds of $60,000,000 in the IPO. On October
16, 2007, the Company consummated the closing of 1,110,300 Units pursuant to the underwriters’
over-allotment option which generated gross proceeds of $8,882,400. Of the $68,882,400 in gross
proceeds from the IPO and the exercise of the over-allotment option: (i) the Company deposited
$66,215,928 into a trust account maintained by American Stock Transfer & Trust Company, as trustee,
which proceeds were invested in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act of 1940, and included $2,755,296 of contingent
underwriting discount; (ii) the underwriters received $2,066,472 as underwriting discount
(excluding the contingent underwriting discount); and (iii) the Company retained approximately
$600,000 for offering expenses and working capital. In addition, the Company deposited into the
trust account $2,300,000 that the Company received from the issuance and sale of an aggregate of 2,100,000
warrants to the Company’s executive officers and directors and 200,000 warrants to one of the
Company’s stockholders.
58
Each Warrant will entitle the holder to purchase from the Company one share of common stock at
an exercise price of $4.50 commencing on the later of (a) October 2, 2008 or (b) the completion of
a Business Combination with a target business, and will expire October 2, 2011. The Warrants will
be 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. If the Company is unable to deliver registered
shares of common stock to the holder upon exercise of the warrants during the exercise period,
there will be no cash settlement of the warrants.
NOTE C—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 States of America (“US
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.”
Earnings Per Share:
Income per common share is based on the weighted average number of common shares outstanding
for the period and net income applicable to common stockholders. Basic income per common share
excludes dilution and is computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted income per common share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock by the Company.
For the year ended December 31, 2008, and the periods from January 12, 2007 (inception) to
December 31, 2008 and 2007, the Company had dilutive securities in the form of 11,435,300 warrants,
which resulted in approximately 3,795,000, 878,000 and 2,362,000 of incremental common shares,
using the treasury stock method, based on their assumed conversion to common stock. The
incremental shares are added to the weighted average number of common shares outstanding (not
subject to possible conversion), and are included in the calculation of diluted income per common
share for all periods presented.
59
The Company’s statements of operations include a presentation of earnings per share for common
stock subject to possible conversion in a manner similar to the two-class method of
earnings per share in accordance with Emerging Issue Task Force, Topic No. D-98
“Classification and Measurement of Redeemable Securities.” Basic and diluted income per common
share amounts for the maximum number of shares subject to possible conversion are calculated by
dividing the net interest income attributable to common shares subject to conversion ($0 for all
periods presented) by the weighted average number of common shares subject to possible conversion.
Basic and diluted net income per share amount for the shares outstanding not subject to possible
redemption is calculated by dividing the net income (loss) 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.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentrations of credit risk
consist of cash accounts in a financial institution, which at times, exceeds the Federal depository
insurance coverage of $250,000 as of December 31, 2008. The Company has not experienced losses on
these accounts and management believes the Company is not exposed to significant risks on such
accounts.
Fair Value of Financial Instruments:
The carrying amounts 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 their fair value due to their short-term maturities.
Use of Estimates:
The preparation of financial statements in conformity with U. S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Income Tax:
The Company complies with SFAS 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.
The Company also complies with the provisions of the Financial Accounting Standards
Interpretation No. 48 “Accounting for Uncertainty in Income taxes” (“FIN 48”). FIN 48 prescribes a
recognition threshold and measurements process for recording in the financial statements uncertain
tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim periods, disclosures
and transitions. The Company adopted FIN 48 effective January 12, 2007
(inception) and has determined that the adoption did not have an impact on the Company’s
financial position, results of operations, or cash flows.
60
Recently Issued Accounting Pronouncements:
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS
141R”). SFAS 141R establishes principles and requirements for how the acquirer in a business
combination recognizes and measures in its financial statements the fair value of identifiable
assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the
acquisition date. SFAS 141R determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the business combination.
Acquisition cost associated with the business combination will generally be expensed as incurred.
SFAS 141R 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. The Company is currently evaluating the
expected effect, if any, SFAS 141R will have on its financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities- Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS No. 159
permits entities to measure any financial instruments and certain other items at fair value. Any
unrealized gains or losses are reported in earnings. Effective January 1, 2008, the Company
adopted the provisions of SFAS 159, resulting in no impact to the Company’s financial position,
results of operations, or cash flows. This statement permits entities to choose to measure selected
assets and liabilities at fair value.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements” (“SFAS 160”), an amendment of Accounting Research Bulletin No. 51,
“Consolidated Financial Statements” (“ARB 51”). FAS 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Minority interests will be recharacterized as noncontrolling interests and will be
reported as a component of equity separate from the parent’s equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the noncontrolling interest will be included
in consolidated net income on the face of the income statement and upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value with any gain or
loss recognized in earnings. This pronouncement is effective for fiscal years beginning after
December 15, 2008. The Company is currently evaluating the impact of adopting SFAS 160 on its
results of operations and financial condition and plan to adopt it as required in the first quarter
of fiscal 2009.
In October 2008, the FASB issued FASB Staff Position (“FSP”) 157-3, “Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active”. The FSP clarifies the
application of SFAS 157, “Fair Value Measurements”, in a market that is not active
and provides an example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. The FSP is effective
October 10, 2008, and for prior periods for which financial statements have not been
issued. Revisions resulting from a change in the valuation technique or its application
should be accounted for as a change in accounting estimate following the guidance in SFAS No. 154, “Accounting Changes and Error Corrections”. However, the disclosure provisions in
Statement 154 for a change in accounting estimate are not required for revisions resulting from a
change in valuation technique or its application. The application of FSP 157-3 did not have any
impact on the Company’s financial statements.
61
Management does not believe that any other recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying financial
statements.
Redeemable Common Stock:
The Company accounts for redeemable common stock in accordance with Emerging Issue Task Force
Topic No. 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 redemption 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 and over-allotment
exercise their conversion rights. As further discussed in Note A, if a Business Combination is not
consummated by October 9, 2009, the Company will liquidate. Accordingly, 2,582,229 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 initial per share redemption price was $7.99 immediately following the Offering. The
redemption price was reduced to $7.96 after the consummation of the over-allotment option and
remains at $7.96 as of December 31, 2008.
Holders of common stock issued in the Offering have the opportunity and right to redeem their
shares at the conversion price at anytime the Company seeks stockholder approval of any Business
Combination. The conversion price is determined by the amounts held in the Trust Account (i.e.,
the amounts initially placed in the Trust Account from the Offering, the over-allotment and sale of
founders’ warrants plus accrued interest, net of taxes) divided by the number of Units issued in
the Offering and over-allotment. This redemption feature lapses upon the approval of the Business
Combination.
Cash and Cash Equivalents:
The Company considers all highly-liquid investments purchased with an original maturity of
three months or less to be cash equivalents. The Company also considers amounts held in money
market accounts to be cash equivalents.
62
NOTE D—TRUST ACCOUNT
The Company’s restricted investments held in the Trust Account at December 31, 2008 are
currently invested in money market funds guaranteed by the U.S. Treasury. The Company recognized
interest income of approximately $1,050,000 and $601,000 on investments held in trust for the year
ended December 31, 2008 and 2007, respectively. Under the Trust Account agreement, up to
$1,100,000 of the interest earned on the Trust Account (net of taxes) can be used for the Company’s
operating activities. As of December 31, 2008, the balance in the Trust Account was approximately
$68,500,000, which included approximately $1,650,000 of interest earned, net of approximately
$900,000 disbursed from inception to December 31, 2008 for operating activities and offering costs
inclusive of approximately $800,000 for tax payments.
