Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock, warrants and units are each traded on the OTCBB under the symbols LLAQ, LLAQW and LLAQU, respectively. Our units commenced public trading on November 23, 2010, and our common stock and warrants commenced public trading on December 28, 2010.
The table below sets forth, for the calendar quarter indicated, the high and low bid prices of our units, common stock and warrants as reported on the OTCBB. The following table sets forth the high and low bid prices for our units for the period from November 23, 2010 through December 31, 2010 and our common stock and warrants for the period from December 28, 2010 through December 31, 2010.
On December 31, 2010, the closing price of our units was $10.01. There was no closing price for the common stock and warrants.
Holders
On March 23, 2011, there were eleven holders of record of our common stock, eight holders of record of our warrants and 1 holder of record of our units.
Dividends
We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends prior to the completion of a business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business transaction. The payment of any dividends subsequent to a business combination will be within the discretion of our board of directors at such time. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board of directors does not anticipate declaring any dividends in the foreseeable future. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.
Securities Authorized for Issuance Under Equity Compensation Plans.
None.
Recent Sales of Unregistered Securities
Prior to the consummation of our initial public offering, we completed a private placement of an aggregate of 3,040,000 warrants to our underwriters and our sponsors (2,773,333 by our sponsors and 266,667 by the underwriters), generating gross proceeds of $2,280,000. The private placement warrants are identical to the warrants sold in the initial public offering except that if held by the original holders or their permitted assigns, (i) they will not be redeemable by us, (ii) they may be exercised by the holders on a cashless basis and (iii) with respect to the private placement warrants held by the underwriters, they will expire on November 23, 2015, which is five years from the effective date of the registration statement relative to the initial public offering. In addition, the private placement warrants will be held in escrow until 30 days following the completion of our initial business combination. The private placement of the warrants was made pursuant to Section 4(2) or Regulation D of the Securities Act.
In July 2010, Mr. Shermyen, LLM Structured Equity Fund L.P. and LLM Investors L.P. purchased an aggregate of 1,437,500 shares of our common stock, for an aggregate purchase price of $25,000, or approximately $0.0174 per share. Subsequently, on November 22, 2010, each of Mr. Shermyen, LLM Structured Equity Fund L.P. and LLM Investors L.P. returned to us an aggregate of 287,500 of such initial shares, which we have cancelled. These shares are referred to throughout this Annual Report as the initial shares and consist of (i) 511,111 shares (66,667 of which have been forfeited because the underwriters’ over-allotment option was not exercised) which will be held in escrow until the first anniversary of our initial business combination and (ii) 638,889 shares (83,333 of which have been forfeited because the underwriters’ over-allotment option was not exercised) which will be held in escrow and forfeited on the fifth anniversary of our initial business combination unless, prior to such time, either (x) the last sales price of our stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period or (y) a transaction is consummated following our initial business combination in which all stockholders have the right to exchange their common stock for cash consideration which equals or exceeds $18.00 per share. Subsequent to the purchase of the initial shares, (i) Mr. Shermyen transferred at cost an aggregate of 58,219 of these shares to Mr. Landman and Dr. Eisenberg, each of whom is a member of our advisory board, and Mr. Pettis, Mr. Hetz and Ms. Daych, each of whom is a director, (ii) LLM Investors L.P. transferred at cost an aggregate of 2,197 of these shares to Mr. Hetz and Ms. Daych and (iii) LLM Structured Equity Fund L.P. transferred at cost an aggregate of 56,022 of these shares to Mr. Hoops, a member of our advisory board, Mr. Svahn, a director, Mr. Hetz and Ms. Daych. Our initial stockholders have contractually agreed with us that they will have no ability to vote any of the 638,889 shares (83,333 of which have been forfeited because the underwriters’ over-allotment option was not exercised) being held in escrow until such time, if ever, that such shares are released to them.
Use of Proceeds from our Initial Public Offering
The effective date of our registration statement, which was filed on Form S-1 under the Securities Act, and which related to the initial public offering of our units, was November 23, 2010. Each unit consisted of one share of common stock, $.0001 par value per share, and one warrant to purchase one share of common stock. A total of 4,600,000 (including the underwriters’ over allotment) units were registered at a proposed maximum aggregate offering price of $4,600,000 (including the underwriters’ over allotment).
On November 29, 2010, we sold 4,000,000 units in the initial public offering at a price of $10.00 per unit. Each unit consists of one share of our common stock and a warrant exercisable for one share of common stock. Morgan Joseph LLC acted as sole book-running manager and EarlyBirdCapital, Inc. acted as co-manager of the initial public offering.
In addition, immediately prior to the initial public offering, our sponsor and the underwriters purchased an aggregate of 3,040,000 warrants (2,773,333 by our sponsors and 266,667 by the underwriters) from us at a price of $0.75 per warrant in a private placement pursuant to Section 4(2) or Regulation D of the Securities Act.
The net offering proceeds to us from the sale of our units and the private placement, after deducting underwriting discounts and commissions of $1,331,300 (including $331,000 placed in the Trust Account representing a deferred underwriters’ discount) and offering expenses of $500,000 (which includes $100,000 in deferred legal fees payable upon consummation of the initial business combination), was $40,400,000. $40,400,000 including proceeds from the sale of our warrants, plus interest is currently being held in trust and the remaining funds of approximately $380,000 are being held outside of the trust. We, in the aggregate incurred $1,751,766 in expenses in connection with the initial public offering. The remaining proceeds are held for working capital such as business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. We will use substantially all of the net proceeds of the initial public offering to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination. From the date of the initial public offering through December 31, 2010, $109,318 of the initial public offering proceeds have been used by us for working capital purposes. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the proceeds held in the Trust Account as well as any other net proceeds not expended will be used to finance the operations of the target business. We believe we will have sufficient available funds outside of the Trust Account to operate through May 23, 2012, assuming that a business combination is not consummated during that time. We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, we may need to raise additional funds through a private or public offering of debt or equity securities if such funds are required to consummate a business transaction that is presented to us. We would only consummate such a financing simultaneously with the consummation of a business transaction.
