ITEM 1A. Risk Factors
An investment in our securities involves a high degree of risk. You 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 you could lose all or part of your investment.
We are a development stage company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.
We are a development stage company with no operating results and because we lack an operating history, you have no basis on which to evaluate our ability to achieve our business objective of completing a business combination with one or more target businesses. We are currently in the process of evaluating and identifying prospective target businesses concerning a business combination but may be unable to complete a business combination. We will not generate any revenues from operations until after completing a business combination. If we expend all of the $100,000 in proceeds from our initial public offering not held in trust and interest income earned on the balance of the trust account of up to 1% of the gross proceeds of our initial public offering ($10.35 million) that may be released to us to fund our working capital requirements in seeking a business combination but fail to complete such a combination, we will never generate any operating revenues.
We may not be able to consummate a business combination within the required time frame, in which case, we would dissolve and liquidate our assets.
Pursuant to our Charter, among other things, we must complete a business combination with a fair market value of at least 80% of the sum of the balance of the trust account at the time of the business combination (excluding deferred underwriting discounts and commissions of $27.4 million), plus the proceeds of the co-investment by June 12, 2010 (or December 12, 2010 if a letter of intent, agreement in principle or a definitive agreement has been executed by June 12, 2010 and the business combination relating thereto has not yet been consummated by such date). If we fail to consummate a business combination within the required time frame, we will, in accordance with our Charter dissolve, liquidate and wind up. The foregoing requirements are set forth in Article FIFTH of our Charter and may not be eliminated without the vote of our board and the vote of at least 80% of the voting power of our outstanding voting stock. We may not be able to find suitable target businesses within the required time frame. In addition, our negotiating position and our ability to conduct adequate due diligence on any potential target may be reduced as we approach the deadline for the consummation of a business combination.
If we dissolve and liquidate before consummating a business combination, our public stockholders will receive less than $10.00 per share on distribution of trust account funds and our warrants will expire worthless.
If we are unable to complete a business combination and must dissolve and liquidate our assets, the per-share liquidating distribution will be less than $10.00 because of the expenses of our initial public offering, our general and administrative expenses and the planned costs of seeking a business combination. We expect these costs and expenses to include approximately $4,100,000 for expenses for the due diligence and investigation of a target business or businesses; approximately $4,100,000 for legal, accounting and other expenses associated with structuring, negotiating and documenting an initial business combination; an aggregate of up to $360,000 for office space, administrative services and secretarial support payable to Berggruen Holdings, Inc., an affiliate of Mr. Berggruen, representing $10,000 per month; $125,000 as a reserve for liquidation expenses; $125,000 for legal and accounting fees relating to our SEC reporting obligations; and approximately $290,000 for general working capital that will be used for miscellaneous expenses and reserves. If we were unable to conclude an initial business combination and expended all of the net proceeds of our initial public offering, other than the proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account, net of income taxes payable on such interest and net of interest income earned on the trust account balance of up to 1% of the gross proceeds of our initial public offering ($10.35 million) previously released to us to fund working capital requirements, the initial per-share liquidation price would be $9.82, or $0.18 less than the per-unit offering price of $10.00. Furthermore, our outstanding warrants are not entitled to participate in a liquidating distribution and the warrants will therefore expire worthless if we dissolve and liquidate before completing a business combination.
You will not receive protections normally afforded to stockholders of certain blank check companies.
Since the net proceeds of our initial public offering are designated for completing a business combination with a target business that has not been identified, we may be deemed a “blank check” company under the United States securities laws. However, because on consummation of our initial public offering we had net tangible assets in excess of $5.0 million and maintained such net tangible assets at that time we filed a Current Report on Form 8-K with the SEC that includes an audited balance sheet demonstrating this fact, we are exempt from SEC rules such as Rule 419 that are designed to protect stockholders in blank check companies. Accordingly, stockholders will not receive the benefits or protections of that rule. Among other things, this means our units became immediately tradable and we will have a longer period of time to complete a business combination than do companies subject to Rule 419.
We have one year longer than most other blank check companies to effect a business combination.
The period of time we have to complete a business combination is longer than blank check companies subject to Rule 419, which have 18 months to complete a business combination, or other special purpose acquisition companies, which typically have 18 or 24 months to complete a business combination. This is because of the relatively large size of our initial public offering and our belief that fewer target businesses fit within our stated acquisition criteria and that the process of searching for, negotiating and consummating a business combination may take us longer than it would for a smaller business combination. As a result, if we do complete a business combination, it may take longer than it would for other blank check companies, and if we do not complete a business combination, the proceeds of our initial public offering will remain in trust for a longer period of time before they are released to you.
If third parties bring claims against us, the proceeds held in trust may be reduced and the per share liquidation price received by you will be less than $9.82 per share.
Our placing of funds in trust may not protect those funds from third party claims against us. Although we will seek to have all vendors (such as accountants, lawyers and investment bankers) that we engage after the consummation of our initial public offering, prospective target businesses or other entities we engage execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account, there is no guarantee that they will execute such agreements, or if executed, that this will prevent potential contracted parties from making claims against the trust account. Nor is there any guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Accordingly, the proceeds held in trust may be subject to claims which would take priority over the claims of our public stockholders and, as a result, the per-share liquidation price could be less than $9.82 due to such claims. If we are unable to complete a business combination and are forced to dissolve and liquidate, each of Mr. Berggruen and Mr. Franklin have agreed to personally indemnify us for any and all loss, liability, claim, damage and expense which we may become subject to as a result of a claim by any vendor, prospective target business or other entity that is owed money by us for services rendered or products sold but only to the extent necessary to ensure that such loss, liability, claim, damage or expense does not reduce the amount of funds held in the trust account. Based on representations made to us by Mr. Berggruen and Mr. Franklin, we believe that they are each of substantial means and capable of funding their indemnity obligations, even though we have not asked them to reserve funds for such an eventuality. Our audit committee will not be periodically reviewing any evidence that such individuals have sufficient net liquid assets to indemnify us. However, we cannot assure you that Mr. Berggruen or Mr. Franklin will be able to satisfy those obligations. Accordingly, the proceeds held in the trust account could be subject to claims which could take priority over those of our public stockholders and, as a result, the per-share liquidation amount would be less than $9.82 due to such claims.
Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the 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 the trust account, we cannot assure you we will be able to return to our public stockholders the liquidation amounts due them.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.
We will dissolve and liquidate if we do not complete a business combination by June 12, 2010 (or by December 12, 2010 if a letter of intent, agreement in principle or a definitive agreement has been executed by June 12, 2010 and the business combination relating thereto has not yet been consummated by such date). Under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of certain unlawful distributions received by them in a dissolution conducted in accordance with the Delaware General Corporation Law. We do not intend to comply with the procedures set forth in Section 280 of the Delaware General Corporation Law, which prescribes various procedures by which stockholder liability may be limited. Because we will not be complying with Section 280, we will seek stockholder approval to comply with Section 281(b) of the Delaware General Corporation Law, requiring us to adopt a plan of dissolution that will reasonably provide for our payment, based on facts known to us at such time, of (i) all existing claims, including those that are contingent, (ii) all pending proceedings to which we are a party 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 will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors that we engage after the consummation of our initial public offering and potential target businesses. We intend to have all vendors that we engage and prospective target businesses execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account, although we have not received any such agreements to date. If our plan of distribution complies with Section 281(b) of the Delaware General Corporation Law, 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. A plan of distribution in compliance with Section 281(b) of the Delaware General Corporation Law does not bar stockholder liability for claims not brought in a proceeding before the third anniversary of the dissolution (or such longer period directed by the Delaware Court of Chancery). Accordingly, we cannot assure you that third parties will not seek to recover from our public stockholders amounts owed to them by us even after that date.
We will dissolve and liquidate if we do not consummate a business combination, in which case our public stockholders will receive less than $10.00 per share on distribution.
Pursuant to our Charter, among other things, we must complete a business combination by June 12, 2010 (or December 12, 2010 if a letter of intent, agreement in principle or a definitive agreement has been executed by June 12, 2010 and the business combination relating thereto has not yet been consummated by such date). If we do not comply with this requirement, we will dissolve. The foregoing requirements are set forth in Article FIFTH of our Charter and may not be eliminated without the vote of our board and the vote of at least 80% of the voting power of our outstanding voting stock. Upon dissolution and pursuant to the trust agreement, we will distribute to all of our public stockholders, in proportion to their respective equity interest, an aggregate sum equal to the amount in the trust account (net of taxes payable and that portion of the interest earned previously released to us). Each of our founders has waived their rights to participate in any liquidating distribution with respect to its founders’ common stock and has agreed to vote in favor of any dissolution and plan of distribution which we will present to our stockholders for vote. There will be no distribution from the trust account with respect to our warrants which will expire worthless. We will pay the costs of our dissolution and liquidation of the trust account from our remaining assets outside of the trust fund, and we estimate such costs to be between $75,000 and $125,000, if not done in connection with a stockholder vote with respect to a potential business combination. Upon notice from us, the trustee of the trust account will liquidate the investments constituting the trust account and will turn over the proceeds to our transfer agent for distribution to our public stockholders as part of our stockholder-approved dissolution and plan of distribution. Concurrently, we shall pay, or reserve for payment, from interest released to us from the 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 the trust account may be subject to claims by third parties, such as vendors, prospective target businesses or other entities, if we do not obtain waivers in advance from such third parties prior to such parties providing us with services or entering into arrangements with them. We have not received any waiver agreements at this time and we cannot assure you that such waivers will be obtained or will be enforceable by operation of law.
If we do not consummate a business combination and dissolve, payments from the trust account to our public stockholders may be delayed.
We currently believe that any dissolution and plan of distribution in connection with the expiration of the 30 and 36 month deadlines would proceed in approximately the following manner:
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prior to such deadline, our board of directors will, consistent with its obligations described in our Charter and Delaware law, consider a resolution for us to dissolve and consider a plan of distribution which it may then vote to recommend to our stockholders; at such time it will also cause to be prepared a preliminary proxy statement setting out such plan of distribution as well as the board’s recommendation of such plan;
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upon such deadline, we would file our preliminary proxy statement with the SEC;
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if the SEC does not review the preliminary proxy statement, then, 10 days following the passing of such deadline, we will mail the proxy statements to our stockholders, and 30 days following the passing of such deadline we will convene a meeting of our stockholders, at which they will either approve or reject our dissolution and plan of distribution; and
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if the SEC does review the preliminary proxy statement, we currently estimate that we will receive their comments 30 days following the passing of such deadline. We will mail the proxy statements to our stockholders following the conclusion of the comment and review process (the length of which we cannot predict with any certainty, and which may be substantial) and we will convene a meeting of our stockholders at which they will either approve or reject our dissolution and plan of distribution.