NOTE E—RELATED PARTY TRANSACTIONS
Nine stockholders, including the Company’s officers and directors, have purchased an aggregate
of 1,875,000 of the Company’s founding shares for an aggregate price of $25,000 in a private
placement prior to the offering. The shares are identical to those sold as part of the Units sold
in the Offering and over-allotment, except that each of the founders have agreed to vote its
founders’ common stock in the same manner as a majority of the public stockholders who vote at the
special or annual meeting called for the purpose of approving our initial business combination. As
a result, they will not be able to exercise conversion rights with respect to the founders’ common
stock. The founders’ common stock acquired prior to the IPO will not participate with the common
stock included in the units sold in the IPO in any liquidating distribution. Subsequent to the
pre-offering private placement, a portion of the founding shares were resold to another director of
the Company and a third party.
The Company issued a $250,000 unsecured promissory note to Inter-Atlantic Management Services
LLC (“IAMS LLC”), an affiliate of certain of the Company’s officers and directors. This advance
was non-interest bearing, unsecured and was paid in full subsequent to the IPO in October 2007.
The Company presently occupies office space provided by IAMS, LLC. IAMS, LLC 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. Commencing in October 2007, the Company agreed to pay IAMS, LLC $7,500
per month for such services. For the year ended December 31, 2008 and the periods January 12, 2007
(inception) through December 31, 2007 and January 12, 2007 (inception) through December 31, 2008,
the Company incurred $90,000, $22,500 and $112,500 respectively, related to this arrangement.
Each of the Company’s officers and directors, and one of the Company’s stockholders
collectively purchased directly from the Company, in a pre-offering private placement, an aggregate
of 2,300,000 warrants immediately prior to the IPO at a price of $1.00 per warrant (an aggregate
purchase price of $2,300,000) from the Company and not as part of the IPO. They have also agreed
that these warrants purchased by them will not be sold or transferred until completion of a
business combination. The founders’ warrants will become exercisable after a business combination
and will be non-redeemable so long as they are held by our founders or
their permitted transferees. The sale of the warrants to management did not result in the
recognition of any stock-based compensation expense because the warrants were sold at or above fair
market value.
63
Concurrent with the closing of the IPO, the Company entered into a limited recourse line of
credit agreement with IAMS, LLC and its affiliates. The line of credit agreement allows for
borrowings of up to $500,000, bears interest at the federal funds target interest rate (0-0.25% as
of December 31, 2008), and matures at the earlier of the consummation of a Business Combination,
October 9, 2009, or an event of default, as defined in the agreement. No amount was outstanding
under this line of credit agreement as of December 31, 2008 and 2007.
NOTE F—INCOME TAXES
The Company’s provision for income taxes reflects the application of federal, state and city
statutory rates to the Company’s income before taxes. The Company’s effective tax rate was 46%,
40% and 44%, for the year ended December 31, 2008 and the periods from January 12, 2007 (inception)
through December 31, 2007 and 2008, respectively. The provision for income taxes consists of the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
For the Period from |
|
|
For the Period from |
|
| |
|
|
|
|
|
January 12, 2007 |
|
|
January 12, 2007 |
|
| |
|
Year Ended |
|
|
(inception) through |
|
|
(inception) through |
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
December 31, 2008 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
256,000 |
|
|
$ |
152,000 |
|
|
$ |
408,000 |
|
State and City |
|
|
165,000 |
|
|
|
96,000 |
|
|
|
261,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421,000 |
|
|
|
248,000 |
|
|
|
669,000 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(91,000 |
) |
|
|
(45,000 |
) |
|
|
(136,000 |
) |
State and City |
|
|
(50,000 |
) |
|
|
(25,000 |
) |
|
|
(75,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(141,000 |
) |
|
|
(70,000 |
) |
|
|
(211,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
280,000 |
|
|
$ |
178,000 |
|
|
$ |
458,000 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007, the Company’s deferred tax asset of approximately $211,000 and
$70,000, respectively consists of the tax effect of non-tax deductible formation and operating
costs during the reporting periods. The effective tax rate differs from the federal statutory rate
of 34% principally due to the effect of state and city income taxes.
NOTE G—UNDERWRITERS’ COMPENSATION
The Company paid an underwriters fee of 3% of the gross proceeds of the Offering (or
$2,066,472) at the closing of the Offering. Upon the consummation of a Business Combination, the
Company will pay an additional underwriters’ fee of 4% of the gross proceeds of the Offering (or
$2,755,296). Public Stockholders that vote against the Business Combination and elect to redeem
their shares to cash will be entitled to receive their pro rata portions of the
$2,755,296 held in the Trust Account. Accordingly, the deferred underwriters’ fee reflected
in the accompanying balance sheets excludes $826,589 of deferred underwriters’ fee that is subject
to forfeiture in the event of a 30% redemption.
64
The Company sold to the underwriters, for $100, as additional compensation, an option to
purchase up to a total of 525,000 Units. The units issuable upon exercise of this option are
identical to those offered in the Offering. The option is exercisable on a cashless basis at
$10.00 per unit commencing on the later of the consummation of a business combination or October 2,
2008, and expiring October 2, 2012. The option and the 525,000 Units, the 525,000 shares of common
stock and the 525,000 warrants underlying such Units, and the 525,000 shares of common stock
underlying such warrants, have been deemed compensation by the Financial Industry Regulatory
Authority (FINRA) and are therefore subject to a 180-day lock-up pursuant to Rule 2710(g)(1) of
FINRA Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or
hypothecated for a one-year period (including the foregoing 180-day period) following October 2,
2007, except to any underwriter and selected dealer participating in the offering and their bona
fide officers or partners. Although the purchase option and its underlying securities have been
registered under the registration statement declared effective on October 2, 2007 the option grants
to holders demand and “piggy back” rights for periods of five and seven years, respectively, from
October 2, 2007 with respect to the registration under the Securities Act of the securities
directly and indirectly issuable upon exercise of the option. The Company will bear all fees and
expenses attendant to registering the securities, other than underwriting commissions, which will
be paid for by the holders themselves. The exercise price and the number of Units issuable upon
exercise of the option may be adjusted in certain circumstances including in the event of a stock
dividend, or our recapitalization, reorganization, merger or consolidation. However, the option
will not be adjusted for issuances of common stock at a price below its exercise price.
The sale of the option to purchase was not accounted for as a cost attributable to the
Offering. 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 determined, based upon a Black-Scholes model, that the fair value of the option on
the date of sale was approximately $1,350,000, using an expected life of five years, volatility of
36.2% and a risk-free interest rate of 4.4%.