All proceeds from the initial public offering held in our Trust Account are being invested in U.S. “government securities,” within the meaning of Section 2(a)(16) of the Investment Company Act with a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Act, until the earlier of (i) the consummation of a business transaction or (ii) the distribution of the Trust Account.
Other than as set forth below, no expenses of the initial public offering were paid to any of our officers and directors, to persons owning ten percent (10%) or more of common stock or any of their respective affiliates. We did, however, repay two of our sponsors, Mr. Shermyen and LLM Structured Equity Fund, L.P., for $75,000 in loans made to us in July 2010 to cover offering-related and organization expenses prior to the initial public offering.
The following table summarizes the compensation to our underwriters in connection with the initial public offering:
(1)
Based on the underwriters’ discount equal to 2.5% of the gross proceeds from the sale of units offered to the public.
(2)
This amount includes (A) a deferred fee payable to the underwriters equal to 0.5% of the gross proceeds from the sale of units to the public upon completion of our initial business combination, (B) a contingent fee equal to 2.5% of the aggregate amount of the funds released from the Trust Account to us and/or to our target upon completion of our initial business combination (assuming none of our public stockholders redeem their shares of common stock) payable to Morgan Joseph LLC and such other firms (which may or may not be underwriters), if any, who are instrumental in advising us in connection with the consummation of our initial business combination (in the event that 87% of our public stockholders redeem their shares, we estimate the 0.5% deferred fee equal to $200,000 and the 2.5% contingent fee to equal $131,300) and (C) a contingent fee equal to $100,000 payable to our outside counsel for legal services rendered in connection with the initial public offering.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6.
Item 6.
Selected Financial Data.
We are a smaller reporting company as defined in Regulation S-K; as such, pursuant to Regulation S-K, we are not required to make disclosures under this Item.
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The following discussion should be read in conjunction with our financial statements, together with the notes to those statements, included elsewhere in this Annual Report. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.
We were formed on July 26, 2010, for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business combination, one or more operating businesses or assets.
We presently have no revenue, have had losses since inception from incurring administrative costs of government compliance for a public company, have no operations other than the active solicitation of an acquisition target and have relied upon the sale of our securities and loans from our officers and directors to fund our operations.
We intend to use cash from the proceeds of our initial public offering, our capital stock, incurred debt, or a combination of cash, capital stock and debt, in effecting our initial business combination. The issuance of additional shares of our capital stock:
•
may significantly reduce the equity interest of investors in our initial public offering;
•
may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to the holders of our common stock;
•
may likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely will also result in the resignation or removal of our present officers and directors; and
•
may adversely affect prevailing market prices for our common stock and/or warrants.
Similarly, if we incur substantial debt, it could result in:
•
default and foreclosure on our assets if our operating cash flow after a business combination is insufficient to pay our debt obligations;
•
acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant;
•
our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
•
covenants that limit our ability to acquire capital assets or make additional acquisitions;
•
our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding;
•
our inability to pay dividends on our common stock;
•
using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
•
limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
•
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
•
limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.
Results of Operations
For the period from July 26, 2010 (inception) through December 31, 2010, we had net loss of $158,030 consisting of interest and dividend income of $4,381 less costs attributable to organization, formation and general and administrative expenses of $162,411.
We consummated our initial public offering of 4,000,000 units at a price of $10 per unit on November 29, 2010. Gross proceeds from our initial public offering were $40,000,000. Total net proceeds were $38,248,234, before deducting deferred underwriting compensation of $1,000,000 and includes $200,000 received for the purchase of 266,667 warrants by the underwriters. Upon the closing of the initial public offering and the private placement of warrants, $40,400,000 was placed in the Trust Account.
We expect to generate small amounts of non-operating income in the form of interest income on cash and cash equivalents. Interest income is not expected to be significant in view of current low interest rates on risk-free investments (treasury securities). We expect our expenses to increase substantially after this annual period if we consummate a business combination as a result of our acquiring an operating company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
Liquidity and Capital Resources
In July 2010, Mr. Shermyen, LLM Structured Equity Fund L.P. and LLM Investors L.P. purchased an aggregate of 1,437,500 shares of our common stock, for an aggregate purchase price of $25,000, or approximately $0.0174 per share. Subsequently, on November 22, 2010, each of Mr. Shermyen, LLM Structured Equity Fund L.P. and LLM Investors L.P. returned to us an aggregate of 287,500 of such initial shares, which we have cancelled. These shares are referred to as the “initial shares” and consist of (i) 511,111 shares (up to 66,667 of which were forfeited as the underwriters’ over-allotment option was not exercised in full) which will be held in escrow until the first anniversary of our initial business combination and (ii) 638,889 shares (up to 83,333 of which were forfeited as the underwriters’ over-allotment option was not exercised in full) which will be held in escrow and forfeited on the fifth anniversary of our initial business combination unless, prior to such time, either (x) the last sales price of our stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period or (y) a transaction is consummated following our initial business combination in which all stockholders have the right to exchange their common stock for cash consideration which equals or exceeds $18.00 per share. Subsequent to the purchase of these shares, (i) Mr. Shermyen transferred at cost an aggregate of 58,219 of these shares to Mr. Landman and Dr. Eisenberg, each of whom is a member of our advisory board, and Messrs. Pettis and Hetz and Ms. Daych, each of whom is a director, (ii) LLM Investors L.P. transferred at cost an aggregate of 2,197 of these shares to Mr. Hetz and Ms. Daych and (iii) LLM Structured Equity Fund L.P. transferred at cost an aggregate of 56,022 of these shares to Mr. Hoops, a member of our advisory board, Mr. Svahn, a director, Mr. Hetz and Ms. Daych. Our initial stockholders have contractually agreed with us that they will have no ability to vote any of the 638,889 shares being held in escrow until such time, if ever, that such shares are released to them.