In the event we seek stockholder approval for our dissolution and plan of distribution and do not obtain such approval, we will nonetheless continue to pursue stockholder approval for our dissolution. Pursuant to the terms of our Charter, it is intended that our powers following the expiration of the permitted time periods for consummating a business combination will automatically thereafter be limited to acts and activities relating to dissolving and winding up our affairs, including liquidation. Pursuant to the trust agreement governing such funds, the funds held in our trust account may not be distributed except upon our dissolution and, unless and until such approval is obtained from our stockholders, the funds held in our trust account will not be released (other than in connection with the funding of working capital, a redemption or a business combination as described elsewhere in this prospectus). Consequently, holders of a majority of our outstanding stock must approve our dissolution in order to receive the funds held in our trust account and the funds will not be available for any other corporate purpose.
These procedures, or a vote to reject any dissolution and plan of distribution by our stockholders, may result in substantial delays in the liquidation of our trust account to our public stockholders as part of our plan of distribution.
Since we have not yet selected a particular industry or any target business with which to complete a business combination, you will be unable to currently ascertain the merits or risks of the industry or business in which we may ultimately operate.
We intend to consummate a business combination with a company with principal business operations in North America in any industry we choose that we believe will provide significant opportunities for growth and we are not limited to any particular industry or type of business. We have restricted our geographic focus because our sponsors or their affiliates have formed, and may form in the future, other special purpose acquisition companies that are targeting investments, and that may be offered or listed, outside of the United States or North America. Accordingly, we will likely always be prohibited from consummating a business combination with a target business whose principal business operations are outside of North America unless such opportunity was first presented to each such other entity and each such entity chose not to pursue such opportunity. If such special purpose acquisition companies are no longer searching for target businesses or they determine for any reason not to pursue a specific opportunity while we are still seeking a target business, we may expand our focus geography to pursue such target business outside of North America if we identify an attractive opportunity. In the event that we pursue a business combination opportunity outside of North America, our search criteria and guidelines will be the same as that which we will employ for a business whose principal business operations are in North America. Accordingly, there is no current basis for you to evaluate the possible merits or risks of the particular industry in which we may ultimately operate or the target business or businesses with which we may ultimately enter a business combination. Although we will evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risks present in that target business. Even if we properly assess those risks, some of them may be outside of our control or ability to affect. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable to stockholders than a direct investment, if an opportunity were available, in a target business.
Your only opportunity to evaluate and affect the investment decision regarding a potential business combination will be limited to voting for or against the business combination submitted to our stockholders for approval.
You will be relying on Mr. Berggruen’s ability to choose a suitable business combination. At the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of one or more target businesses. Accordingly, your only opportunity to evaluate and affect the investment decision regarding a potential business combination will be limited to voting for or against the business combination submitted to our stockholders for approval. In addition, a proposal that you vote against the business combination could still be approved if a sufficient number of public stockholders vote for the proposed business combination. Alternatively, a proposal that you vote for the business combination could still be rejected if a sufficient number of public stockholders vote against the proposed business combination.
We may require stockholders who wish to redeem their shares in connection with a proposed business combination to comply with specific requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising their rights.
We may require public stockholders who wish to exercise their redemption rights regarding their shares in connection with a proposed business combination to either tender their certificates to our transfer agent at any time prior to the vote taken at the stockholder meeting relating to such business combination or to deliver their shares to the transfer agent electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System. In order to obtain a physical stock certificate, a stockholder’s broker and/or clearing broker, DTC and our transfer agent will need to act to facilitate this request. It is our understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. While we have been advised that it takes a short time to deliver shares through the DWAC System, we cannot assure you of this fact. Accordingly, if it takes longer than we anticipate for stockholders to deliver their shares, stockholders who wish to exercise their redemption rights may be unable to meet the deadline for exercising their redemption rights and thus may be unable to redeem their shares.
We will proceed with a business combination even if public stockholders owning in the aggregate one share less than 30% of the shares sold in our initial public offering exercise their redemption rights.
We will proceed with a business combination only if public stockholders owning at most an aggregate of one share less than 30% of the shares sold in our initial public offering exercise their redemption rights. Accordingly, the public stockholders owning in the aggregate one share less than 30% of the shares sold in our initial public offering may exercise their redemption rights and we could still consummate a proposed business combination. We have increased the redemption percentage (from the 20% that is customary in similar offerings to 30%) in order to reduce the likelihood that a small group of stockholders holding a block of our stock will be able to stop us from completing a business combination that may otherwise be approved by a large majority of our public stockholders. As a result of this change, it may be easier for us to complete a business combination even in the face of a strong stockholder dissent, thereby negating some of the protections of having a lower redemption threshold to public stockholders. Furthermore, the ability to consummate a transaction despite stockholder disapproval in excess of what would be permissible in a traditional blank check offering may be viewed negatively by stockholders seeking stockholder protections consistent with traditional blank check offerings.
Our business combination may require us to use substantially all of our cash to pay the purchase price. In such a case, because we will not know how many stockholders may exercise their redemption rights, 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 expect. Additionally, even if our business combination does not require us to use substantially all of our cash to pay the purchase price, if a significant number of stockholders exercise their redemption rights, we will have less cash available to use in furthering our business plans following a business combination and may need to arrange third party financing. We have not taken any steps to secure third party financing for either situation, and we cannot assure you that we would be able to obtain such financing on terms favorable to us or at all.
We will not be required to obtain a fairness opinion from an independent investment banking firm as to the fair market value of the target business unless the Board of Directors is unable to independently determine the fair market value.
The fair market value of a target business or businesses will be determined by our board of directors based upon standards generally accepted by the financial community, such as actual and potential sales, the values of comparable businesses, earnings and cash flow, and book value. If our board is not able to independently determine that the target business has a sufficient fair market value to meet the threshold criterion, we will obtain an opinion from an unaffiliated, independent investment banking firm which is a member of FINRA, formerly known as the National Association of Securities Dealers, Inc., with respect to the satisfaction of such criterion. In all other instances, we will have no obligation to obtain or provide you with a fairness opinion. If we were to obtain an opinion, we do not anticipate that stockholders would be entitled to rely on such opinion, nor would we take this into consideration when deciding which investment banking firm to hire. The lack of a fairness opinion may increase the risk that a proposed business target may be improperly valued by the board of directors.
If we issue capital stock or redeemable debt securities to complete a business combination, your equity interest in us could be reduced or there may be a change in control of our company.
Our Charter authorizes the issuance of up to 215,062,500 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. After giving effect to our initial public offering (and after appropriate reservation for the issuance of shares upon the co-investment and full exercise of our outstanding warrants, including the founders’ warrants, sponsors’ warrants and the co-investment), there are no authorized but unissued shares of our common stock available for issuance. All of the 1,000,000 shares of preferred stock are available for issuance. We may, with the approval of our stockholders, issue a substantial number of additional shares of our common stock or may issue preferred stock, or a combination of both, including through redeemable debt securities, to complete a business combination, particularly as we intend to focus primarily on acquisitions of mid-cap companies with valuations between approximately $1.0 billion and $4.0 billion. Our issuance of additional shares of common stock or any preferred stock:
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may significantly reduce your equity interest in us;
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may cause a change in control if a substantial number of our shares of common stock are issued, which may among other things limit our ability to use any net operating loss carry forwards we have, result in the resignation of Mr. Berggruen and our other officer and directors and cause our public stockholders to become minority stockholders of the combined entity;
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may, in certain circumstances, have the effect of delaying or preventing a change in control of us; and
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may adversely affect the then-prevailing market price for our common stock.
The value of your investment in us may decline if any of these events occur.
If we acquire a company by issuing debt securities, our post-combination operating results may decline due to increased interest expense or our liquidity may be adversely affected by an acceleration of our indebtedness.
We may elect to enter into a business combination that requires us to issue debt securities as part of the purchase price for a target business, particularly as we intend to focus primarily on acquisitions of mid-cap companies with valuations between approximately $1.0 billion and $4.0 billion. If we issue debt securities, such issuances may result in:
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default and foreclosure on our assets if our operating cash flow after a business combination were insufficient to pay our debt obligations;
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acceleration, even if we are then current in our debt service obligations, if the debt securities have covenants that require us to meet certain financial ratios or maintain designated reserves, and any such covenants are breached without a waiver or renegotiation;
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a required 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 securities contain covenants restricting our ability to obtain additional financing.
Our officers and directors may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following a business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our officers and directors may be able to remain with the company after the consummation of a business combination only if they are able to negotiate employment or consulting agreements in connection with the business combination or be asked to continue to serve on the board of directors of the combined entity. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to the company after the consummation of the business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business. However, we believe the ability of such individuals to remain with the company after the consummation of a business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination, and such individuals have executed letter agreements with us, which affirmatively provide that they will not take into consideration the retention of their position in determining which acquisition to pursue. We cannot assure you that any of our officers and directors will remain in senior management or advisory positions with the combined company after the consummation of a business combination. The determination as to whether any of our officers and directors will remain with the combined company will be made at or prior to the time of our initial business combination and fully disclosed in the required proxy materials sent to our stockholders.
Our sponsors, Berggruen Holdings and Marlin Equities, currently control us and may influence certain actions requiring a stockholder vote.
Our sponsors, Berggruen Holdings and Marlin Equities, have agreed to act together for the purpose of acquiring, holding, voting or disposing of our shares and will be deemed to be a “group” for reporting purposes under the Exchange Act. As of the date hereof, our sponsors beneficially own, in the aggregate, 19.8% of our issued and outstanding shares of common stock (23.8% in the aggregate, upon consummation of the co-investment). Mr. Berggruen and Mr. Franklin are each deemed to beneficially own 9.9% of the issued and outstanding shares of our common stock (11.9% upon consummation of the co-investment). All of the shares our common stock that they are deemed to beneficially own and control are owned indirectly through their respective affiliates. Our sponsors have agreed that any common stock they own or acquire will be voted in favor of a business combination that is presented to our public stockholders. Accordingly, shares of common stock acquired by our sponsors will not have the same voting or redemption rights as our public stockholders with respect to a potential business combination, and our sponsors will not be eligible to exercise redemption rights for those shares if a business combination is approved by a majority of our public stockholders.
Because our sponsors hold warrants to purchase 24,937,500 shares of our common stock (warrants to purchase 27,937,500 shares of our common stock including the co-investment warrants assuming), the exercise of those warrants may increase their ownership in us. This increase could allow our sponsors to influence the outcome of matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions after consummation of our initial business combination. In addition, neither our sponsors nor their affiliates are prohibited from purchasing units or common stock in the open market. If they do so, our sponsors will have a greater influence on the vote taken in connection with a business combination.