The volatility calculation of 36.2% was based on the average of the volatilities using daily
historical prices over the past five years of each of the 15 smallest financial services companies
drawn from the Standard & Poor’s Small Cap 600 Exchange Composite Index (“Index”). Because the
Company did not have a trading history, the Company needed to estimate the potential volatility of
its common stock price, which depended on a number of factors that couldn’t be ascertained at the
time. The Company referred to the Index because management believes that the average volatility of
the 15 smallest financial services companies 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 Trust Account as part of any plan of dissolution and distribution approved by the
Company’s stockholders, the option
would become worthless. In no event shall the holder of the unit purchase option or the
warrants included in such option be entitled to a net cash settlement of the option or the
warrants, and in the event there is no effective registration statement, the unit purchase option
and the warrants may expire unexercised and unredeemed.
65
NOTE H—FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Company implemented SFAS No. 157, Fair Value Measurement, for
its financial assets and liabilities that are re-measured and reported at fair value at each
reporting period, and non-financial assets and liabilities that are re-measured and reported at
fair value at least annually. In accordance with the provisions of FSP No. FAS 157-2, Effective
Date of FASB Statement No. 157, the Company has elected to defer implementation of SFAS 157 as it
relates to its non-financial assets and non-financial liabilities that are recognized and disclosed
at fair value in the financial statements on a nonrecurring basis until January 1, 2009. The
Company is evaluating the impact, if any, this standard will have on its non-financial assets and
liabilities.
The adoption of SFAS 157 to the Company’s financial assets and liabilities did not have an
impact on the Company’s financial results.
The following table presents information about the Company’s assets and liabilities that are
measured at fair value on a recurring basis as of December 31, 2008, and indicates the fair value
hierarchy of the valuation techniques the Company utilized to determine such fair value. In
general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data
points that are observable such as quoted prices, interest rates and yield curves. Fair values
determined by Level 3 inputs are unobservable data points for the asset or liability, and includes
situations where there is little, if any, market activity for the asset or liability (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
| |
|
|
|
|
|
Prices in |
|
|
Other |
|
|
Significant |
|
| |
|
|
|
|
|
Active |
|
|
Observable |
|
|
Unobservable |
|
| |
|
December 31, |
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
| Description |
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3 ) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account |
|
$ |
68,525 |
|
|
$ |
68,525 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
68,525 |
|
|
$ |
68,525 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the Company’s investments held in the Trust Account are determined through
market, observable and corroborated sources.
NOTE I—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. No shares of preferred stock have been issued as of December 31, 2008.
66
NOTE J—SUBSEQUENT EVENT
From January 1, 2009 through March 4, 2009, the Company withdrew approximately $22,000 from
the Trust Account for operating activities and taxes.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The management of our company, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as
defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this
Annual Report on Form 10-K. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures were effective as of
December 31, 2008.
This annual report on Form 10-K 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 SEC rules for newly public
companies.
(b) Changes in Internal Controls over Financial Reporting
There were no changes during the fiscal quarter ended December 31, 2008 in our internal
controls over financial reporting, which have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
ITEM 9B. Other Information
On February 10, 2009, we received a letter from NYSE Amex (the “Exchange”), indicating that we were
not in compliance with Section 704 of the NYSE Amex Company Guide (the “Company Guide”), for
failure to hold an annual meeting of our stockholders during 2008. We received this letter although
our counsel, at our direction, previously contacted the Exchange and was informed verbally that due
to the timing of our initial public offering that we would not be required to have an annual
meeting until 2009. On March 10, 2009, we submitted a plan to the Exchange in which we advised the
Exchange that we intend to hold an annual meeting of our stockholders as promptly as practicable,
but in no event later than August 11, 2009. If following receipt and evaluation of the plan, the
Exchange determines that we have made a reasonable demonstration of an ability to regain compliance
with the continued listing standards, our plan will be accepted we will be able to continue our
listing.
67
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officer
Our current directors and executive officers are listed below.
| |
|
|
|
|
|
|
| Name |
|
Age |
|
Position |
| |
Andrew S. Lerner
|
|
|
43 |
|
|
Chief Executive Officer and Director |
Stephen B. Galasso
|
|
|
60 |
|
|
Senior Strategic Officer and Director |
D. James Daras
|
|
|
55 |
|
|
Executive Vice President, Chief Financial Officer and Director |
Brett G. Baris
|
|
|
34 |
|
|
Executive Vice President |
Robert M. Lichten
|
|
|
68 |
|
|
Director |
Frederick S. Hammer
|
|
|
72 |
|
|
Director |
Samuel J. Weinhoff
|
|
|
58 |
|
|
Director |
David Gaebler
|
|
|
47 |
|
|
Director |
Mr. Andrew S. Lerner has been our Chief Executive Officer and a Director since inception. Mr.
Lerner is Managing Partner of Inter-Atlantic Group, where he has been employed since 1995. Mr.
Lerner is responsible for the day-to-day activities of Inter-Atlantic Group, and is a member of
Inter-Atlantic Group’s investment committee. In 2000, he launched Inter-Atlantic Group’s private
equity business which is now the core activity of the organization. Mr. Lerner was also President
and Managing Director of Guggenheim Securities, LLC, Inter-Atlantic Group’s former FINRA
broker-dealer operation, until 2003. He was responsible for its day-to-day affairs including all
supervisory, financial, regulatory, compliance and broker-dealer activities. Mr. Lerner is a
Director of HedgeCo Networks, LLC, a Board Observer at Planet Payment, Inc. and an advisory board
member at TIO Networks, Inc., which are all portfolio companies of Inter-Atlantic. He is a former
Director of several of Inter-Atlantic Group’s current and past portfolio companies. Mr. Lerner has
over 19 years of experience in the financial services industry. Prior to joining Inter-Atlantic
Group, he served as an investment banker in the Financial Institutions Group of Smith Barney Inc.
for four years and in its Mortgage and Asset Finance Group for two years. At Smith Barney, he
concentrated on raising capital and providing merger and acquisition advisory services to financial
institutions. Assignments included advising the parent corporation, now known as Citigroup Inc.,
on multiple financial services acquisitions. Also, since 1995, Inter-Atlantic Group has been a
senior strategic advisor to a prominent insurance company and during the past 14 years Mr. Lerner
has periodically led merger and acquisition advisory and other strategic assignments related
thereto, including the divestiture of its credit card business. Mr. Lerner holds a B.S.E. in
Electrical Engineering and Computer Science from Princeton University and an M.B.A. in Finance from
The Wharton School, University of Pennsylvania.
Mr. Stephen B. Galasso has been the Senior Strategic Officer and a Director since inception. Since
early 2005 Mr. Galasso has been a strategic advisor and independent board director to Advanced
Payment Solutions, an early stage company that launched the UK’s first prepaid bank card. In
addition, since June of 2007, he has been an independent director of Account Now Inc., a private US
prepaid card company. Prior to joining Advanced Payment Solutions, Mr. Galasso was the Chairman
and CEO of NetSpend Corporation, a prepaid payment solutions company, from November 2001 to April
2004. During Mr. Galasso’s tenure the revenues of NetSpend Corporation grew significantly from 2001
to 2004. The company won the Portfolio Company of
the Year Award in 2003 from the National Association of Small Business Investment Companies
(NASBIC). In addition, Mr. Galasso helped pioneer the United States Office of the Comptroller of
Currency and association (MasterCard) prepaid debit card rules and regulations. Mr. Galasso was
also formerly the President and CEO of Universal Value Network, a payment card content and data
management company, which he was instrumental in selling. Prior to this venture, Mr. Galasso was
President and CEO of Bank of America’s Credit Card Company. He also served as a member of Bank of
America’s Senior Management Council and as Executive Vice President of Marketing and Product
Management at Bank of America Credit Cards. Prior to Bank of America, Mr. Galasso was Vice
President of Marketing, Director of Communications, Strategic Planning and New Products for
Citibank, VISA and MasterCard Products. Mr. Galasso holds a B.S. in Marketing from Fordham
University and an M.B.A. from Fordham University Graduate School of Business.