The sponsors, certain of our directors and advisors and the underwriters purchased, in a private placement, 3,040,000 warrants prior to the initial public offering at a price of $0.75 per warrant (a purchase price of $2,280,000) from us. Based on the observable market prices, we believe that the purchase price of $0.75 per warrant for such warrants exceeds the fair value of such warrants on the date of the purchase. The valuation is based on comparable initial public offerings by other blank check companies. The holders have agreed that such warrants will not be sold or transferred until 30 days following consummation of a business combination, subject to certain limited exceptions. If we do not complete a business combination, then the proceeds will be part of the liquidating distribution to the public stockholders and the warrants issued to such holders will expire worthless.
We consummated our initial public offering of 4,000,000 units at a price of $10 per unit on November 29, 2010. Gross proceeds from our initial public offering were $40,000,000. Total net proceeds were $38,248,234, before deducting deferred underwriting compensation of $1,000,000 and includes $200,000 received for the purchase of 266,667 warrants by the underwriters. Upon the closing of the initial public offering and the private placement of warrants, $40,400,000 was placed in the Trust Account. We intend to use substantially all of the net proceeds of the initial public offering to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating a business combination. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the proceeds held in the Trust Account as well as any other net proceeds not expended will be used to finance the operations of the target business. We believe we will have sufficient available funds outside of the Trust Account to operate through May 29, 2012, assuming that a business combination is not consummated during that time. However, we cannot be certain that this will be the case.
We expect our primary liquidity requirement during this period to include approximately $380,000 for legal, accounting and other expenses associated with due diligence of a prospective target business including structuring, negotiating and documenting a business combination; $150,000 of expenses for the due diligence (excluding accounting and legal due diligence) of prospective target businesses by our officers, directors and sponsors; $125,000 of legal and accounting expenses attendant to the due diligence investigations, structuring and negotiating of a business combination; $30,000 reserve for liquidation expenses; and $75,000 that will be used for other miscellaneous expenses and reserves, including for audit fees, as well as stock transfer agent expenses. We may need to raise additional funds through a private offering of debt or equity securities if such funds are required to consummate a business combination that is presented to us. We would only consummate such a financing simultaneously with the consummation of a business combination.
As of December 31, 2010, we had cash outside of the Trust Account of $815,026 and $908,335 in total liabilities. Until the consummation of our initial public offering, our only source of liquidity was a $75,000 loan made to us in July 2010 by Mr. Shermyen and LLM Structured Equity Fund L.P., two of our sponsors. These loans were repaid out of the proceeds from the initial public offering that was consummated on November 29, 2010.
Off-Balance Sheet Arrangements
None.
Recent Accounting Pronouncements
We do not believe that the adoption of any recently issued accounting standards will have a material impact on our financial position and results of operations.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined in Regulation S-K; as such, pursuant to Regulation S-K, we are not required to make disclosures under this Item.
Item 8.
Item 8.
Financial Statements and Supplementary Data.
Reference is made to pages through comprising a portion of this Annual Report.
Item 9.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Item 9A.
Controls and Procedures.
Disclosure Controls and Procedures
Our management with the participation of our chief executive officer and chief financial officer (the “Certifying Officers”) evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report. Based on this evaluation, our Certifying Officers have concluded that, as of the end of such period, our disclosure controls and procedures were adequate and effective.
Internal Control over Financial Reporting
This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.
None.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
Our directors and executive officers as of the date of this Annual Report are as follows:
John L. Shermyen. Mr. Shermyen has been our chairman, chief executive officer and a director since July 2010. Mr. Shermyen founded RadioSoft, Inc., the predecessor entity to LogistiCare, a provider of non-emergency medical transportation management solutions, in 1994, and served as its president and chief executive officer from 1994 until July 2009. Seeing a need to better organize non-emergency medical transportation, Mr. Shermyen introduced the capitated, full-risk broker model to state governments, health insurers and other health-related entities in the early 1990s. Mr. Shermyen grew LogistiCare to over $450 million in revenue during his tenure. In 2003, he was recognized with the Ernst & Young Entrepreneur of the Year Award® in the Business and Technology Services Category for the Southeast region. Mr. Shermyen holds both a bachelor’s degree and a master’s degree in geography and computer cartography from the University of Florida.
Patrick J. Landers. Mr. Landers has been our president and a director since July 2010. From August 2007 until November 2009, Mr. Landers was president and a director of Prospect Acquisition Corp., or Prospect, a special purpose acquisition company focused on the financial services industry. Mr. Landers currently serves as the president and chief executive officer of Annascaul Advisors LLC, a FINRA member firm, and a managing director of LLM Capital Partners LLC. Mr. Landers has served in these capacities since 2003 and 2004, respectively. From 2001 to 2003, Mr. Landers was president of Landers Partners LLC, a financial advisory firm that he founded. From 1981 until 2001, Mr. Landers was an investment banker at Dillon, Read & Co. Inc., an investment banking firm, and subsequently at UBS AG, an investment banking firm, after UBS AG’s acquisition of Dillon, Read & Co. Inc. In addition to Prospect, Mr. Landers has served as a director of The Endurance International Group, Inc., a web hosting company, Connell Limited Partnership, an industrial conglomerate, Haas Publishing Company, a publishing company, and Student/Sponsor Partners, a New York educational foundation established to help disadvantaged youth attain a quality high school education. Mr. Landers holds a bachelor’s degree in English and classics from Williams College and a masters of public policy and management from Yale University.