Our founders may purchase additional units or shares of our common stock and thus may exert additional influence on certain actions requiring a stockholder vote.
None of our founders or their affiliates has advised us of any intention to purchase additional units or shares of common stock in the open market. However, they are not prohibited from making any such purchases. Because our founders have agreed to vote any shares so acquired in favor of any business combination presented to the public stockholders, they may have increased influence upon such a vote, which may enable us to consummate an initial business combination that would not have been approved but for the additional purchases.
Our founders have advised us that they have not established any specific criteria that would trigger purchases of our securities. They have also advised us that they would most likely consider a variety of factors, including the current trading price of our common stock and whether they believed that such securities were undervalued and represented a good investment, as well as the fact that any such additional purchases would likely increase the chances that our initial business combination would be approved.
Messrs. Berggruen and Franklin and our other officer and directors are or may in the future become affiliated with entities engaged in business activities similar to those intended to be conducted by us, and may have conflicts of interest in allocating their time and business opportunities.
Messrs. Berggruen and Franklin and our other officer and directors are or may in the future become affiliated with entities, including LAHIC and other “blank check” companies, engaged in business activities similar to those intended to be conducted by us. Messrs. Berggruen and Franklin are directors of LAHIC and Mr. Hauslein is a director in Atlas Acquisition Corp. Mr. Franklin previously served as a director of another blank check company, Marathon Acquisition Corp., but resigned as a director of that company prior to the effectiveness of its registration statement in connection with his discussions to serve as a principal and director of Freedom. We can not assure you that Mr. Berggruen, Mr. Franklin, Mr. Hauslein or our other officer and directors will not become involved in one or more other business opportunities that would present conflicts of interest in the time they allocate to us. None of Mr. Berggruen, our other officer or our directors are obligated to spend any specified amount of time on our affairs.
Although Mr. Berggruen is the president of Berggruen Holdings Ltd, Mr. Berggruen is not on the board of directors nor is he an officer of any of the portfolio companies of Berggruen Holdings Ltd and therefore does not owe any direct fiduciary duties to such portfolio companies. In addition, during the period while we are pursuing the acquisition of a target business, subject to the exceptions described below, Mr. Berggruen has agreed to present business combination opportunities that fit within our criteria and guidelines to us. However, we recognize that Mr. Berggruen may be deemed an affiliate of Berggruen Holdings Ltd’s portfolio companies and that a conflict of interest could arise if an opportunity is an appropriate fit for one of such companies. Berggruen Holdings Ltd’s portfolio companies presently include a print finishing company, a media storage company, a financial services company, a wood treatment company, an enterprise software business and an aerospace parts supplier. Berggruen Holdings Ltd may at any time, or from time to time, acquire additional portfolio companies or dispose of existing portfolio companies. Any such newly acquired portfolio company would be covered by this obligation. Although we believe that we have put appropriate procedures in place to eliminate such conflicts for Mr. Berggruen, we cannot assure you that a conflict of interest won’t arise if an opportunity is an appropriate fit for one of such companies.
Mr. Franklin is a director of GLG Partners, Inc. and Mr. Berggruen was a director of GLG Partners until January 2009. GLG Partners was previously a blank check company formed by our sponsors in June 2006 which consummated its initial business combination on November 2, 2007. GLG Partners operates in the alternative asset management sector. Although we do not have an industry focus, we may compete with GLG Partners for acquisition opportunities in the alternative asset management sector. We have entered into an agreement with Mr. Franklin whereby we have acknowledged that we will not interfere with his obligations to GLG Partners. Additionally, in order to avoid the potential for a conflict of interest, Mr. Franklin has committed to GLG Partners that he will first review any potential target company identified by him to determine whether such company fits within GLG Partners’ acquisition criteria. If Mr. Franklin determines that a target company does fit within the acquisition criteria of GLG Partners, he will first present such potential target to GLG Partners. Mr. Franklin will not present the potential business combination opportunity to us or our board unless GLG Partners confirms that it is not interested in pursuing a business combination with such company. Accordingly, all potential business combination opportunities with target companies in the alternative asset management sector that are identified by Mr. Franklin will be required to be presented first to GLG Partners before they can be presented to us. This procedure will make it unlikely that we will acquire a target company in the alternative asset management sector.
Mr. Berggruen is an officer and director of LAHIC and Mr. Franklin is a director of LAHIC. We may compete with LAHIC for acquisition opportunities. In order to avoid the potential for a conflict of interest, Messrs. Berggruen and Franklin have committed to us and to LAHIC that each will first review any potential target company identified by them to determine whether such company fits within our or LAHIC’s acquisition criteria. If Messrs. Berggruen and Franklin determine that a target company fits within our acquisition criteria, they will first present such potential target to us. If Messrs. Berggruen and Franklin determine that a target company fits within the acquisition criteria of LAHIC, they will first present such potential target to LAHIC. Other than as described above, neither Messrs. Berggruen nor Franklin will present potential business combination opportunities with a target business with principal business operations outside of North America first to us. Accordingly, all potential business combination opportunities with target companies with principal business operations outside North America that are identified by Messrs. Berggruen or Franklin will be required to be presented first to LAHIC before they can be presented to us. We do not believe that the potential conflict of interest with LAHIC will cause undue difficulty in finding acquisition opportunities for us.
In addition, although we do not expect our independent directors to present any business combination opportunities to us, they may become aware of business opportunities that may be appropriate for presentation to us. In such instances they may determine to present these business opportunities to other entities with which they are or may be affiliated, in addition to, or instead of, presenting them to us. Due to these existing or future affiliations, Mr. Berggruen and our other officer and directors may have fiduciary obligations to present potential business combination opportunities to those entities prior to presenting them to us which could cause additional conflicts of interest.
Neither Berggruen Holdings nor Berggruen Holdings Ltd is obligated to provide us with first review of any business opportunities below $750.0 million and we have agreed not to pursue any business opportunities that Jarden Corporation might consider.
We have entered into agreements with Berggruen Holdings, Berggruen Holdings Ltd and three of its investment professionals that until the earlier of the consummation of our initial business combination or our liquidation, we will have a right of first review that provides that if Berggruen Holdings, Berggruen Holdings Ltd or one of such investment professionals, becomes aware of, or involved with, business combination opportunities with an enterprise value of $750.0 million or more, such entity or individual will first offer the business combination opportunity to us and will only pursue such business opportunity if our board of directors determines that we will not do so, unless such business combination opportunity is competitive with one of the portfolio companies of Berggruen Holdings Ltd, in which case it would first be offered to such portfolio company. A business combination opportunity will be considered competitive with a Berggruen Holdings Ltd portfolio company if the target company is engaged in the design, development, manufacture, distribution or sale of any products, or the provision of any services, which are the same as, or competitive with, the products or services which a Berggruen Holdings Ltd portfolio company designs, develops, manufactures, distributes or sells.
In addition, Mr. Franklin is chairman and chief executive officer of Jarden Corporation. Jarden’s publicly announced acquisition criteria is to acquire focused, niche consumer product companies that demonstrate a combination of attractive margins, strong cash flow characteristics, category leading positions and products that generate recurring revenues, with a particular focus on businesses or brands with product offerings that provide expansion into related categories that can be marketed through its existing distribution channels or provide it with new distribution channels for its existing products. We have entered into an agreement with Mr. Franklin whereby (i) we have acknowledged that Mr. Franklin has committed to Jarden’s Board of Directors that we generally do not intend to seek transactions that fit within Jarden’s publicly announced acquisition criteria and (ii) we will not interfere with Mr. Franklin’s obligations to Jarden. However, in order to avoid the potential for a conflict of interest, Mr. Franklin has further committed to Jarden that he will review any potential target company to determine whether such company fits within Jarden’s publicly announced acquisition criteria. If Mr. Franklin determines that such company fits within such criteria, Mr. Franklin will first confirm with an independent committee of Jarden’s Board of Directors that Jarden is not interested in pursuing a potential business combination opportunity with such company (whether such a transaction was sourced by Mr. Franklin, Mr. Berggruen, another Berggruen Holdings Ltd investment professional or any other person). If the independent committee concludes that Jarden was interested in that opportunity, we have agreed not to continue with that transaction. Although we do not believe that the potential conflict of interest with Jarden will cause undue difficulty in finding acquisition opportunities for us given the nature of Jarden’s acquisition criteria, Jarden may change its publicly announced acquisition criteria at any time without notice and additional conflicts of interest may arise. We cannot assure you that these conflicts will be resolved in our favor.
Resources could be wasted in researching acquisitions that are not consummated, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
It is anticipated that the investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to complete a specific business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target business, we may fail to consummate the business combination for any number of reasons including those beyond our control such as that public stockholders representing 30% or more of our shares issued in our initial public offering vote against the business combination and opt to have us redeem their stock for a pro rata share of the trust account even if a majority of our stockholders approve the business combination. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
Each of our founders may have a conflict of interest in deciding if a particular target business is a good candidate for a business combination.
Each of our founders has agreed to waive its right to receive distributions with respect to its founders’ common stock purchased by it before our initial public offering if we dissolve and liquidate because we fail to complete a business combination. Berggruen Holdings and Marlin Equities have purchased an aggregate of 12,000,000 sponsors’ warrants immediately prior to the consummation of our initial public offering, and have also agreed to purchase an aggregate of 6,000,000 co-investment units immediately prior to our consummation of a business combination. Each of our founders who are also directors owns 110,400 founders’ units. The shares of common stock and warrants owned by our founders will be worthless if we do not consummate a business combination. Furthermore, the $12.0 million purchase price of the sponsors’ warrants will be included in the working capital that is distributed to our public stockholders in the event of our dissolution and liquidation. Our directors’ and officers’ desire to avoid rendering their common stock and warrants worthless may result in a conflict of interest when they determine whether the terms, conditions and timing of a particular business combination are appropriate and in our stockholders’ best interest.
Unless we complete a business combination, Mr. Berggruen and our other officer and directors will not receive reimbursement for any out-of-pocket expenses they incur if such expenses exceed the amount not in the trust account. Therefore, they may have a conflict of interest in determining whether a particular target business is appropriate for a business combination and in the public stockholders’ best interest.
Mr. Berggruen and our other officer and directors will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount not required to be retained in the trust account unless the business combination is consummated. Mr. Berggruen and our other officer and directors may, as part of any such combination, negotiate the repayment of some or all of any such expenses. If the target business’ owners do not agree to such repayment, this could cause our management to view such potential business combination unfavorably, thereby resulting in a conflict of interest. The financial interest of Mr. Berggruen and our other officer and directors 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. In addition, the proceeds we receive from the co-investment may be used to repay the expenses for which Mr. Berggruen and our other officer and directors may negotiate repayment as part of our business combination.