68
Mr. D. James Daras has been our Executive Vice President, Chief Financial Officer and a Director
since inception. Mr. Daras is a former Partner of Inter-Atlantic Group. In addition, Mr. Daras was
the Chief Executive Officer and Director of Loan Servicing Solutions Holdings, LLC, a former
portfolio company of Inter-Atlantic Group. From 2002-2005, Mr. Daras was Chief Executive Officer of
JW Group, LLC, which provided advisory services to hedge funds investing in financial institutions
and mortgage real estate investment trusts. During that time he was also an advisor to Franklin
Madison Group, a boutique consulting firm specializing in performance enhancement for financial
institutions in the areas of financial management, capital markets activities, risk management,
information technology and operations. Mr. Daras has experience in bank restructuring,
recapitalizing and merger and acquisitions having played a major role in those areas at Dime
Bancorp. From 1991 through 2002, at Dime Bancorp, Mr. Daras managed loan and securities portfolios,
and also oversaw the bank’s cash management, money transfer, derivatives, funding and risk
management operations. Mr. Daras’ previous positions include Executive Vice President, Treasurer
and Asset-Liability Committee Chairman of Dime Bancorp, Chief Financial Officer of Cenlar Capital
Corp., a mortgage banking company and Vice President of The Chase Manhattan Bank. Mr. Daras is a
former Director of Inter-Atlantic Group portfolio company Red Vision Systems, Inc. Mr. Daras has
authored or co-authored several papers on fixed income risk management techniques and
asset-liability management at banks. He holds a B.B.A. from George Washington University and an
M.B.A. from St. Johns University.
Brett G. Baris has been an Executive Vice President of our company since inception. Mr. Baris is a
Partner of Inter-Atlantic Group, where he has been employed since 1998. Mr. Baris is responsible
for sourcing, analyzing, negotiating, structuring and monitoring private equity investments, and is
a member of Inter-Atlantic Group’s investment committee. Mr. Baris was a Vice President of
Guggenheim Securities, LLC, Inter-Atlantic Group’s former NASD broker-dealer operation, until 2003,
and held series 7, series 24 and series 63 NASD licenses. Prior to joining Inter-Atlantic Group,
Mr. Baris spent two years as an analyst in the Financial Institutions Group of Salomon Smith Barney
Inc. At Salomon Smith Barney, Mr. Baris worked predominantly on collateralized debt offerings and
securitizations in the student loan finance area. Mr. Baris is a Director of Avalon Healthcare
Holdings, Inc. and Homeowners of America Holding Corporation and an advisory board member at Tio
Networks, Inc., all Inter-Atlantic Group portfolio companies. Mr. Baris holds a B.A. in Economics,
magna cum laude, from Tufts
University and an M.B.A. from Columbia Business School. He is a member of the Phi Beta Kappa
National Honor Society and the Beta Gamma Sigma International Honor Society.
69
Robert M. Lichten has been a Director since inception. Mr. Lichten has been Co-Chairman of
Inter-Atlantic Group since 1994 and is a member of Inter-Atlantic Group’s investment committee. He
also served as Co-Chairman of Guggenheim Securities LLC, Inter-Atlantic Group’s former NASD
broker-dealer operation, until 2003. Previously, Mr. Lichten was Managing Director at both Smith
Barney Inc. and Lehman Brothers Inc., where he concentrated on capital raising and providing merger
and acquisition advisory services to financial institutions. Mr. Lichten was also formerly
Executive Vice President of The Chase Manhattan Bank. During his 22 years at Chase he was a senior
corporate banker and was in charge of worldwide capital planning. Mr. Lichten also served as Chief
of Staff of the Asset-Liability Management Committee and President of The Chase Investment Bank. As
President, he was responsible for all swap and derivative products, corporate finance, private
placements, leasing, loan syndications and merger and acquisition activities. Mr. Lichten is a
Director of Inter-Atlantic Group’s portfolio companies SeaPass Solutions, Inc., Accruit LLC, and
GovernanceMetrics International, Inc. a corporate governance rating agency. In addition, he
currently serves as a Director on the Board of Syncora Holdings Ltd. And its various subsidiaries.
He is a former trustee of Manhattan College, a former Director of Annuity & Life Re (Holdings),
Ltd. and a former Director and President of the Puerto Rico USA Foundation, a cooperative effort
between the Commonwealth of Puerto Rico and numerous multi-national corporations. Mr. Lichten holds
a B.S. in Chemical Engineering from Manhattan College and an M.B.A. from New York University. He
served as a Lieutenant in the United States Air Force and received the Air Force Commendation Medal
for his work in solid rocket propulsion systems.
Mr. Frederick S. Hammer has been a Director since inception. Mr. Hammer has been Co-Chairman of
Inter-Atlantic Group since 1994 and is a member of Inter-Atlantic Group’s investment committee. He
also served as Co-Chairman of Guggenheim Securities LLC, Inter-Atlantic Group’s former NASD
broker-dealer operation, until 2003. Mr. Hammer formerly served as Chairman, President and Chief
Executive Officer of Mutual of America Capital Management Corporation. Previously, Mr. Hammer
served as President of SEI Asset Management Group where he originated the multi-manager investment
operations at the company. Mr. Hammer also served as Chairman and Chief Executive Officer of
Meritor Financial Group; Executive Vice President of The Chase Manhattan Bank, where he was
responsible for the bank’s global consumer activities including the retail branch network, credit
card, consumer lending and deposit businesses; Executive Vice President of Associates Corp. of
North America; and Vice President of Bankers Trust Co. Mr. Hammer is a Director of Inter-Atlantic
Group’s portfolio companies Avalon Healthcare Holdings and Homeowners of America Holding
Corporation. In addition, he currently serves as a Director on the Board of ING Clarion Realty
Funds and is a former Director of several public and private companies, including VISA USA and VISA
International. Mr. Hammer holds an A.B. degree in Mathematics, magna cum laude, from Colgate
University and received his M.S. and Ph.D. degrees in Economics from Carnegie-Mellon University. He
has taught Finance and Banking at The Wharton School, The University of Indiana, and New York
University’s Graduate School of Business Administration.
70
Mr. Samuel J. Weinhoff has been a Director since July 2007. Mr. Weinhoff has served as a consultant
to the insurance industry since 2000. Prior to this, Mr. Weinhoff was head of the Financial
Institutions Group for Schroder & Co. from 1997 until 2000. He was also a Managing Director at
Lehman Brothers, where he worked from 1985 to 1997. Mr. Weinhoff had ten years prior experience at
Home Insurance Company and the Reliance Insurance Company in a variety of positions, including
excess casualty reinsurance treaty underwriter, investment department analyst, and head of
corporate planning and reporting. Mr. Weinhoff is currently a member of the board of directors of
Infinity Property and Casualty Corporation, where he is a member of both the Executive Committee
and the Audit Committee, and a member of the board of directors of Allied World Assurance Company
Holdings, Ltd., where he is a member of the Executive Committee, the Audit Committee and the
Investment Committee.