Peter Schofield. Mr. Schofield has been our chief financial officer, treasurer and secretary since July 2010. He has been chief financial officer at LLM Capital Partners LLC since 2006 and chief financial officer at Washington & Congress Managers, LLC, a private equity firm, since 2004. Mr. Schofield also has extensive accounting and financial reporting experience from his various roles at Fidelity Investments, Colonial Management Associates, Inc. and Price Waterhouse. He holds a bachelor’s degree in accounting from the University of Massachusetts and a masters of business administration from Babson College. Mr. Schofield is a Certified Public Accountant and a Chartered Financial Analyst.
Diane M. Daych. Ms. Daych has been a director since November 2010. Ms. Daych currently serves as a managing director of private equity for the Marwood Group, where she co-heads its healthcare investment fund, Marwood Capital Health Investors. Prior to joining the Marwood Group in 2010, Ms. Daych was a principal and partner at CCP Equity Partners and its predecessor firm, Conning Capital Partners, for approximately ten years. In this capacity, Ms. Daych invested in growth companies offering specialized solutions for the financing, management and delivery of healthcare in industries such as managed care, disease and care management, outpatient services, information technology and healthcare-related ancillary and outsourcing services. Earlier in her career, Ms. Daych held operational roles with Medical Care America and Mariner Health, and spent several years in the buyout industry, including with GE Capital’s Capital Markets Group. Ms. Daych currently sits on the board of directors of Cogent Healthcare, Prism Education and the Women’s Association of Venture and Equity. Ms. Daych holds a bachelor of arts in Economics from Lehigh University and a masters in business administration from Tuck School at Dartmouth College.
E. David Hetz. Mr. Hetz has been a director since October 2010. Mr. Hetz currently serves as managing member of Cutlass Capital, LLC, a venture capital firm which he co-founded in 2001 that invests in healthcare services and medical technology companies. From 1987 to 1999, Mr. Hetz was a senior investment banker with Robertson Stephens & Co., serving as co-head of investment banking, head of the mergers and acquisitions department and a member of the management committee. Prior to joining Robertson Stephens & Co., Mr. Hetz was an investment banker at Smith Barney & Co. and prior to that at Warburg Paribas Becker. Mr. Hetz currently serves on the boards of trustees of Claremont McKenna College and the Middlesex School and on the advisory boards of the Kravis Leadership Institute and Charles River Consulting. Mr. Hetz holds a bachelor of arts from Claremont McKenna College and a masters in business administration from Harvard Business School.
Alan W. Pettis. Mr. Pettis has been a director since October 2010. Mr. Pettis is currently a partner at Innovate Partners, Inc., a private capital investment company which he joined in 2008. From 2006 to 2008, Mr. Pettis was president and chief operating officer of ORION Property Partners, Inc., or Orion, a commercial real estate operating company. Prior to joining Orion, Mr. Pettis was a partner at the international law firm of Latham & Watkins LLP from 1994 to 2005 representing clients in accessing the capital markets and in mergers and acquisitions. In 1987, Mr. Pettis founded and served as managing partner of the law firm of Pettis, Tester, Kruse & Krinsky. From 1969 to 1987, Mr. Pettis was a partner at Gibson, Dunn & Crutcher LLP and also served as managing partner of that firm’s Orange County, California office. Mr. Pettis holds a bachelor of arts and a bachelor of laws from the University of Texas.
John A. Svahn. Mr. Svahn has been a director since October 2010. Mr. Svahn currently serves as president of JASCO Associates, Inc., or JASCO, a consulting firm specializing in state and federal human service programs, and as a member of the North American Advisory Board for Lagan, Inc., a United Kingdom firm that provides information technology solutions to government agencies worldwide. Mr. Svahn has served in these capacities since 2003 and 2007, respectively. Mr. Svahn is also currently a member of the board of directors of The Foundation for the Future of Aging and on the Advisory Board of Audax Health Solutions, Inc. Mr. Svahn served on the board of directors of Epic Edge, a provider of information technology services to state governments, from 2001 to 2003 and LogistiCare, a provider of non-emergency medical transportation management solutions, from 2001 to 2009. From 1994 to 2003, Mr. Svahn was chairman of the board of directors of Capital Associates, Inc., a consulting firm that specialized in helping companies do business with state and local government. From 1995 to 1996, Mr. Svahn was executive vice president of The Wexler Group, in which capacity he represented a variety of companies before Congress and federal executive branch agencies. From 1987 to 1994, Mr. Svahn served as chairman of the board and president of the Government Services Group of MAXIMUS, Inc. In addition, Mr. Svahn has served as assistant to the President of the United States of America for Policy Development, Under Secretary of Health and Human Services and as the US Commissioner of Social Security. Mr. Svahn holds a bachelor’s degree in political science from the University of Washington and completed three years of post-graduate course work at the University of the Pacific, McGeorge School of Law.
Advisory Board
In addition to our board of directors, we have established an advisory board. As of the date of this Annual Report, the members of our advisory board are:
Our advisory board members will not participate in managing our operations. We have no formal arrangement or agreement with these individuals to provide services to us and accordingly, they have no contractual or fiduciary obligations to present business opportunities to us. We expect that members of the advisory board will provide advice, insights, contacts and other assistance to us based on their extensive industry experience and involvement in areas of activity that are strategic to us. In addition to individual meetings or phone conferences with members of the advisory board, we intend to conduct bi-annual meetings with the advisory board to discuss our strategy and industry trends.
The following is a brief summary of the background of each member of our advisory board. There are no family relationships among any of the advisory board, executive officers or directors.