We estimate that the amount of funds that will be available to us for expenses and working capital will be $10.35 million, consisting of interest that will be paid out of the trust account and net offering proceeds not held in trust. If we do not enter into a definitive business combination agreement by December 12, 2010, we expect our primary liquidity requirements during that period to include approximately $4,100,000 for expenses for the due diligence and investigation of a target business or businesses; approximately $4,100,000 for legal, accounting and other expenses associated with structuring, negotiating and documenting an initial business combination; an aggregate of up to $360,000 for administrative services and support payable to Berggruen Holdings, Inc., an affiliate of Mr. Berggruen, representing $10,000 per month; $125,000 as a reserve for liquidation expenses; $125,000 for legal and accounting fees relating to our SEC reporting obligations; and approximately $290,000 for general working capital that will be used for miscellaneous expenses and reserves.
We will probably complete only one business combination with the proceeds of our initial public offering, meaning our operations will depend on a single business that is likely to operate in a non-diverse industry or segment of an industry.
The net proceeds from our offering and the offering of the sponsors’ warrants provided us with $1,016.7 million that we may use to complete a business combination ($1,076.7 million after the consummation of the co-investment). As of December 31, 2008, the balance of the trust account was $1,020.6 million. Our initial business combination must be with a target business or businesses with a fair market value of at least 80% of the sum of the balance in the trust account at the time of such business combination (excluding deferred underwriting discounts and commissions of $27.43 million) plus the proceeds of the co-investment. We may not be able to acquire more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. Additionally, we may encounter numerous logistical issues if we pursue multiple target businesses, including the difficulty of coordinating the timing of negotiations, proxy statement disclosure and closings. We may also be exposed to the risk that our inability to satisfy conditions to closing with one or more target businesses would reduce the fair market value of the remaining target businesses in the combination below the required threshold of 80% of the sum of the balance in the trust account (excluding deferred underwriting discounts and commissions of $27.43 million) plus the proceeds of the co-investment. Due to these added risks, we are more likely to choose a single target business with which to pursue a business combination than multiple target businesses. Unless we combine with a target business in a transaction in which the purchase price consists substantially of common stock and/or preferred stock, it is likely we will complete only our initial business combination with the proceeds of our initial public offering. Accordingly, the prospects for our success may depend solely on the performance of a single business. If this occurs, our operations will be highly concentrated and we will be exposed to higher risk than other entities that have the resources to complete several business combinations, or that operate in, diversified industries or industry segments.
If we do not conduct an adequate due diligence investigation of a target business with which we combine, we may be required to subsequently take write-downs or write-offs, restructuring, and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.
In order to meet our disclosure and financial reporting obligations under the federal securities laws, and in order to develop and seek to execute strategic plans for how we can increase the revenues and/or profitability of a target business, realize operating synergies or capitalize on market opportunities, we must conduct a due diligence investigation of one or more target businesses. Intensive due diligence is time consuming and expensive due to the operations, accounting, finance and legal professionals who must be involved in the due diligence process. Even if we conduct extensive due diligence on a target business with which we combine, we cannot assure you that this diligence will surface all material issues that may be present inside a particular target business, or that factors outside of the target business and outside of our control will not later arise. If our diligence fails to identify issues specific to a target business, industry or the environment in which the target business operates, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our common stock. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining post-combination debt financing.
We depend on the limited funds available outside of the trust account and a portion of the interest earned on the trust account balance to fund our search for a target business or businesses and to complete our initial business combination.
Of the net proceeds of our initial public offering, $100,000 was available to us initially outside the trust account to fund our working capital requirements. In addition, we were entitled to have available to us the interest income earned on the trust account which is an amount equal to 1% of the gross proceeds of our initial public offering ($10.35 million) with which to structure, negotiate or close an initial business combination. If such funds are not sufficient to satisfy our working capital obligations, we will need to borrow additional funds from our sponsors, Mr. Berggruen or our directors to operate or we may dissolve and liquidate. None of our sponsors, Mr. Berggruen, our other officer or directors or any other person is obligated to lend us such funds.
We may be unable to obtain additional financing if necessary to complete a business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination.
We may consider a business combination that will require additional financing (in addition to the co-investment), particularly as we intend to primarily focus on acquisitions of mid-cap companies with valuations between approximately $1.0 billion and $4.0 billion. However, we cannot assure you that we will be able to complete a business combination or that we will have sufficient capital with which to complete a combination with a particular target business. If the net proceeds of our initial public offering and the co-investment are not sufficient to facilitate a particular business combination because:
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of the size of the target business;
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of the depletion of offering proceeds not in trust or available to us from interest earned on the trust account balance that is expended in search of a target business; or
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we must redeem for cash a significant number of shares of common stock owned by stockholders who elect to exercise their redemption rights,
we will be required to seek additional financing. We cannot assure you that such financing would be available on acceptable terms, if at all. If additional financing is unavailable to consummate a particular business combination, we would be compelled to restructure or abandon the combination and seek an alternative target business. Even if we do not need additional financing to consummate a business combination, we may require such financing to operate or grow the target business. If we fail to secure such financing, this failure could have a material adverse effect on the operations or growth of the target business. Other than the co-investment, none of our officers, our directors nor any other party is required to provide any financing to us in connection with, or following, a business combination.
Our outstanding warrants may adversely affect the market price of our common stock and make it more difficult to effect a business combination.
The units sold in our initial public offering include warrants to purchase 51,750,000 shares of common stock. We also have sold 24,937,500 (27,937,500 including the co-investment warrants) warrants to our founders (including the 12,000,000 sponsors’ warrants) to purchase an aggregate of 24,937,500 shares of our common stock (27,937,500 including the co-investment warrants). The 12,937,500 founders’ warrants included in this number are identical to those warrants sold as part of the units in our initial public offering except that the founders’ warrants become exercisable after our consummation of a business combination if and when the last sales price of our common stock exceeds $15.00 per share for any 20 trading days within a 30 trading day period beginning 90 days after such business combination, will be non-redeemable so long as they are held by our founders or their permitted transferees, may be exercised by the holder on a cashless basis and are entitled to two demand registration rights and two “piggy-back” registration rights commencing one year after the consummation of a business combination. The 12,000,000 sponsors’ warrants included in this number are identical to those warrants sold as part of the units in our initial public offering except that the sponsors’ warrants will be non-redeemable so long as they are held by our sponsors or their permitted transferees, may be exercised by the holder on a cashless basis and pursuant to the registration rights agreement, the holders of our sponsors’ warrants and the underlying common stock will be entitled to two demand registration rights and two “piggy-back” registration rights commencing one year after the consummation of a business combination. The 3,000,000 co-investment warrants included in this number are identical to those warrants sold as part of the units in our initial public offering except that the holders of the co-investment warrants (including the common stock to be issued upon exercise of the co-investment warrants) will be entitled to two demand registration rights and two “piggy-back” registration rights commencing one year after the consummation of a business combination. If we issue common stock to conclude a business combination, the potential issuance of additional shares of common stock on exercise of these warrants could make us a less attractive acquisition vehicle to some target businesses. This is because exercise of the warrants will increase the number of issued and outstanding shares of our common stock and reduce the value of the shares issued to complete the business combination. Our warrants may make it more difficult to complete a business combination or increase the purchase price sought by one or more target businesses. Additionally, the sale or possibility of sale of the shares underlying the warrants could have an adverse effect on the market price for our common stock or our units, or on our ability to obtain other financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.
The grant of registration rights to our founders may make it more difficult to complete a business combination, and the future exercise of such rights may adversely affect the market price of our common stock.
Our founders will have two demand registration rights and two piggyback registration rights with respect to the resale of (i) their shares of common stock and (ii) their warrants (including the common stock to be issued upon exercise of the co-investment warrants) at any time after one year from the date we complete a business combination. We will bear the cost of registering these securities. If our founders exercise their registration rights in full, there will then be an additional 25,875,000 shares of common stock and 27,937,500 warrants (including 3,000,000 co-investment warrants) and/or up to 27,937,500 shares of common stock issued on exercise of the warrants that are eligible for trading in the public market. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our common stock. In addition, the existence of the registration rights may make a business combination more costly or difficult to conclude. This is because the stockholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our common stock that is expected when the securities owned by our founders are registered.
You will not be able to exercise your warrants if we don’t have an effective registration statement in place when you desire to do so.
No warrants will be exercisable, and we will not be obligated to issue shares of common stock upon exercise of warrants by a holder unless, at the time of such exercise, we have a registration statement under the Securities Act of 1933, as amended, in effect covering the shares of common stock issuable upon the exercise of the warrants and a current prospectus relating to that common stock. We have agreed to use our best efforts to have a registration statement in effect covering shares of common stock issuable upon exercise of the warrants from the date the warrants become exercisable and to maintain a current prospectus relating to that common stock until the warrants expire or are redeemed. However, we cannot assure you that we will be able to do so. In addition, we may determine to exercise our right to redeem the outstanding warrants while a current prospectus relating to the common stock issuable upon exercise of the warrants is not available, in which case the warrants will not be exercisable prior to their redemption. Additionally, we have no obligation to settle the warrants for cash in the absence of an effective registration statement or under any other circumstances. The warrants may be deprived of any value, the market for the warrants may be limited and the holders of warrants may not be able to exercise their warrants if there is no registration statement in effect covering the shares of common stock issuable upon the exercise of the warrants or the prospectus relating to the common stock issuable upon the exercise of the warrants is not current.
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.
Although we intend to structure the investment of our assets to meet the requirements for exemption provided in Rule 3a-1 of the Investment Company Act of 1940, 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, if, prior to the consummation of a business combination, we are viewed as engaging in the business of investing in securities or we own investment securities having a value exceeding 40% of our total assets. If we are deemed to be an investment company under the Investment Company Act of 1940, we may be subject to certain restrictions that may make it difficult for us to complete a business combination, including:
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restrictions on the nature of our investments; and
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restrictions on our issuance of securities.
In addition, we may have imposed upon us burdensome requirements, including:
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registration as an investment company;
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adoption of a specific form of corporate structure; and
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reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations.
We do not believe that our anticipated activities will subject us to the Investment Company Act of 1940 as the net proceeds of our initial public offering and sale of warrants in our private placement offering that are to be held in trust may only be invested by the trust agent in “government securities” with specific maturity dates. By restricting the investment of the trust account to these instruments, we intend to meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act of 1940. If we were deemed to be subject to the Investment Company Act of 1940, compliance with these additional regulatory burdens would require additional expense that we have not allotted for.