Mr. David Gaebler has been a Director since 2008. Until 2008, Mr. Gaebler was a Senior Vice
President at Lehman Brothers, where he had worked since 1987. He has worked for clients in the
insurance industry in both a capital raising and advisory capacity. Prior to joining Lehman
Brothers he worked for the Federal Reserve Bank and Chase Econometrics. He holds a B.A. cum laude
in economics from Oberlin College and an M.B.A. from Yale University.
Classified Board
Our board of directors is divided into three classes with only one class of directors being
elected in each year and each class serving a three-year term. The term of office of the first
class of directors, consisting of Messrs. Daras and Hammer, will expire at our first annual meeting
of stockholders. The term of office of the second class of directors, consisting of Messrs.
Weinhoff and Galasso, will expire at the second annual meeting. The term of office of the third
class of directors, consisting of Messrs. Lerner and Lichten, will expire at the third annual
meeting. It is our policy that all of our board members attend our annual meetings.
Director Independence
Our board of directors has determined that Messrs. Hammer, Lichten, Weinhoff and Gaebler are
“independent directors” within the meaning of Rule 121(A) of the NYSE Amex Company Guide and Rule
10A-3 promulgated under the Securities and Exchange Act of 1934, as amended.
Board Committees; Board and Committee Meetings
Our board of directors has an audit committee and a nominating committee. During the year
ended December 31, 2008, our board of directors had four meetings, our audit committee had one
meeting and our nominating committee had one meeting. All directors attended more than 90% of the
meetings of the board, the audit committee and the nominating committee on which they are members,
and none of them attended fewer than 75% of such meetings.
Audit Committee
Our audit committee consists of Messrs. Hammer, Lichten and Weinhoff. Mr. Lichten serves as
the Chairman of our audit committee. The independent directors we appoint to our
audit committee are each “independent”, as defined by the rules of the SEC and the NYSE Amex.
Our board of directors has determined that Messrs. Lichten, Weinhoff and Hammer each qualify as an
“audit committee financial expert,” as such term is defined by SEC rules.
71
The audit committee reviews the professional services and independence of our independent
registered public accounting firm and our accounts, procedures and internal controls. The audit
committee also recommends the firm selected to be our independent registered public accounting
firm, reviews and approves the scope of the annual audit, reviews and evaluates with the
independent public accounting firm our annual audit and annual consolidated financial statements,
reviews with management the status of internal accounting controls, evaluates problem areas having
a potential financial impact on us that may be brought to the committee’s attention by management,
the independent registered public accounting firm or the board of directors, and evaluates all of
our public financial reporting documents.
Our audit committee has a written charter. A copy of the charter was filed with the SEC as
Exhibit 99.1 to our Registration Statement on Form S-1 (file no. 333-140690).
Audit Committee Report
The audit committee reviews the company’s financial reporting process on behalf of the board.
Management is responsible for our internal controls, the financial reporting process and the
preparation of our financial statements. Our independent registered public accounting firm is
responsible for performing an independent audit of the company’s financial statements in accordance
with auditing standards generally accepted in the U.S. and issuing a report on the financial
statements.
In this context, the audit committee has met and held discussions with management and
Rothstein, Kass & Company, P.C., the company’s independent registered public accounting firm, on at
least a quarterly basis. Management represented to the audit committee that the company’s
financial statements were prepared in accordance with accounting principles generally accepted in
the U.S., and the audit committee has reviewed and discussed the financial statements with
management and the independent registered public accounting firm. The audit committee meets with
management and the independent registered public accounting firm together and individually, as
required, at each meeting. The audit committee discussed with the independent registered public
accounting firm matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees), as modified or supplemented.
During 2008, the audit committee reviewed management’s documentation for maintaining adequate
internal controls over financial reporting to meet continuing compliance requirements under Section
404 of the Sarbanes-Oxley Act of 2002. Based upon its assessment, management concluded that, as of
December 31, 2008, the Company’s internal control over financial reporting was effective.
In addition, the audit committee has discussed with the independent registered public
accounting firm the accountants’ independence from the company and its management, and has received
the written disclosures and letter required by the Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees).
72
In reliance on the reviews and discussions referred to above, the audit committee recommended
to the board of directors, and the board of directors approved, that the 2008 audited financial
statements be included in the company’s annual report on Form 10-K for the fiscal year ended
December 31, 2008, for filing with the Securities and Exchange Commission.
| |
|
|
|
|
THE AUDIT COMMITTEE |
|
|
Robert M. Lichten (Chairman) |
|
|
Frederick S. Hammer |
|
|
Samuel J. Weinhoff |
Nominating Committee
Our nominating committee consists of Messrs. Hammer, Lichten and Weinhoff, each of whom our
board of directors has determined is an independent director as defined by the rules of the NYSE
Amex and the SEC. Mr. Hammer serves as the Chairman of our Nominating Committee. The nominating
committee is responsible for overseeing the selection of persons to be nominated to serve on our
board of directors. The nominating committee considers persons identified by its members,
management, stockholders, investment bankers and others.
The guidelines for selecting nominees, which are specified in the nominating committee
charter, generally provide that persons to be nominated should be actively engaged in business
endeavors, have an understanding of financial statements, corporate budgeting and capital
structure, be familiar with the requirements of a publicly traded company, be familiar with
industries relevant to our business endeavors, be willing to devote significant time to the
oversight duties of the board of directors of a public company, and be able to promote a diversity
of views based on the person’s education, experience and professional employment. The nominating
committee evaluates each individual in the context of the board as a whole, with the objective of
recommending a group of persons that can best implement our business plan, perpetuate our business
and represent stockholder interests. The nominating committee may require certain skills or
attributes, such as financial or accounting experience, to meet specific board needs that arise
from time to time. The nominating committee does not distinguish among nominees recommended by
stockholders and other persons.
Our nominating committee has a written charter. A copy of the charter was filed with the SEC
as Exhibit 99.2 to our Registration Statement on Form S-1 (file no. 333-140690).
We do not have a compensation or similar committee. The independent members of our Board of
Directors perform the functions of a compensation committee including:
| |
• |
|
reviewing and approving our overall compensation strategy and policies; |
| |
• |
|
reviewing and approving corporate performance goals and objectives relevant to the
compensation of our executive officers and other senior management; |
| |
• |
|
determining the compensation and other terms of employment of our Chief Executive
Officer; and |
| |
• |
|
reviewing and approving the compensation and other terms of employment of the other
executive officers and senior management. |
73
Code of Conduct and Ethics
We have adopted a code of conduct and ethics applicable to our directors, officers and
employees in accordance with applicable federal securities laws and the rules of the NYSE Amex.
Requests for a copy of the code of conduct and ethics should be sent in writing to Inter-Atlantic
Financial, Inc., 400 Madison Avenue, New York, New York 10017.