Mitchell Eisenberg, M.D. Dr. Eisenberg has been a member of our advisory board since November 2010. Dr. Eisenberg joined Sheridan Healthcare, Inc. in 1982, where he has served as chairman of the board and chief executive officer since 1994, and as a director since 1985. Dr. Eisenberg also serves as the vice president of the Memorial and Joe DiMaggio Foundation and has been a member of its board of directors since 2006. Dr. Eisenberg holds a bachelor of science from Muhlenberg College, where he graduated cum laude, and a doctor of medicine from the Medical College of Pennsylvania. Dr. Eisenberg holds Board Certifications in both Internal Medicine and Anesthesiology. Dr. Eisenberg completed his residency in Internal Medicine at New England Deaconess Hospital and his residency in Anesthesiology at Massachusetts General Hospital, both of which are affiliated with Harvard Medical School. Dr. Eisenberg was elected into the Alpha Omega Alpha Honor Medical Society in 1976.
Alan R. Hoops. Mr. Hoops has been a member of our advisory board since November 2010. Since March 2006, Mr. Hoops has served as chairman of the board and chief executive officer of CareMore Health Group, a Medicare Advantage Health Plan which includes CareMore Medical Enterprises, Inc. and CareMore Health Plan. Additionally, since 2000, Mr. Hoops has served as chairman of the board of Benu, Inc. and Enwisen, and is also a director of Corvel. Prior to joining CareMore Health Group, from 1993 until 2000, Mr. Hoops served as president and chief executive officer of PacifiCare, a publicly-traded health plan based in California, which he joined in 1977. Mr. Hoops also served as PacifiCare’s chairman of the board from 1999 to 2000. Under Mr. Hoops’ direction, PacifiCare became a major commercial HMO and one of California’s largest managed care insurers. Mr. Hoops also started PacifiCare’s Secure Horizon’s program, which under his leadership became the largest Medicare HMO health plan in the United States. Mr. Hoops holds a masters in health administration from University of Washington.
William A. Landman. Mr. Landman has been a member of our advisory board since October 2010. Mr. Landman is currently a member of the board of directors, a vice president and senior managing director of CMS Companies, an investment firm overseeing nearly $2 billion of invested capital in the private equity and real estate asset classes. Mr. Landman is also a member of the board of directors, chairman of the board of Thomas Jefferson University Hospital, an academic medical center within the Jefferson Health System, and serves on the board of Thomas Jefferson University. He is also a member of the board of Jefferson Health System and chairman of the audit committee. Mr. Landman holds a bachelor’s degree from the University of Pittsburgh and a juris doctorate from the University of Pittsburgh School of Law.
Frederick S. Moseley, IV. Mr. Moseley has been a member of our advisory board since August 2010. Since 2004, Mr. Moseley has been a managing director of LLM Capital Partners LLC. In addition, since 2004, Mr. Moseley has been chief executive officer of Washington & Congress Managers, LLC, the successor management company of Washington & Congress Capital Partners L.P. (f/k/a Triumph Partners III, L.P., or Triumph III), a private equity fund and other funds. From 1998 to 2003, Mr. Moseley was the president and a director of Triumph Capital Group, Inc., or Triumph Capital Group, the previous manager of Triumph III and other funds. Prior to co-founding Triumph in 1990, Mr. Moseley was a managing director of Drexel Burnham Lambert and had prior experience with Dillon, Read & Co. Inc. and Merrill Lynch White Weld. He has served as a director of Abbey Healthcare Group, a home healthcare provider, Allied Healthcare International, a provider of healthcare related flexible staffing, Apria Healthcare Group, a provider of home healthcare products, BORN Information Services, a provider of information technology services, Box USA Holdings, a converter of packaging materials, First Communications, a trade show organizer, LogistiCare, and Value Asset Management, an asset management firm, among others, and as a board observer in other companies. Mr. Moseley holds a bachelor of arts from Harvard College and a masters in business administration from Columbia University.
In 2004, Mr. Moseley consented to the entry of an order by the State of Connecticut’s Department of Banking denying his application for registration in Connecticut as an agent of Annascaul Advisors LLC (formerly Landers, Lane & Moseley Capital Partners LLC), a broker-dealer. His application was denied by the Department of Banking based on a finding that, although he disclosed his position as president of Triumph Capital Group, he also should have checked a “yes” box in response to a question regarding whether Mr. Moseley exercised “control” over Triumph Capital based on the presumption created by Mr. Moseley’s position as president of Triumph Capital Group. In 2003, Triumph Capital Group and its general counsel were convicted of certain criminal charges, and the chairman of Triumph Capital Group pled guilty to a single charge, relating to providing consulting contracts valued at approximately $2 million to associates of the former Connecticut treasurer, at least in part, for the treasurer’s decision to increase the investment of state pension assets in a Triumph Capital Group investment fund. Neither Mr. Moseley nor, to his knowledge, any other Triumph Capital Group employee was implicated or alleged to be involved in any way in the wrongdoings giving rise to the charges noted above.
Number and Terms of Office of Directors
Our board of directors is divided into two classes with only one class of directors being elected at each annual meeting of stockholders and each class (except for those directors appointed prior to our first annual meeting of stockholders) serving a three-year term. The term of office of the first class of directors, consisting of Messrs. Hetz and Pettis and Ms. Daych will expire at our first annual meeting of stockholders. The term of office of the second class of directors, consisting of Messrs. Landers, Shermyen and Svahn, will expire at the second annual meeting of stockholders.
Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our amended and restated by-laws as it deems appropriate. Our amended and restated by-laws provide that our officers may consist of a chairman of the board, chief executive officer, president, chief financial officer, vice presidents, secretary, treasurer and such other offices as may be determined by the board of directors.
These individuals will play a key role in identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating our initial business combination. Collectively, through their positions described above, our directors have extensive experience in the alternative asset management and private equity businesses.
We do not currently intend to hold an annual meeting of stockholders until after we consummate a business combination, and thus may not be in compliance with Section 211(b) of the DGCL. Therefore, if our stockholders want us to hold an annual meeting prior to our consummation of a business combination, they may attempt to force us to hold one by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the DGCL.