Companies with similar business plans to ours have had limited success in completing a business transaction. There can be no assurance that we will successfully identify a potential target business, or complete a business combination.
Based upon publicly available information, we have identified over 140 similarly structured companies which have gone public since the beginning of 2004, of which less than half have actually consummated a business combination, or announced they have entered into a definitive agreement for a business combination. As of such date, the remaining companies have more than $11.0 billion in trust and are seeking to consummate business combinations. While some of those companies have specific industries or geographies that they must complete a business combination in, a number of them may consummate a business combination in any industry they choose. We may therefore be subject to competition from these and other companies seeking to consummate a business plan similar to ours, which will, as a result, increase demand for privately-held companies to combine with companies structured similarly to ours. Further, the fact that approximately only half of such companies have either completed a business combination or have entered into a definitive agreement for a business combination may be an indication 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. We cannot assure you that we will be able to successfully compete for an attractive business combination. Additionally, because of this competition, we cannot assure you that we will be able to effectuate a business combination within the required time periods. If we are unable to find a suitable target business within such time periods, we will be forced to liquidate.
We are dependent upon Mr. Berggruen, Mr. Franklin and Berggruen Holdings Ltd’s investment professionals and the loss of any of them could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of individuals and, in particular, upon Mr. Berggruen and Mr. Franklin. We believe that our success depends on the continued service of Mr. Berggruen and Mr. Franklin, at least until we have consummated a business combination. We cannot assure you that such individuals will remain with us for the immediate or foreseeable future. In addition, neither Mr. Berggruen nor Mr. Franklin are required to commit any specified amount of time to our affairs and, accordingly, they will have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. Moreover, Mr. Berggruen does not have any experience in acquiring businesses in our specified target range of $1.0 billion to $4.0 billion, other than the Freedom/GLG Partners transaction. We do not have employment agreements with, or key-man insurance on the life of, either of these individuals. The unexpected loss of the services of either of these individuals could have a detrimental effect on us.
In addition, Berggruen Holdings Ltd has agreed to make available three investment professionals located at its offices in New York, Los Angeles and London to actively source an acquisition for us. Although Berggruen Holdings Ltd has agreed to make these individuals available at no cost to us, none of these individuals are required to commit any specified amount of time to our affairs.
The NYSE Alternext U.S. (f/k/a the American Stock Exchange) may delist our securities which could limit stockholders’ ability to make transactions in our securities and subject us to additional trading restrictions.
Our securities are listed on the NYSE Alternext U.S. We cannot assure you that our securities will continue to be listed on the NYSE Alternext U.S. as we might not meet certain continued listing standards such as income from continuing operations. Additionally, in connection with our business combination, it is likely that the NYSE Alternext U.S. may require us to file a new initial listing application and meet its initial listing requirements as opposed to its more lenient continued listing requirements. We cannot assure you that we will be able to meet those initial listing requirements at that time.
If the NYSE Alternext U.S. delists our securities from trading, we could face significant consequences including:
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a limited availability for market quotations for our securities;
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reduced liquidity with respect to our securities;
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a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our common stock;
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limited amount of news and analyst coverage for our company; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
Since we may acquire a target business that is located outside the United States, we may encounter risks specific to one or more countries in which we ultimately operate.
As described above, we plan to acquire a business or businesses with principal business operations located in North America. We have restricted our geographic focus because our sponsors or their affiliates have formed, and may form in the future, other special purpose acquisition companies that are targeting investments, and that may be offered or listed, outside of the United States or North America. If such special purpose acquisition companies are no longer searching for target businesses or they determine for any reason not to pursue a specific opportunity while we are still seeking a target business, we may expand our focus geography to pursue such target business outside of North America if we identify an attractive opportunity. In the event that we pursue a business combination opportunity outside of North America, our search criteria and guidelines will be the same as that which we will employ for a business whose principal business operations are in North America. In evaluating a business combination opportunity outside the United States, we will also seek to evaluate any additional risks that may arise from the location of the target business. If we acquire a company that has operations outside the United States, we will be exposed to risks that could negatively impact our future results of operations following a business combination. The additional risks we may be exposed to in these cases include but are not limited to:
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tariffs and trade barriers;
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regulations related to customs and import/export matters;
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tax issues, such as tax law changes and variations in tax laws as compared to the U.S.;
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cultural and language differences;
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foreign exchange controls;
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crime, strikes, riots, civil disturbances, terrorist attacks and wars; and
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deterioration of political relations with the United States.
Because we must furnish our stockholders with target business financial statements prepared in accordance with or reconciled to U.S. generally accepted accounting principles, we may not be able to complete a business combination with some prospective target businesses unless their financial statements are first reconciled to U.S. generally accepted accounting principles.
The federal securities laws require that a business combination meeting certain financial significance tests include historical and pro forma financial statement disclosure in periodic reports and proxy materials submitted to stockholders. Because our initial business combination must be with a target business that has a fair market value of at least 80% of the sum of the balance in the trust account (excluding deferred underwriting discounts and commissions of $27.43 million) at the time of our initial business combination plus the proceeds of the co-investment, we will be required to provide historical and pro forma financial information to our stockholders when seeking approval of a business combination with one or more target businesses. These financial statements must be prepared in accordance with, or be reconciled to, U.S. generally accepted accounting principles, or GAAP, and the historical financial statements must be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. If a proposed target business, including one located outside of the U.S., does not have financial statements that have been prepared in accordance with, or that can be reconciled to, U.S. GAAP and audited in accordance with the standards of the PCAOB, we will not be able to acquire that proposed target business. These financial statement requirements may limit the pool of potential target businesses with which we may combine.
Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls beginning with this Annual Report on Form 10-K. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business. Section 404 of the Sarbanes-Oxley Act also requires that our independent registered public accounting firm report on management’s evaluation of our system of internal controls. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause stockholders to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
ITEM 1B.
ITEM 1B.
Unresolved Staff Comments
None.
We currently maintain our executive offices at 1114 Avenue of the Americas, 41st Floor, New York, New York 10036. The cost for this space will be included in the $10,000 per-month fee described above that Berggruen Holdings, Inc. charge us for office space, administrative services and secretarial support from the consummation of our initial public offering until the earlier of our consummation of a business combination or our liquidation. Prior to the consummation of our initial public offering, Berggruen Holdings provided us with office space, administrative services and secretarial support at no charge. We believe, based on rents and fees for similar services in the New York City metropolitan area that the fee charged by Berggruen Holdings, Inc. is at least as favorable as we could have obtained from an unaffiliated person. We consider our current office space adequate for our current operations.
None.
ITEM 4.
ITEM 4.
Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5.
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our equity securities trade on the NYSE Alternext U.S. (f/k/a the American Stock Exchange). Each of our units consists of one share of common stock and one-half (1/2) of one warrant and trades on the NYSE Alternext U.S. under the symbol “LIA.U.” On December 19, 2007, the warrants and common stock underlying our units began to trade separately on the NYSE Alternext U.S. under the symbols “LIA.WS” and “LIA,” respectively. Each whole warrant entitles the holder to purchase one share of our common stock at a price of $5.50 commencing on our consummation of a business combination, provided that there is an effective registration statement covering the shares of common stock underlying the warrants in effect. The warrants expire on December 12, 2013, unless earlier redeemed.
The following table sets forth, on a per share basis for the periods indicated, the high and low sales price of our units, common stock and warrants as reported on the NYSE Alternext U.S. for the period December 12, 2007 to December 31, 2007 and for each quarter of fiscal 2008. Prior to December 12, 2007, there was no established public trading market for our securities.
Performance Graph
The graph below is a comparison of the cumulative total return of our common stock from December 19, 2007, the date that our common stock first became separately tradable, through January 2, 2009 with the comparable cumulative return for two indices, the S&P 500 Index and the Dow Jones Industrial Average Index. The graph plots the growth in value of an initial investment of $100 in each of our common stock, the S&P 500 Index and the Dow Jones Industrial Average Index over the indicated time periods, and assuming reinvestment of all dividends, if any, paid on the securities. We have not paid cash dividends and, therefore, the cumulative total return calculation for us is based solely upon stock price appreciation and not upon reinvestment of cash dividends. The stock price performance shown on the graph is not necessarily indicative of future price performance.
Holders of Common Equity
On February 11, 2009, there were 6 holders of record of our units, 3 holders of record of our warrants and 1 holder of record of our common stock. Such numbers do not include beneficial owners holding shares, warrants or units through nominee names.
Dividends
Except for the 1-for-5 unit dividend that was effected on December 6, 2007, we have not declared or 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.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of December 31, 2008, the Company has not issued any shares of preferred stock.
Recent Sales of Unregistered Securities
During the fiscal year ended December 31, 2008, no equity securities of ours were sold by us that were not registered under the Securities Act of 1933, as amended.
Use of Proceeds from our Initial Public Offering
On December 12, 2007, we closed our initial public offering of 103,500,000 units (which included 13,500,000 purchased by the underwriters pursuant to their over-allotment option) with each unit consisting of one share of common stock and one-half (1/2) of one warrant to purchase one share of our common stock at a price of $5.50 per share. All of the units registered were sold at an offering price of $10.00 per unit and generated gross proceeds of $1,035.0 million. The securities sold in our initial public offering were registered under the Securities Act of 1933 on a registration statement on Form S-1 (No. 333-145559). The SEC declared the registration statement effective on December 6, 2007. Citigroup Global Market Inc. acted as sole bookrunning manager and representative of Lehman Brothers Inc.
We received net proceeds of approximately $1,016.7 million from our initial public offering (including proceeds from the exercise by the underwriters of their over-allotment option). Of those net proceeds, approximately $27.4 million is attributable to the deferred underwriters’ discount. Expenses related to the offering totaled approximately $57.7 million. The net proceeds were deposited into a trust account and will be part of the funds distributed to our public stockholders in the event we are unable to complete a business combination. Unless and until a business combination is consummated, the proceeds held in the trust account will not be available to us. The remaining proceeds ($100,000) became available to be used to provide for business, legal and accounting due diligence on prospective transactions and continuing general and administrative expenses. The net proceeds deposited into the trust account remain on deposit in the trust account and earned $25.6 million in interest during the year ended December 31, 2008.
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.
ITEM 7.