Stockholder Communications with the Board of Directors
Our board of directors will give appropriate attention to written communications on issues
that are submitted by stockholder and other interested parties, and will respond if and as
appropriate. The chairman of our audit committee will be primarily responsible for monitoring
communications from shareholders and other interested parties and will provide copies or summaries
of such communications to the other directors as he considers appropriate.
Communications will be forwarded to all directors if they relate to substantive matters and
include suggestions or comments that the chairman of the audit committee considers to be important
for the directors to know.
Stockholders and other interested parties who wish to send communications on any topic to the
board of directors should address such communications to chairman of the audit committee at our
principal executive offices.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officer, directors and
persons who own more than ten percent of a registered class of our equity securities to file
reports of ownership and changes in ownership with the SEC. Officers, directors and ten percent
stockholders are required by regulation to furnish us with copies of all Section 16(a) forms they
file. Based solely on copies of such forms received as well as any written representations that no
other reports were required, we believe that, during the year ended December 31, 2008, all Section
16(a) filing requirements applicable to our officer, directors and greater than ten percent
beneficial owners were complied with.
ITEM 11. Executive Compensation
Compensation Discussion and Analysis
No executive officer has received any cash or any other form of compensation for services
rendered including but not limited to options, stock and non-equity incentives. We are paying
Inter-Atlantic Group $7,500 per month for use of office space, utilities, administrative,
technology and secretarial services. This arrangement has been agreed to by us for our benefit and
is not intended to provide any director or officer with compensation in lieu of salary. We
believe, based on rents and fees for similar services in New York, New York, that such fees are at
least as favorable as we could have obtained from an unaffiliated third party. Other than this
$7,500 per month fee, no compensation of any kind, including finder’s and consulting fees, is
paid to any of our officers and directors, or any of their respective affiliates, for services
rendered prior to or in connection with a business
74
combination.
However, these individuals may 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 (including possible payments to unaffiliated third parties for their performance of
due diligence). After a business combination, such individuals may be paid consulting, management
or other fees from target businesses, with any and all amounts being fully disclosed to
stockholders, to the extent known, in the proxy solicitation materials furnished to the
stockholders. 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 independent and disinterested
members of our board of directors, which includes persons who may seek reimbursement, or a court of
competent jurisdiction if such reimbursement is challenged. If none of our directors are deemed
“independent,” we will not have the benefit of independent directors examining the propriety of
expenses incurred on our behalf and subject to reimbursement.
Other than the securities described above and in the section appearing elsewhere in this
Annual Report on Form 10-K entitled “Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters”, neither our officer nor our directors has received any of our
equity securities.
The independent members of our board of directors have reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K with our management. Based on
such review and discussions, the independent members of our board of directors recommended to the
board that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K
and the proxy statement for the company’s 2009 annual meeting of stockholders.
Compensation Committee Interlocks and Insider Participation
None.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The following tables set forth information as of March 12, 2009 regarding the beneficial
ownership of our common stock:
| |
• |
|
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 following tables have
sole voting and investment power with respect to all shares of common stock beneficially owned by
them.
75
| |
|
|
|
|
|
|
|
|
| |
|
Number of |
|
|
Approximate Percentage of |
|
| |
|
Shares of |
|
|
Outstanding Common Stock |
|
| Name of Beneficial Owner |
|
Common Stock |
|
|
Beneficially Owned (1) |
|
|
|
|
|
|
|
|
|
|
Malibu Partners(2) |
|
|
1,943,780 |
|
|
|
17.92 |
% |
Polar Securities Inc. and affiliates(3) |
|
|
933,717 |
|
|
|
8.61 |
% |
QVT Financial L.P. and affiliates(4) |
|
|
817,472 |
|
|
|
7.54 |
% |
Bulldog
Investors and affiliates(5) |
|
|
696,800 |
|
|
|
6.42 |
% |
Deutsche Bank AG |
|
|
646,565 |
|
|
|
5.96 |
% |
Andrew S. Lerner(6) |
|
|
469,060 |
|
|
|
4.47 |
% |
Stephen B. Galasso(7) |
|
|
263,109 |
|
|
|
2.51 |
% |
Brett G. Baris |
|
|
234,530 |
|
|
|
2.24 |
% |
Robert M. Lichten |
|
|
234,530 |
|
|
|
2.24 |
% |
Frederick S. Hammer |
|
|
234,530 |
|
|
|
2.24 |
% |
D. James Daras |
|
|
90,276 |
|
|
|
0.86 |
% |
Samuel J. Weinhoff |
|
|
4,386 |
|
|
|
0.04 |
% |
All officers and directors as a group |
|
|
1,530,421 |
|
|
|
14.60 |
% |
| (1) |
|
Assumes that 1,875,000 founders’ shares and the 8,610,300 units sold in the IPO and
over-allotment are outstanding, but not: (a) the exercise of the 8,610,300 warrants to
purchase shares of our common stock included in such units, (b) 525,000 shares of our common
stock included in the representative unit purchase option, (c) 525,000 shares of common stock
underlying warrants included in the representative’s unit purchase option and (d) 2,300,000
shares of common stock underlying the founders’ warrants. |
| (2) |
|
Includes shares that may be deemed beneficially owned by Malibu Partners LLC (“Malibu”) and
Kenneth J. Abdalla, each an affiliate of Malibu Partners LLC. Malibu Partners LLC has
delegated discretion to vote and dispose of the shares. The address of the principal business
office of each of Malibu Partners LLC and Kenneth J. Abdalla is 15332 Antioch Street, #582,
Pacific Palisades, CA 90272. |
| (3) |
|
Includes shares that may be deemed beneficially owned by North Pole Capital Master Fund
(“North Pole”), an affiliate of Polar Securities Inc. (“Polar Securities”). Polar Securities
serves as the investment manager to North Pole and a number of discretionary accounts with
respect to which it has voting and dispositive authority over the shares. The address of the
principal business office of each of North Pole and Polar Securities is 372 Bay Street, 21st
floor, Toronto, Ontario M5H 2W9, Canada. |
| (4) |
|
Includes shares that may be deemed beneficially owned by QVT Financial GP LLC, QVT Fund LP,
QVT Associates GP LLC, each an affiliate of QVT Financial LP. The address of the principal
business office of each of QVT Financial LP, QVT Financial GP LLC and QVT Associates GP LLC is
1177 Avenue of the Americas, 9th Floor, New York, New York 10036. The address of the
principal business office of QVT Fund LP is Walkers SPV, Walkers House, Mary Street, George
Town, Grand Cayman, KY1 9001 Cayman Islands. |
| (5) |
|
Includes shares that may be deemed beneficially owned by Phillip Goldstein and Andrew Dakos,
each a principal of Bulldog Investors. The address of the principal place of business of
Bulldog Investors is Park 80 West, Plaza Two, Saddle Brook, NJ 07663. |
| |
| (6) |
|
Includes 90,000 shares beneficially owned by Mr. Lerner’s children and other family members. |
| |
| (7) |
|
The beneficial owner is the Stephen and Linda Galasso Family Trust. |
76
Our officers and directors purchased in a pre-offering private placement transaction a
combined total of 2,100,000 warrants and Michael P. Esposito, Jr., one of our stockholders,
purchased 200,000 warrants, from us at a price of $1.00 per warrant. These warrants, which we
collectively refer to as the founders’ warrants, will not be sold or transferred by the purchasers
who initially purchase these warrants from us until the completion of our initial business
combination. The $2,300,000 purchase price of the founders’ warrants were added to the proceeds of
the IPO and over-allotment option and are also held in our 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 report and our certificate of incorporation, then the
$2,300,000 purchase price of the founders’ warrants will become part of the liquidation
distribution to the public stockholders and the founders’ warrants will expire worthless.