Board Committees
Our board of directors intends to establish an audit committee and a compensation committee upon completion of our initial business combination. At that time our board of directors intends to adopt charters for these committees. Prior to such time we do not intend to establish either committee. Accordingly, there will not be a separate committee comprised of some members of our board of directors with specialized accounting and financial knowledge to meet, analyze and discuss solely financial matters concerning prospective target businesses. We do not believe a compensation committee is necessary prior to our initial business combination as there will be no salary, fees or other compensation being paid to our officers or directors prior to our initial business combination other than as disclosed in this Annual Report.
Code of Conduct and Ethics
We have adopted a code of conduct and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, officers and certain beneficial owners, or, collectively, reporting persons, to file reports of holdings and transactions in our shares with the SEC. Based on our records and other information, we believe that all of the reporting persons filed all the applicable SEC reports required for 2010.
Compensation for Officers and Directors
No executive officer or director has received compensation of any kind for services rendered. No compensation of any kind, including finder’s and consulting fees, will be paid to any of our existing stockholders, including our officers, directors, or any of their respective affiliates, for services rendered prior to or in connection with a business combination. However, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying prospective target businesses and performing due diligence on potential business combinations. There is no limit on the amount of these out-of-pocket expenses and there will be no review of the reasonableness of the expenses by anyone other than our board of directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. If none of our directors are deemed “independent,” we will not have the benefit of independent directors examining the propriety of expenses incurred on our behalf and subject to reimbursement.
After completion of a business combination, our executive officers and directors who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to stockholders, to the extent then known, in the tender offer documents or proxy solicitation materials, as applicable, furnished to our stockholders. It is unlikely, however, that the amount of such compensation will be known at that time, as it will be up to the directors of the post-combination business to determine executive officer and director compensation. Any compensation to be paid to our chief executive officer and other officers will be determined, or recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on our board of directors, in accordance with the rules of any stock exchange on which our shares of common stock may then be listed.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information regarding the beneficial ownership of our common stock as of March 23, 2011, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of our common stock by:
•
each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
•
each of our officers and directors; and
•
all our officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
(9)
Mr. Shermyen is a limited partner of LLM Structured Equity Fund L.P. and as such may also have an indirect interest in LLM Structured Equity Fund L.P.’s interest in us.
(10)
LLM Capital Partners LLC is the manager and LLM Advisors L.P. is the general partner of each of the LLM Funds. As such, each of LLM Capital Partners LLC and LLM Advisors L.P. may be considered to have beneficial ownership of the LLM Funds’ interest in us. Indirect investment and voting control of LLM Advisors L.P. is held by LLM Capital Partners LLC. Indirect investment and voting control of LLM Capital Partners LLC is held by Patrick J. Landers and Frederick S. Moseley, IV. Mr. Landers also has a direct interest in LLM Investors L.P. and in LLM Advisors L.P. Mr. Landers may be considered to have beneficial ownership of the LLM Funds’ interest in us.
(11)
Mr. Schofield is a limited partner of LLM Advisors L.P., which is the general partner of each of LLM Structured Equity Fund L.P. and LLM Investors L.P. (collectively, the “LLM Funds”), and as such may have an indirect interest in the LLM Funds’ interest in us.
(12)
LLM Capital Partners LLC is the manager and LLM Advisors L.P. is the general partner of each of the LLM Funds. As such, each of LLM Capital Partners LLC and LLM Advisors L.P. may be considered to have beneficial ownership of the LLM Funds’ interest in us.. Indirect investment and voting control of LLM Advisors L.P. is held by LLM Capital Partners LLC. Indirect investment and voting control of LLM Capital Partners LLC is held by Patrick J. Landers and Frederick S. Moseley, IV. Mr. Moseley also has a direct interest in LLM Investors L.P. Mr. Moseley may be considered to have beneficial ownership of the LLM Funds’ interest in us.
Our sponsors, certain of our directors and the underwriters purchased an aggregate of 3,040,000 private placement warrants prior to the date of this Annual Report at the price of $0.75 per warrant for a purchase price of $2,280,000 in a private placement which occurred simultaneously with the completion of the initial public offering. The purchase price of the private placement warrants will be added to the proceeds from the initial public offering to be held in the Trust Account. The private placement warrants are identical to the warrants sold in the initial public offering except that if held by the original holders or their permitted assigns, (i) they will not be redeemable by us, (ii) they (including the common stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder until 30 days after the completion of our initial business combination, and (iii) they may be exercised by the holders on a cashless basis. Such holders have placed the private placement warrants into an escrow account maintained by Continental Stock Transfer & Trust Company acting as escrow agent where they will be held for so long as the private placement warrants are subject to transfer restrictions. Permitted transferees means immediate family members of the holder, trusts established by the holder for estate planning purposes and affiliates of the holder.
Our initial stockholders have placed the initial shares into an escrow account maintained by Continental Stock Transfer & Trust Company acting as escrow agent. Other than transfers made to permitted transferees (i.e., immediate family members of the holder, trusts established by the holder for estate planning purposes and affiliates of the holder) who agree in writing to be bound to the transfer restrictions, agree to vote in accordance with the majority of the votes cast by the public stockholders in the event we seek stockholder approval in connection with our initial business combination and waive any rights to participate in any redemption if we fail to consummate our initial business combination. Of the initial shares, (i) 511,111 shares (up to 66,667 of which have been forfeited as the underwriters’ over-allotment option was not exercised in full) will be held in escrow until the first anniversary of our initial business combination and (ii) 638,889 shares (up to 83,333 of which have been forfeited as the underwriters’ over-allotment option was not exercised in full) will be held in escrow and forfeited on the fifth anniversary of our initial business combination unless, prior to such time, either (x) the last sales price of our stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period or (y) a transaction is consummated following our initial business combination in which all stockholders have the right to exchange their common stock for cash consideration which equals or exceeds $18.00 per share. However, the holders of the initial shares will retain all other rights as our stockholders, including, without limitation, the right to vote such initial shares that have not been contractually restricted from voting and the right to receive cash dividends, if declared. Our initial stockholders have contractually agreed with us that they will have no ability to vote any of the 638,889 shares being held in escrow until such time, if ever, that such shares are released to them. If dividends are declared and payable in shares of common stock, such shares shall be held in escrow and shall be subject to partial forfeiture as described herein. If we are unable to effect a business combination and liquidate, our initial stockholders will not be entitled to any portion of the liquidation proceeds with respect to their initial shares but will be entitled to liquidation proceeds with respect to any public shares they may own.