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We were formed on June 27, 2007, to effect a merger, stock exchange, asset acquisition, reorganization or similar business combination with an operating business or businesses which we believe have significant growth potential. We consummated our initial public offering on December 12, 2007. We are currently in the process of evaluating and identifying targets for a business combination. We intend to use cash from the proceeds of our initial public offering (including proceeds from the exercise by the underwriters of their over-allotment option) and sale of the sponsors’ warrants and the co-investment, our capital stock, debt or a combination of cash, stock and debt.
We have neither engaged in any operations nor generated any revenues from operations to date. Our entire activity since inception has been to prepare for 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.
Net income for the year ended December 31, 2008 was approximately $13.3 million, which consisted of approximately $25.6 million in interest income offset by approximately $0.8 million in formation and operating expenses and approximately $11.4 million for taxes. Net loss for the period from June 27, 2007 (inception) to December 31, 2007 was approximately $1.0 million, which consisted of approximately $2.9 million in interest income offset by approximately $0.1 million in formation and operating expenses, approximately $2.5 million in noncash compensation expenses in connection with the modification of the terms of the founders and sponsors warrants and approximately $1.3 million for taxes - see Note B to the Company’s audited financial statements - Summary of Significant Accounting Policies - “Stock Based Compensation” and Note D - “Related Party Transactions.” The trustee of the trust account will pay any taxes resulting from interest accrued on the funds held in the trust account out of the funds held in the trust account.
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
The net proceeds from (i) the sale of the units in our initial public offering (including the underwriters’ over-allotment option), after deducting approximately $57.7 million to be applied to underwriting discounts, offering expenses and working capital (including approximately $27.4 million of deferred underwriting discounts) and (ii) the sale of the sponsors’ warrants for a purchase price of $12.0 million, was approximately $1,016.7 million. All of these net proceeds were placed in trust, except for $100,000 that was used for working capital.
We will use substantially all of the net proceeds of our initial public offering to acquire one or more target businesses, including identifying and evaluating prospective target businesses, selecting one or more target businesses, and structuring, negotiating and consummating the business combination. If the business combination is paid for using stock or debt securities, we may apply the cash released to us from the trust account for general corporate purposes, including for maintenance or expansion of operations of the acquired business or businesses, the payment of principal or interest due on indebtedness incurred in consummating our initial business combination, to fund the purchase of other companies, or for working capital.
At December 31, 2008, we had cash outside of the trust account of approximately $9.7 million, cash held in the trust account of approximately $1,020.6 million, accrued expenses of $20,000, prepaid income taxes of approximately $1.3 million, franchise taxes payable of $95,610, and total liabilities of $334.0 million (which includes $305.0 million of common stock which is subject to possible redemption and related deferred interest). We believe that the funds available to us outside of the trust account will be sufficient to allow us to operate until December 12, 2010, assuming that an initial transaction is not consummated during that time. Of the funds held outside of the trust account, we anticipate using these funds to cover the due diligence and investigation of a target business or businesses; legal, accounting and other expenses associated with structuring, negotiating and documenting an initial business combination; office space, administrative services and secretarial support prior to consummating a business combination.
If the funds available to us outside of the trust account are insufficient to cover our expenses, we may be required to raise additional capital, the amount, availability and cost of which is currently unascertainable. In this event, we could seek such additional capital through loans or additional investments from our sponsors, Mr. Berggruen or our directors, but, except for the co-investment, none of such sponsors, Mr. Berggruen or our directors is under any obligation to advance funds to, or invest in, us. Any such interest income not used to fund our working capital requirements or repay advances from our founders or for due diligence or legal, accounting and non-due diligence expenses will be usable by us to pay other expenses that may exceed our current estimates.
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, in addition to the co-investment, 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. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of a business combination.
We intend to focus on potential target businesses with valuations between $1.0 billion and $4.0 billion. We believe that our available working capital, together with the issuance of additional equity and/or the issuance of debt, would support the acquisition of such a target business. Such debt securities may include a long term debt facility, a high-yield notes offering or mezzanine debt financing, and depending upon the business of the target company, inventory, receivable or other secured asset-based financing. The mix of additional equity and/or debt would depend on many factors. The proposed funding for any such business combination would be disclosed in the proxy statement relating to the required stockholder approval. We would only consummate such financing simultaneously with the consummation of a business combination that was approved in connection with the stockholder approval of the business combination. We will only seek stockholder approval of such financing as an item separate and apart from the approval of the overall transaction if such separate approval was required by applicable securities laws or the Rules of the NYSE Alternext U.S. or other similar body.
As of December 31, 2008, the underlying assets of our trust account consisted of shares of the JPMorgan U.S. Government Money Market Fund (the “JPMorgan Fund”), the Goldman Sachs Financial Square Federal Fund (the “Goldman Fund”) and the Western Asset Institutional Government Money Market Fund (the “Western Asset Fund”, and together with the JPMorgan Fund and the Goldman Fund, the “Funds”). According to the relevant prospectus of the Funds:
•
J.P. Morgan Investment Management Inc. serves as investment adviser to the JPMorgan Fund, which under normal conditions, invests its assets exclusively in debt securities issued or guaranteed by the U.S. government, or by U.S. government agencies or instrumentalities and repurchase agreements fully collateralized by U.S. Treasury and U.S. government securities;
•
Goldman Sachs Asset Management, L.P. serves as investment adviser to the Goldman Fund, which limits its investments only to certain U.S. Treasury obligations and U.S. government securities; and
•
Western Asset Management Company, a wholly-owned subsidiary of Legg Mason, Inc., serves as investment adviser to the Western Asset Fund, which invests exclusively in short term U.S. government obligations such as short-term U.S. Treasury securities; short term obligations of the U.S. government, its agencies and instrumentalities; and U.S. Treasury-related repurchase agreements.
As of December 31, 2008, we believe, based on publicly available information, that our position in each of the Funds accounted for no more than 4% of the total assets of any such Fund. We and the trustee of the trust account continuously monitor the Funds in this volatile market environment and expect to take whatever actions we and the trustee deem appropriate with respect to protecting and preserving the assets contained in the trust account.
Critical Accounting Policies and 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 as of the date of the financial statements, the disclosure of contingent assets and liabilities in the financial statements and the accompanying notes, and the reported amounts of revenue and expenses during the periods presented. Actual amounts and results could differ from those estimates. If we were to effect a business combination, estimates and assumptions would be based on historical factors, current circumstances and the experience and judgment of our management, and we would evaluate these assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations. The estimates and assumptions that management believes are the most significant in preparing our financial statements are described below.
Accounting and Reporting by Development Stage Enterprises
We comply with the accounting and reporting requirements of SFAS No. 7, “Accounting and Reporting by Development Stage Enterprises.”
Income (loss) Per Common Share
Basic income (loss) per common share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares for the period. Diluted income (loss) per share reflects the potential dilution that could occur if derivative securities were to be exercised or converted and would otherwise result in the issuance of common stock.
For the year ended December 31, 2008 and for the period from June 27, 2007 (inception) to December 31, 2008, we had potentially dilutive securities in the form of 76,687,500 warrants, including 12,937,500 warrants issued as part of our founders’ units, 12,000,000 sponsors’ warrants issued in a private placement and 51,750,000 warrants issued as part of the units in our initial public offering. Of the total warrants outstanding for the foregoing periods then ended, approximately 24,521,000 and 18,956,000 represent incremental shares of common stock, based on their assumed exercise, to be included in the weighted average number of shares of common stock (not subject to possible redemption) for the calculation of diluted income per share of common stock. We use the “treasury stock method” to calculate potential dilutive shares, as if they were redeemed for common stock at the beginning of the period.
Our statements of operations for the year ended December 31, 2008 and for the period from June 27, 2007 (inception) to December 31, 2008 include a presentation of income (loss) per common share subject to possible redemption in a manner similar to the two class method of income (loss) per common share. Basic and diluted income per common share amount for the maximum number of common shares subject to possible redemption is calculated by dividing the net interest attributable to common shares subject to redemption by the weighted average number of common shares subject to possible redemption. Basic and diluted income per share amount for the common shares outstanding not subject to possible redemption is calculated by dividing the net income exclusive of the net interest income attributable to common shares subject to redemption by the weighted average number of common shares not subject to possible redemption.
Fair value of financial instruments
We do not enter into financial instruments or derivative contracts for trading or speculative purposes. The carrying amounts of financial instruments classified as current assets and liabilities approximate their fair value due to their short maturities.
Income Taxes
We comply with SFAS No. 109, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Accounting for Uncertainty in Income Taxes
We also comply 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 measurement 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. We adopted FIN 48 on the inception date, June 27, 2007. We did not recognize any adjustments for uncertain tax positions during the year ended December 31, 2008.
Classification and Measurement of Redeemable Securities
We account for redeemable common stock in accordance with the Financial Accounting Standards Board’s (“FASB”) Emerging Issue Task Force D-98 “Classification and Measurement of Redeemable Securities” (“EITF D-98”) which provides that securities that are redeemable for cash or other assets are classified outside of permanent equity if they are redeemable at the option of the holder. In addition, if the redemption causes a liquidation event, the redeemable securities should not be classified outside of permanent equity. As discussed in Note A to our financial statements, the business combination will only be consummated if a majority of the shares of common stock voted by our public stockholders are voted in favor of the business combination and public stockholders holding less than 30% (31,050,000) of common stock sold in our initial public offering exercise their redemption rights. As further discussed in Note A to our financial statements, if a business combination is not consummated by June 12, 2010, or December 12, 2010 if certain extension criteria have been satisfied, we will liquidate. Accordingly, 31,049,999 shares of common stock have been classified outside of permanent equity at redemption value in the accompanying balance sheets. We recognize changes in the redemption value immediately as they occur and adjust the carrying value of the redeemable common stock to equal its redemption value at the end of each reporting period.
ITEM 7A.
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. Approximately $1,016.7 million of the net offering proceeds (which includes $27.4 million of the proceeds attributable to the underwriters’ discount) has been placed into a trust account maintained by Continental Stock Transfer & Trust Company, acting as trustee. As of December 31, 2008, the balance of the trust account was $1,020.6 million. The proceeds held in trust are invested in U.S. “government securities” defined as any Treasury Bill issued by the United States having a maturity of 180 days or less and/or in any open ended money market(s) selected by us meeting the conditions of Sections (c)(2), (c)(3) and (c)(4) of Rule 2a-7 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. The effect of other changes, such as foreign exchange rates, commodity prices and/or equity prices, does not pose significant market risk to us. As of December 31, 2008, the effective annualized interest rate payable on our investment was approximately 1.55% (based upon the average yield earned during the last reported monthly period). Assuming no other changes to our holdings as of December 31, 2008, a 1.0% decrease in the yield on our investment as of December 31, 2008 would result in a decrease of approximately $2.6 million in the interest earned on our investment for the following quarterly period. We have not engaged in any hedging activities since our inception. We do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
ITEM 8.