Our officers and directors, collectively, beneficially own approximately 14.6% of the issued
and outstanding shares of our common stock. Because of this ownership block, these stockholders
may be able to effectively influence the outcome of all matters requiring approval by our
stockholders, including the election of directors and approval of significant corporate
transactions other than approval of a business combination.
All of the shares of our common stock outstanding prior to the IPO were placed in escrow with
American Stock Transfer & Trust Company, as escrow agent, until one year following the consummation
of the business combination.
During the escrow period, the holders of these shares will not be able to sell or transfer
their securities except to their spouses and children or trusts established for their benefit, 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 October 3, 2007.
Messrs. Andrew Lerner, Stephen Galasso, James Daras, Brett Baris, Frederick Hammer, Samuel
Weinhoff and Robert Lichten are deemed to be our “parents” and “promoters” as these terms are
defined under the Federal securities laws.
ITEM 13. Certain Relationships, Related Transactions and Director Independence
In January, 2007, we issued 1,875,000 shares of our common stock for an aggregate amount of
$25,000 in cash, at an average purchase price of approximately $0.0133 per share. These
individuals currently own the following shares after taking into account resales of certain shares
which occurred in July and September 2007.
| |
|
|
|
|
|
|
| |
|
Number of |
|
|
| Name |
|
Shares |
|
Relationship to Us |
|
|
|
|
|
|
|
Andrew S. Lerner
|
|
|
469,060 |
|
|
Chief Executive Officer and Director |
Stephen B. Galasso
|
|
|
263,109 |
|
|
Senior Strategic Officer and Director |
Brett G. Baris
|
|
|
234,530 |
|
|
Executive Vice President |
Frederick S. Hammer
|
|
|
234,530 |
|
|
Director |
Robert M. Lichten
|
|
|
234,530 |
|
|
Director |
Michael P. Esposito, Jr.
|
|
|
120,937 |
|
|
Stockholder |
P. Carter Rise
|
|
|
111,821 |
|
|
Advisor |
Matthew D. Vertin
|
|
|
111,821 |
|
|
Advisor |
D. James Daras
|
|
|
90,276 |
|
|
Executive Vice President, Chief
Financial Officer and Director |
Samuel J. Weinhoff
|
|
|
4,386 |
|
|
Director |
|
|
|
1,875,000 |
|
|
|
77
Our officers and directors have collectively purchased from us a combined total of 2,100,000
of our warrants and Michael Esposito, Jr., one of our stockholders, purchased 200,000 warrants,
each at a price of $1.00 per warrant. These warrants, which we collectively refer to as the
founders’ warrants, will not be sold or transferred by the purchasers who initially purchase these
warrants from us until the completion of our initial business combination. The $2,300,000 purchase
price of the founders’ warrants were added to the proceeds of the IPO and are held in our 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 report, then the $2,300,000
purchase price of the founders’ warrants will become part of the liquidation distribution to our
public stockholders and the founders’ warrants will expire worthless.
The holders of the majority of the 1,875,000 shares, together with the holders of the
founders’ warrants, are entitled to require us, on up to two occasions, to register these shares
and the 2,300,000 founders’ warrants and the 2,300,000 shares of common stock underlying the
founders’ warrants. The holders of the majority of these shares and the founders’ warrants may
elect to exercise these registration rights at any time after the date on which these shares of
common stock and founders’ warrants are released from escrow, which, except in limited
circumstances, is not before the one year anniversary from the consummation of a business
combination in the case of the common stock, and the consummation of a business combination in the
case of the founders’ warrants. In addition, these stockholders and the holders of the founders’
warrants have certain “piggy-back” registration rights on registration statements filed subsequent
to the date on which these shares are released from escrow or the founders’ warrants become
exercisable, as the case may be. We will bear the expenses incurred in connection with the filing
of any such registration statements.
Inter-Atlantic Group has also made available to us a $500,000 limited recourse line of credit
which bears interest at the federal funds target interest rate (0-0.25% as of December 31, 2008).
Repayment of the line of credit is payable prior to the business combination solely from the
$1,100,000 of interest earned on the trust account which is available for working capital, solely
to the extent there is more than $7.96 per share in the trust account.
Because the founders’ warrants sold in the pre-offering private placement were originally
issued pursuant to an exemption from registration requirements under the federal securities laws,
founders’ warrants will be exercisable even if, at the time of exercise, a prospectus relating to
the common stock issuable upon exercise of such warrants is not current.
Inter-Atlantic Group, an affiliate of certain of the officers and directors, provided us an
interest-free loan of $250,000 which was used to pay a portion of the expenses of this offering,
such as SEC registration fees, FINRA registration fees, NYSE Amex listing and application fees and
legal and accounting fees and expenses. The $250,000 loan from Inter-Atlantic Group was repaid
without interest on the consummation of the offering. We repaid this loan from the proceeds of the
IPO not held in trust.
78
We are paying Inter-Atlantic Group $7,500 per month for use of office space, utilities,
administrative, technology and secretarial services. This arrangement has been agreed to by us for
our benefit and is not intended to provide our officers or directors compensation in lieu of
salary. We believe, based on rents and fees for similar services in New York, New York, that such
fees are at least as favorable as we could have obtained from an unaffiliated person. This
arrangement will terminate upon completion of a business combination or the distribution of our
trust account to our public stockholders. Inter-Atlantic Management Services LLC also purchased
4,688 shares of our common stock in January 2007 as part of the 1,875,000 shares of common stock
issued. These shares were subsequently purchased at cost by certain of our stockholders.
Each of our founding officers and directors are deemed to be our “parent” and “promoter,” as
these terms are defined under the Federal securities laws.
We will reimburse our officers and directors for any reasonable out-of-pocket business
expenses incurred by them in connection with certain activities on our behalf such as identifying
and investigating possible target businesses and business combinations (including possible payments
to unaffiliated third parties for their performance of due diligence). There is no limit on the
amount of accountable 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 trust 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 and consulting fees, will be paid to any of our
officers or directors or to any of their respective affiliates for services rendered to us prior to
or with respect to the business combination.
Our officers and directors do not receive reimbursement for any out-of-pocket expenses
incurred by them to the extent that such expenses exceed the amount held outside of our 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.
79
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 at that time, based upon other similar
arrangements known to us, to be no less favorable than are available from unaffiliated third
parties and any transactions or loans, including any forgiveness of loans, will require prior
approval in each instance by a majority of our uninterested “independent” directors (to the extent
we have any) or the members of our board who do not have an interest in the transaction, in either
case who had access, at our expense, to our attorneys or independent legal counsel. We will not
enter into any such transaction unless our disinterested “independent” directors (or, if there are
no “independent” directors, our disinterested directors) determine that the terms of such
transaction are no less favorable to us than those that would be available to us with respect to
such a transaction from unaffiliated third parties.