LLM Capital Partners LLC, LLM Structured Equity Fund L.P. and LLM Investors L.P. and each of Mr. Shermyen and Landers are deemed to be our “parents” and “promoters,” as these terms are defined under the federal securities laws.
Item 13.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
In July 2010, our initial stockholders purchased the initial shares, for an aggregate purchase price of $25,000, or approximately $0.0174 per share. Subsequently, on November 22, 2010, each of John L. Shermyen, LLM Structured Equity Fund L.P. and LLM Investors L.P. returned to us an aggregate of 287,500 of such initial shares, which we have cancelled. These initial shares consist of (i) 511,111 shares (up to 66,667 of which have been forfeited as the underwriters’ over-allotment option was not exercised in full) which will be held in escrow until the first anniversary of our initial business combination and (ii) 638,889 shares (up to 83,333 of which have been forfeited as the underwriters’ over-allotment option was not exercised in full) which will be held in escrow and forfeited on the fifth anniversary of our initial business combination unless, prior to such time, either (x) the last sales price of our stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period or (y) a transaction is consummated following our initial business combination in which all stockholders have the right to exchange their common stock for cash consideration which equals or exceeds $18.00 per share. Our initial stockholders have contractually agreed with us that they will have no ability to vote any of the 638,889 shares being held in escrow until such time, if ever, that such shares are released to them. In connection with the initial public offering, we directed the underwriters to sell 586,400 units, or 14.67%, of the 4,000,000 units being sold at the initial public offering price to our sponsors.
Our sponsors, certain of our directors and advisors and the underwriters have purchased an aggregate of 3,040,000 private placement warrants, at the price of $0.75 per warrant for an aggregate purchase price of $2,280,000, in a private placement which was completed simultaneously with the completion of the initial public offering. All of the proceeds received from the sale of the private placement warrants were added to the proceeds from the initial public offering to be held in the Trust Account pending our completion of an initial business combination. The private placement warrants are identical to the warrants sold in the initial public offering except that if held by the original holders or their permitted assigns, (i) they will not be redeemable by us, (ii) they may be exercised by the holders on a cashless basis and (iii) with respect to the private placement warrants held by the underwriters, they will expire five years from the effective date of the registration statement for the initial public offering. In addition, the private placement warrants will be held in escrow until 30 days following the completion of our initial business combination. If we do not complete an initial business combination that meets the criteria described in this Annual Report, the $2,280,000 purchase price of the private placement warrants will be included as a part of the amounts payable to our public stockholders and the private placement warrants will expire worthless.
Mr. Shermyen, our chairman, chief executive officer and co-sponsor, and each of LLM Structured Equity Fund L.P. and LLM Investors L.P., our other co-sponsors, have agreed that they will be liable to us if and to the extent any claims by a vendor for services rendered or products sold to us, or a prospective business target with which we have discussed entering into a transaction agreement, reduce the amounts in the Trust Account available for distribution to our stockholders below $10.10 per share, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under our indemnity of the underwriters of the initial public offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, Mr. Shermyen, LLM Structured Equity Fund L.P. and LLM Investors L.P. will not be responsible to the extent of any liability for such third party claims. Additionally, in the event either LLM Structured Equity Fund L.P. or LLM Investors L.P. undertakes a liquidating distribution while their indemnification obligations are outstanding, they have agreed to use reasonable efforts to set aside from such distribution, adequate reserves to cover the reasonably anticipated liabilities which may be incurred by them. Although we have a fiduciary obligation to pursue the sponsors to enforce their indemnification obligations, and intend to pursue such actions as and when we deem appropriate, there can be no assurance they will be able to satisfy those obligations, if required to do so.
In the event that the proceeds in the Trust Account are reduced below $10.10 per share and Mr. Shermyen and our other sponsors assert that they are unable to satisfy their obligations or that they have no indemnification obligations related to a particular claim, our independent directors, if any, would determine whether to take legal action against Mr. Shermyen and our other sponsors to enforce their indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against Mr. Shermyen and our other sponsors to enforce their indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per share redemption price (or per share liquidation distribution if we are unable to effect a redemption of our public shares) will not be less than $10.10 per share.
In order to meet our working capital needs, certain of our officers and directors may, but are not obligated to, loan us funds, from time to time, or at any time, in whatever amount such officer or director deems reasonable in his or her sole discretion, which may be convertible into warrants of the post-business combination entity at a price of $0.75 per warrant at the option of the lender. The warrants would be identical to the private placement warrants. Other than the conversion price as described above, the terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist. However, such loans will not have any recourse against the Trust Account nor bear any interest prior to the consummation of the business combination and will have other terms that are no more favorable to the lenders than could be obtained from a third party.
LLM Capital Partners LLC has agreed to provide us with office space, general and administrative services for a fee of $7,500 per month.