ITEM 8.
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Liberty Acquisition Holdings Corp.
We have audited the accompanying balance sheets of Liberty Acquisition Holdings Corp. (a corporation in the development stage) (the “Company”) as of December 31, 2008 and 2007, and the related statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2008 and the periods from June 27, 2007 (date of inception) to December 31, 2007 and from June 27, 2007 (date of inception) through December 31, 2008. We have also audited the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting 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 and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included 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. Our audit over internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company 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 the periods from June 27, 2007 (date of inception) to December 31, 2007 and from June 27, 2007 (date of inception) through December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Roseland, New Jersey
February 13, 2009
LIBERTY ACQUISITION HOLDINGS CORP.
(a corporation in the development stage)
BALANCE SHEETS
See accompanying notes to financial statements.
LIBERTY ACQUISITION HOLDINGS CORP.
(a corporation in the development stage)
STATEMENTS OF OPERATIONS
See accompanying notes to financial statements.
LIBERTY ACQUISITION HOLDINGS CORP.
(a corporation in the development stage)
STATEMENTS OF STOCKHOLDERS’ EQUITY
See accompanying notes to financial statements.
LIBERTY ACQUISITION HOLDINGS CORP.
(a corporation in the development stage)
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements.
LIBERTY ACQUISITION HOLDINGS CORP
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
NOTE A-DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Liberty Acquisition Holdings Corp. (a corporation in the development stage) (the “Company”) was incorporated in Delaware on June 27, 2007. The Company plans to acquire one or more operating businesses through a merger, stock exchange, asset acquisition, reorganization or similar business combination (a “Business Combination”). The Company has neither engaged in any operations nor generated revenue from operations to date. 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. Following the initial public offering (described below), the Company will not generate any operating revenues until after the completion of its initial business combination, at the earliest. The Company currently generates non-operating income in the form of interest income on cash and cash equivalents held in an escrow trust account (“Trust Account”) from the proceeds derived from the offering. For the year ended December 31, 2008, the Company earned approximately $25.5 million of interest income on the Trust Account, of which approximately $10.4 million was transferred to the operating account to be used for continuing general and administrative expenses and approximately $14.1 million was transferred to the operating account to be used for the payment of income taxes. The Company has selected December 31st as its fiscal year end.
The registration statement for the Company’s initial public offering (the “Offering”) (as described in Note C) was declared effective on December 6, 2007. The Company consummated the Offering on December 12, 2007, and contemporaneous with the consummation of the Offering, the Company’s Sponsors (as defined below) purchased 12,000,000 warrants in the aggregate at $1.00 per warrant in a private placement (the “Private Placement”) (See Note D). Substantially all of the net proceeds of the Offering are intended to be generally applied toward consummating a Business Combination. Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination. Since the Offering, approximately 98% of the gross proceeds, after payment of certain amounts to the underwriters, is held in a Trust Account and invested in U.S. “government securities” defined as any Treasury Bill issued by the United States having a maturity of 180 days or less and/or in any open ended money market(s) selected by us meeting the conditions of Sections (c)(2), (c)(3) and (c)(4) of Rule 2a-7 under the Investment Company Act of 1940, until the earlier of (i) the consummation of its first Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds may be used to pay for business, legal and accounting due diligence on a prospective Business Combination and continuing general and administrative expenses.
The Company, after signing a definitive agreement for the Business Combination, will submit such transaction for stockholder approval. In the event that 30% or more of the outstanding stock (excluding, for this purpose, those shares of the Company’s common stock, $0.0001 par value (“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 that purchased the Common Stock in the Offering voting against a Business Combination will be entitled to cause the Company to redeem their stock for a pro rata share of the Trust Account (including the additional 2.65% 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. All of the Company’s stockholders prior to the Offering (collectively, the “Founders”) have agreed to vote all of the shares of the Common Stock held by them in accordance with the vote of the majority in interest of all other stockholders of the Company.
In the event that the Company does not consummate a Business Combination by June 12, 2010, or December 12, 2010 if certain extension criteria have been satisfied, the proceeds held in the Trust Account will be distributed to the Company’s public stockholders, excluding the Founders to the extent of their initial stock holdings. In the event of such distribution, it is likely that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Unit in the Offering (assuming no value is attributed to the Warrants contained in the Units to be offered in the Offering discussed in Note C).
NOTE B-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
The accompanying financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the United States Securities and Exchange Commission (“SEC”).
Development Stage Company:
The Company complies with the accounting and reporting requirements of SFAS No. 7, “Accounting and Reporting by Development Stage Enterprises.”
Cash and cash equivalents:
Cash and cash equivalents are defined as cash and investments that have a maturity at date of purchase of, or can be converted to cash in, three months or less.
Units:
On December 6, 2007, the Company effected a 1-for-5 unit dividend (“Unit Dividend”). All transactions and disclosures in the financial statements, related to the Company’s Units, have been adjusted to reflect the effect of the Unit Dividend.
Income (loss) per common share:
Basic income (loss) per common share is computed by dividing income (loss) applicable to common stockholders by the weighted average number of common shares for the period. Diluted net income (loss) per share reflects the potential dilution that could occur if derivative securities were to be exercised or converted and would otherwise result in the issuance of common stock.
For the year ended December 31, 2008 and for the period from June 27, 2007 (inception) to December 31, 2008, the Company had potentially dilutive securities in the form of 76,687,500 warrants, including 12,937,500 warrants issued as part of the Founders’ Units (as defined below), 12,000,000 Sponsors’ Warrants (as defined below) issued in the Private Placement and 51,750,000 warrants issued as part of the Units (as defined below) in the Offering. Of the total warrants outstanding for the foregoing periods then ended, approximately 24,521,000 and 18,956,000 represent incremental shares of common stock, based on their assumed exercise, to be included in the weighted average number of shares of common stock (not subject to possible redemption) for the calculation of diluted income per share of common stock. The Company uses the “treasury stock method” to calculate potential dilutive shares, as if they were redeemed for common stock at the beginning of the period.
The Company’s statements of operations for the year ended December 31, 2008 and for the period from June 27, 2007 (inception) to December 31, 2008 include a presentation of income (loss) per common share subject to possible redemption in a manner similar to the two-class method of income (loss) per common share. Basic and diluted income per common share amount for the maximum number of common shares subject to possible redemption is calculated by dividing the net interest attributable to common shares subject to redemption by the weighted average number of common shares subject to possible redemption. Basic and diluted income per share amount for the common shares outstanding not subject to possible redemption is calculated by dividing the net income exclusive of the net interest income attributable to common shares subject to redemption by the weighted average number of common shares not subject to possible redemption.
Concentration of credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which at times, exceeds the Federal depository insurance coverage ($100,000 through October 7, 2008; $250,000 thereafter and currently). The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on this account.
Fair value of financial instruments:
The Company does not enter into financial instruments or derivative contracts for trading or speculative purposes. The carrying amounts of financial instruments classified as current assets and liabilities approximate their fair value due to their short 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 as of the date of the financial statements, the disclosure of contingent assets and liabilities in the financial statements and the accompanying notes, and the reported amounts of revenue and expenses during the periods presented. Actual amounts and results could differ from those estimates. If the Company were to effect a Business Combination, estimates and assumptions would be based on historical factors, current circumstances and the experience and judgment of the Company’s management, and would evaluate its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations.
Income taxes:
The Company complies with SFAS No. 109, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
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 measurement 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 on the inception date, June 27, 2007. The Company did not recognize any adjustments for uncertain tax positions during the year ended December 31, 2008.
Stock-based compensation
The Company accounts for stock options and warrants using the fair value recognition provisions of SFAS No.123 (Revised 2004), “Share-Based Payment”, (“SFAS 123(R)”). SFAS 123(R) addresses all forms of share based compensation awards including shares issued under employment stock purchase plans, stock options, restricted stock and stock appreciation rights. Under SFAS 123 (R), share based payment awards will be measured at fair value on the grant date, based on estimated number of awards that are expected to vest and will be reflected as compensation expense in the financial statements. See Note D.
Redeemable common stock:
The Company accounts for redeemable common stock in accordance with the Financial Accounting Standards Board’s (“FASB”) Emerging Issue Task Force D-98 “Classification and Measurement of Redeemable Securities” (“EITF D-98”) which provides that securities that are redeemable for cash or other assets are classified outside of permanent equity if they are redeemable at the option of the holder. In addition, if the redemption causes a liquidation event, the redeemable securities should not be classified outside of permanent equity. As discussed in Note A, the Business Combination will only be consummated if a majority of the shares of common stock voted by the Public Stockholders are voted in favor of the Business Combination and Public Stockholders holding less than 30% (31,050,000) of common stock sold in the Offering exercise their redemption rights. As further discussed in Note A, if a Business Combination is not consummated by June 12, 2010, or December 12, 2010 if certain extension criteria have been satisfied, the Company will liquidate. Accordingly, 31,049,999 shares of common stock have been classified outside of permanent equity at redemption value in the accompanying balance sheets. 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.
Recently issued accounting pronouncements:
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) 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. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. For the Company, SFAS No. 141R is effective for business combinations occurring after December 31, 2008. The Company is currently evaluating the future impacts and disclosures of this standard.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 requires reporting entities to present noncontrolling (minority) interests as equity as opposed to as a liability or mezzanine equity and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS 160 is effective the first fiscal year beginning after December 15, 2008, and interim periods within that fiscal year. SFAS 160 applies prospectively as of the beginning of the fiscal year SFAS 160 is initially applied, except for the presentation and disclosure requirements which are applied retrospectively for all periods presented subsequent to adoption. The adoption of SFAS 160 will not have a material impact on the Company’s results of operations or financial position; however, it could impact future transactions entered into by the Company.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - An Amendment to FASB Statement No. 133”. SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement is not expected to have a material effect on the Company’s results of operations or financial position; however, it could impact future transactions entered into by the Company.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE C-THE OFFERING
On December 12, 2007, the Company consummated its initial public offering of 103,500,000 units (“Units”) (including 13,500,000 Units sold pursuant to the underwriters’ exercise of their over-allotment option) at a price of $10.00 per Unit in the Offering. Each Unit consists of one share of the Company’s Common Stock and one half (1/2) of one redeemable Common Stock purchase warrant (“Warrant”). Because each unit includes one half (1/2) of one warrant, holders will need to have two units in order to have one warrant. Warrants may be exercised only in increments of one whole warrant. The public offering price was $10.00 per Unit. Each Warrant entitles the holder to purchase from the Company one share of Common Stock at an exercise price of $5.50 commencing on the later of (i) the consummation of the Company’s initial Business Combination or (ii) December 6, 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 will expire December 12, 2013, unless earlier redeemed. 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 $15.00 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.