ITEM 14. Principal Accounting Fees and Services
The firm of Rothstein, Kass & Company, P.C.(“Rothstein Kass”) acts as our principal
accountant. Rothstein Kass manages and supervises the audit, and is exclusively responsible for
the opinion rendered in connection with its examination. The following is a summary of fees paid
to Rothstein Kass for services rendered:
Audit Fees
The aggregate fees billed or expected to be billed for professional services rendered by
Rothstein Kass for the year ended December 31, 2008 for (a) the annual audit of our financial
statements for such year and (b) the reviews of our financial statements for the quarterly periods
ended March 31, June 30 and September 30, 2008 amounted to approximately $62,500.
Audit-Related Fees
We did not receive audit-related services that are not reported as Audit Fees for the year
ended December 31, 2008.
Tax Fees
We did not receive significant professional services for tax compliance, tax advice and tax
planning for the year ended December 31, 2008.
80
All Other Fees
We did not receive products and services provided by Rothstein Kass, other than those
discussed above, for the year ended December 31, 2008.
Pre-Approval Policy
Since our audit committee was not formed until October 2007, the audit committee did not
pre-approve all of the foregoing services, although any services rendered prior to the formation of
our audit committee were approved by our board of directors. Since the formation of our audit
committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing
services and permitted non-audit services to be performed for us by
Rothstein Kass, including the fees and terms thereof (subject to the de minimus exceptions for
non-audit services described in the Exchange Act which are approved by the audit committee prior to
the completion of the audit). The audit committee may form and delegate authority to subcommittees
of the audit committee consisting of one or more members when appropriate, including the authority
to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such
subcommittee to grant pre-approvals shall be presented to the full audit committee at its next
scheduled meeting.
81
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this Report:
1. Financial Statements:
Report of Independent Registered Public Accounting Firm
Balance Sheet
Statement of Operations
Statement of Stockholders’ Equity
Statement of Cash Flows
Notes to Financial Statements
2. Financial Statement Schedule(s):
All schedules are omitted for the reason that the information is included in the financial
statements or the notes thereto or that they are not required or are not applicable.
3. Exhibits:
See attached Exhibit Index of this Annual Report on Form 10-K.
(b) 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 material can also be obtained from the Public Reference Section of the
SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.
(c) Financial Statement Schedules
All schedules are omitted for the reason that the information is included in the financial
statements or the notes thereto or that they are not required or are not applicable.
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| Exhibit |
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| No. |
|
Description |
| |
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3.1 |
|
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Amended and Restated Certificate of Incorporation.(1) |
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3.2 |
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By-laws.(1) |
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4.1 |
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Specimen Unit Certificate.(1) |
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4.2 |
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Specimen Common Stock Certificate.(1) |
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4.3 |
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Specimen Warrant Certificate.(1) |
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4.4 |
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Form of Warrant Agreement between American Stock Transfer &
Trust Company and the Registrant.(1) |
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4.5 |
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Form of Unit Option Purchase Agreement between the Registrant
and Morgan Joseph & Co.(1) |
82
| |
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| Exhibit |
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| No. |
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Description |
| |
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10.1 |
|
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Letter Agreement among the Registrant, Morgan Joseph & Co. and
Andrew Lerner.(1) |
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10.2 |
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Letter Agreement among the Registrant, Morgan Joseph & Co. and
Stephen Galasso.(1) |
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10.3 |
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Letter Agreement among the Registrant, Morgan Joseph & Co. and
D. James Daras.(1) |
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10.4 |
|
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Letter Agreement among the Registrant, Morgan Joseph & Co. and
Robert M. Lichten.(1) |
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10.5 |
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Letter Agreement among the Registrant, Morgan Joseph & Co. and
Frederick Hammer.(1) |
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10.6 |
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Letter Agreement among the Registrant, Morgan Joseph & Co. and
Brett G. Baris.(1) |
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10.7 |
|
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Letter Agreement among the Registrant, Morgan Joseph & Co. and
Samuel J. Weinhoff.(1) |
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10.8 |
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Form of Investment Management Trust Agreement between American
Stock Transfer & Trust Company and the Registrant.(1) |
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10.9 |
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Form of Securities Escrow Agreement between the Registrant,
American Stock Transfer & Trust. Company and the Initial
Stockholders.(1) |
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10.10 |
|
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Form of Registration Rights Agreement among the Registrant and
the Initial Stockholders.(1) |
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10.11 |
|
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Office Services Agreement dated October 2, 2007 by and among
the Registrant and Inter-Atlantic Management Services LLC.(1) |
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10.12 |
|
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Warrant Purchase Agreement between the Registrant and the
Initial stockholders.(1) |
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10.13 |
|
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Form of Promissory Note, dated January 31, 2007, issued to
Inter-Atlantic Management Services LLC in the amount of
$250,000.(1) |
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10.14 |
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Revolving Line of Credit Agreement.(1) |
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14.1 |
|
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Code of Ethics.(1) |
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31.1 |
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Chief Executive Officer Certification Pursuant to Rule
13A-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934. |
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31.2 |
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Chief Financial Officer Certification Pursuant to Rule
13A-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934. |
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32.1 |
|
|
Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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32.2 |
|
|
Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
| |
99.1 |
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Audit Committee Charter.(1) |
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99.2 |
|
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Nominating Committee Charter.(1) |
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|
|
| (1) |
|
Incorporated by reference to the corresponding exhibit filed with the
Registration Statement on Form S-1 (File No. 333-140690) with the SEC. |
83
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.
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INTER-ATLANTIC FINANCIAL, INC.
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By: |
/s/ Andrew Lerner
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|
Andrew Lerner |
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Title: |
Chief Executive Officer and Director
(Principal Executive Officer) |
|
| |
| |
Date: March 25, 2009 |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacity and on the
dates indicated:
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| Signature |
|
Title |
|
Date |
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|
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|
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/s/ Andrew Lerner
Andrew Lerner
|
|
Chief Executive Officer and Director
(principal
executive officer)
|
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March 25, 2009 |
|
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|
|
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|
Senior Strategic Officer and Director
|
|
March 25, 2009 |
Stephen B. Galasso |
|
|
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/s/ D. James Daras
D. James Daras
|
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Executive Vice President,
Chief
Financial Officer and Director
(Principal Financial and Accounting Officer)
|
|
March 25, 2009 |
|
|
|
|
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/s/ Robert M. Lichten
Robert M. Lichten
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Director
|
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March 25, 2009 |
|
|
|
|
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/s/ Frederick S. Hammer
Frederick S. Hammer
|
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Director
|
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March 25, 2009 |
|
|
|
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/s/ Samuel J. Weinhoff
Samuel J. Weinhoff
|
|
Director
|
|
March 25, 2009 |
84
EXHIBIT INDEX
| |
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|
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| Exhibit |
|
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| No. |
|
Description |
| |
|
|
|
|
| |
31.1 |
|
|
Chief Executive Officer Certification Pursuant to Rule 13A-14(a)
or Rule 15d-14(a) of the Securities Exchange Act of 1934. |
| |
31.2 |
|
|
Chief Financial Officer Certification Pursuant to Rule 13A-14(a)
or Rule 15d-14(a) of the Securities Exchange Act of 1934. |
| |
32.1 |
|
|
Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
| |
32.2 |
|
|
Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
85