No warrants will be exercisable and the Company will not be obligated to issue shares of Common Stock unless at the time a holder seeks to exercise such warrant, a prospectus relating to the Common Stock issuable upon exercise of the warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, the Company has agreed to use its best efforts to meet these conditions and to maintain a current prospectus relating to the common stock issuable upon exercise of the warrants until the expiration of the warrants. However, if the Company does not maintain a current prospectus relating to the common stock issuable upon exercise of the warrants, holders will be unable to exercise their warrants. In no circumstance will the Company be required to settle any such warrant exercise for cash. If the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the Common Stock is not qualified or exempt from qualification in the jurisdiction in which the holders of the warrants reside, the warrants may have no value, the market for the warrants may be limited and the warrants will expire worthless.
Proceeds held in the Trust Account will not be available for the Company’s use for any purpose, except to pay any income taxes and up to $10.35 million can be taken from the interest earned on the Trust Account to fund the Company’s working capital. These proceeds will be used to pay for business, legal, and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
NOTE D-RELATED PARTY TRANSACTIONS
The Founders purchased an aggregate of 25,875,000 (after giving effect to the Unit Dividend) of the Company’s founders’ units (the “Founders’ Units”) for an aggregate price of $25,000 in a private placement. The Founders’ Units are identical to those sold in the Offering, except that each of the Founders has agreed to vote the Common Stock included in the Founders’ Units 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 the initial Business Combination. As a result, the Founders will not be able to exercise redemption rights with respect to the Founders’ Common Stock if the initial Business Combination is approved by a majority of the Company’s public stockholders. The Founders’ Common Stock included in the Founders’ Units will not participate with the Common Stock included in the Units sold in the Offering in any liquidating distribution. The Warrants included in the Founders’ Units will become exercisable after the consummation of a Business Combination, if and when the last sales price of the Common Stock exceeds $15.00 per share for any 20 trading days within a 30 trading day period beginning 90 days after such Business Combination, will be non-redeemable so long as they are held by the Founders or their permitted transferees and may be exercised by the holder on a cashless basis. In no circumstance will the Company be required to settle any such warrant exercise for cash. If the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdiction in which the holders of the warrants reside, the warrants may have no value, the market for the warrants may be limited and the warrants will expire worthless.
Prior to, and in connection with the pricing of, the Offering, the Company’s Board of Directors approved an amendment to modify the terms of (i) the warrants granted to the Founders as part of the Founders’ Units and (ii) the Sponsors’ Warrants that were to be purchased by the Sponsors immediately prior to the consummation of the Offering, whereby the exercise price of the warrants was reduced from $7.00 to $5.50 and the exercise term extended from five to six years. The impact of the amendment to these warrants issued in connection with the Founders’ Units resulted in a warrant modification under SFAS 123(R), whereby the Company was required to record a charge for the change in fair value measured immediately prior and subsequent to the modification of the warrants. As a result of the modifications, the Company recorded a noncash expense of $2.5 million in the period from June 27, 2007 (date of inception) to December 31, 2007.
The Company presently occupies office space provided by Berggruen Holdings, Inc., an affiliate of Berggruen Holdings and the Company’s Chief Executive Officer. Upon the consummation of the Offering, the Company agreed to pay Berggruen Holdings, Inc. a total of $10,000 per month for office space, administrative services and secretarial support until the earlier of the Company’s consummation of a Business Combination or its liquidation. Upon consummation of a Business Combination or its liquidation, the Company will cease paying these monthly fees.
Each of Berggruen Holdings and Marlin Equities have invested $6.0 million in the Company ($12.0 million in the aggregate) in the form of sponsors’ warrants (“Sponsors’ Warrants”) to purchase 6,000,000 shares of Common Stock (12,000,000 in the aggregate) at a price of $1.00 per Sponsors’ Warrant. Each of Berggruen Holdings and Marlin Equities purchased such Sponsors’ Warrants from the Company immediately prior to the consummation of the Offering. Each of Berggruen Holdings and Marlin Equities has agreed not to transfer, assign or sell any of the Sponsors’ Warrants (including the Common Stock to be issued upon exercise of the Sponsors’ Warrants) until one year after the Company consummates a Business Combination. In no circumstance will the Company be required to settle any such warrant exercise for cash. If the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdiction in which the holders of the warrants reside, the warrants may have no value, the market for the warrants may be limited and the warrants will expire worthless. There was no charge associated with the issuance of these warrants in the Private Placement, in accordance with SFAS 123(R), as the Company has determined that the purchase price of these warrants were above the fair value of such warrants.
Each of Berggruen Holdings and Marlin Equities agreed to invest $30.0 million in the Company ($60.0 million in the aggregate) in the form of co-investment units (“Co-Investment Units”) at a price of $10.00 per Unit. Each of Berggruen Holdings and Marlin Equities is obligated to purchase such Co-Investment Units from the Company immediately prior to the consummation of a Business Combination.
The Co-Investment Units will be identical to the Units sold in the Offering. Each of Berggruen Holdings and Marlin Equities has agreed not to transfer, assign or sell any of the Co-Investment Units or the Common Stock or Warrants included in the Co-Investment Units (including the Common Stock to be issued upon exercise of the Warrants), until one year after the Company consummates a Business Combination.
The Company issued two $125,000 unsecured promissory notes, one each, to Berggruen Acquisition Holdings Ltd (“Berggruen Holdings”) and Marlin Equities II, LLC (“Marlin Equities”). These advances were non-interest bearing, unsecured and due within 60 days following the consummation of the Offering. Both promissory notes were repaid in the first quarter of 2008.
NOTE E-INCOME TAXES
The Company’s provision for income taxes reflects the application of federal, state and city statutory rates to the Company’s income before taxes.
Components of the provision for income taxes are as follows:
For the year ended December 31, 2008, the effective income tax rate differs from the federal statutory rate of 34% principally due to the effect of state and city income taxes and for the periods from June 27, 2007 (inception) to December 31, 2007 and June 27, 2007 (inception) to December 31, 2008, the non-deductibility of the warrant modification charge (permanent difference) also contributes to the difference.
NOTE F-COMMITMENTS
The Company paid an underwriting discount of 2.85% of the Offering proceeds ($29.5 million) to the underwriters at the closing of the Offering. The Company will pay the underwriters an additional fee of 2.65% of the Offering proceeds ($27.4 million) payable upon the consummation of a Business Combination.
NOTE G-PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of December 31, 2008, the Company has not issued any shares of preferred stock.
NOTE H-FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Company adopted SFAS No. 157 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 provision of FASB Staff Positions No. 157-2, the Company has elected to defer implementation of SFAS No. 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 No. 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 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 value 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.
Financial Assets at Fair Value as of December 31, 2008
The fair values of the Company’s cash and cash equivalents held in the Trust Account are determined through market, observable and corroborated sources.
The carrying amounts reflected in the balance sheets for other current assets and accrued expenses approximate fair value due to their short-term maturities.
ITEM 9.
ITEM 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
ITEM 9A.
Controls and Procedures
Management’s annual report on internal control over financial reporting
Our Chief Executive Officer (“CEO”), is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act.
Internal controls over financial reporting is promulgated under the Exchange Act as a process designed by, or under the supervision of, our CEO and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition or disposition of our assets that could have a material effect on the financial statements.
Readers are cautioned that internal controls over financial reporting, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal controls over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.
Our management, with the participation of the CEO, evaluated the effectiveness of our internal controls over financial reporting as of December 31 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on this evaluation, our management, with the participation of the CEO, concluded that, as of December 31, 2008, our internal controls over financial reporting were effective.
Changes in Internal Control over Financial Reporting
Further, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act that occurred during our last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our CEO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this annual report.
Disclosure controls and procedures reporting as promulgated under the Exchange Act is defined as controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our CEO has concluded that these controls and procedures were effective in providing reasonable assurance that information requiring disclosure is recorded, processed, summarized and reported within the timeframe specified by the SEC’s rules and forms as such term is defined in Rule 13a-15(f).
Report of Independent Registered Public Accounting Firm
The report called for by Item 308(b) of Regulation S-K is incorporated by reference to Report of Independent Registered Public Accounting Firm on internal control over financial reporting, included in Part II, “Item 8. Financial Statements and Supplementary Data” of this annual report.
On February 12, 2009, we received a letter from NYSE Alternext US LLC (the “Exchange”), indicating that we were not in compliance with Section 704 of the NYSE Alternext US LLC Company Guide (the “Company Guide”), for failure to hold an annual meeting of our stockholders during 2008. On February 13, 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.
PART III
ITEM 10.
ITEM 10.
Directors, Executive Officers and Corporate Governance
Information regarding executive officers is included in Part I of this Form 10-K as permitted by General Instruction G(3).
We have adopted a code of ethics that applies to our directors and officers. We have filed a copy of our code of ethics as an exhibit to the registration statement in connection with our initial public offering. You may review this document by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the code of ethics will be provided without charge upon request to us in writing at 1114 Avenue of the Americas, 41st Floor, New York, New York 10036. We intend to disclose any amendments to or waivers of certain provisions of our code of ethics in a Current Report on Form 8-K.
Other information required by Item 10, including information regarding directors, membership and function of the audit committee, including the financial expertise of its members, and Section 16(a) compliance, appearing under the captions “Election of Directors”, “Information Regarding Board of Directors and Committees” and “Other Matters” in our Proxy Statement used in connection with our 2009 Annual Meeting of Stockholders, is incorporated herein by reference.
The information set forth under the caption “Executive Compensation” in our Proxy Statement used in connection with our 2009 Annual Meeting of Stockholders, is incorporated herein by reference.
ITEM 12.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement used in connection with our 2009 Annual Meeting of Stockholders, is incorporated herein by reference.
ITEM 13.
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence.
The information set forth under the caption “Certain Relationships and Related Transactions” in our Proxy Statement used in connection with our 2009 Annual Meeting of Stockholders, is incorporated herein by reference.
ITEM 14.
ITEM 14.
Principal Accounting Fees and Services.
The information set forth under the caption “Principal Accountant Fees and Services” in our Proxy Statement used in connection with our 2009 Annual Meeting of Stockholders, is incorporated herein by reference.
PART IV
ITEM 15.
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.
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.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Nicolas Berggruen as true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him, her or it and in his, her or its name, place and stead, in any and all capacities to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC granting unto said attorney-in-fact and agent the full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as to all intents and purposes as either of them might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or their substitute, may lawfully do or cause to be done by virtue hereof.