We will reimburse our officers and directors for any reasonable out-of-pocket business expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business combinations. Reimbursable out-of-pocket expenses incurred by our officers and directors will not be repaid out of proceeds held in the Trust Account until these proceeds are released to us upon the completion of a business combination, provided there are sufficient funds available for reimbursement after such consummation. The financial interest of such persons could influence their motivation in selecting a target business and thus, there may be a conflict of interest when determining whether a particular business combination is in our public stockholders’ best interest.
Each of our officers has agreed, pursuant to a written agreement with us, that until the earliest of our initial business combination, 18 months after the closing of the initial public offering or such time as he ceases to be an officer, to present to us for our consideration, prior to presentation to any other entity, any business opportunity with an enterprise value of $50 million or more, subject to any pre-existing fiduciary or contractual obligations he might have. If any of our officers becomes aware of a business combination opportunity that falls within the line of business of any entity to which he has pre-existing fiduciary or contractual obligations, he may be required to present such business combination opportunity to such entity prior to presenting such business combination opportunity to us. Certain of our officers currently have relevant fiduciary duties or contractual obligations that may take priority over their duties to us. In addition, our officers and directors have agreed not to participate in the formation of, or become an officer or director of, any blank check company until we have completed our initial business combination or we have failed to complete our initial business combination within 18 months from the closing of the initial public offering.
In order to minimize potential conflicts of interest that may arise from multiple corporate affiliations, each of LLM Capital Partners LLC, LLM Structured Equity Fund L.P. and LLM Investors L.P. have granted us a “right of first refusal” with respect to an acquisition of any company or assets in the healthcare industry whose enterprise value is $50 million or more. Pursuant to this right of first refusal, each of these entities has agreed to present any investment or purchase opportunity in a company or assets meeting these criteria to a committee of our independent directors for our review and that it will not enter into any agreement to purchase or invest in such company or assets until our committee of independent directors has had a reasonable period of time to determine whether or not to pursue such opportunity. This right of first refusal will expire upon the earlier to occur of (i) the completion of our initial business combination or (ii) 18 months after the closing of the initial public offering.
Other than a payment of $7,500 per month payable to LLM Capital Partners LLC to compensate such entity for our use of its office space, general and administrative services and the reimbursable out-of-pocket expenses payable to our officers and directors, no compensation, reimbursements, cash payments or fees of any kind, including finders, consulting fees or other similar compensation, including the issuance of any of our securities, will be paid to our sponsors, officers or directors, or to any of our or their respective affiliates prior to or with respect to a business combination.
After the consummation of a business combination, if any, some of our officers and directors may enter into employment agreements, the terms of which shall be negotiated and which we expect to be comparable to employment agreements with other similarly-situated companies. Further, after the consummation of a business combination, if any, to the extent our directors remain as directors of the resulting business, we anticipate that they will receive compensation comparable to directors at other similarly-situated companies.
Director Independence
Although we are not required to have a majority of independent directors on our board of directors, we have elected to have a majority of independent directors. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director.
Our board of directors has determined that each of Messrs. Hetz, Pettis and Svahn and Ms. Daych, who are members of our board of directors, will be independent directors as such term is defined under the rules of the American Stock Exchange and Rule 10A-3 of the Exchange Act. Although we are not listed on the American Stock Exchange upon consummation of the initial public offering, we have voluntarily applied the definition of director independence used by the American Stock Exchange in making the determinations with respect to Messrs. Hetz, Pettis and Svahn and Ms. Daych. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Item 14.
Item 14.
Principal Accounting Fees and Services.
Audit Fees
Rothstein, Kass & Company, P.C., or Rothstein, billed us $56,000 in fees for audit services for the period July 26, 2010 (date of inception) to December 31, 2010.
Audit Fees consist of fees billed for professional services rendered in connection with the audit of our consolidated financial statements and review of the interim condensed consolidated financial statement s reflecting quarterly results included in our Form 10-Q. It also includes services that are normally provided by Rothstein in connection with statutory and regulatory filings or engagements.
Audit Related Fees
We were not billed for any fees by Rothstein for assurance and related services that are not reported under Audit Fees above, for the period July 26, 2010 (date of inception) to December 31, 2010.
Tax and All Other Fees
We were not billed for any fees by Rothstein for tax compliance, tax advice, tax planning or other work for the period July 26, 2010 (date of inception) to December 31, 2010.
PART IV
Item 15.
Item 15.
Exhibits and Financial Statement Schedules.
(a)
The following documents are filed as a part of this Annual Report:
(1)
Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders’ Equity
Consolidated Statement of Cash Flows
Notes To Consolidated Financial Statements
(2)
Financial Statement Schedules(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.
See attached Exhibit Index of this Annual Report.
We hereby file as part of this Annual Report the Exhibits listed below.
*
Filed herewith.
**
Previously filed and incorporated by reference to our registration statement on Form S-1, filed with the SEC on August 20, 2010, as amended.
†
Furnished herewith.
(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 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.
Date: March 31, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
L&L Acquisition Corp. (a developmental stage company):
We have audited the accompanying consolidated balance sheet of L&L Acquisition Corp. and Subsidiary (a developmental stage company), (collectively, the “Company”) as of December 31, 2010, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the period from July 26, 2010 (date of inception) to December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of L&L Acquisition Corp. and Subsidiary (a developmental stage company) as of December 31, 2010, and the results of their operations and their cash flows for the period July 26, 2010 (date of inception) to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
/s/ Rothstein Kass & Company, P.C.
Roseland, New Jersey
March 30, 2011
L&L Acquisition Corp. and Subsidiary
(a development stage company)
CONSOLIDATED BALANCE SHEET
The accompanying notes are an integral part of these consolidated financial statements.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the period from July 26, 2010 (date of inception) to December 31, 2010
The accompanying notes are an integral part of these consolidated financial statements.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the period from July 26, 2010 (date of inception) to December 31, 2010
The accompanying notes are an integral part of these consolidated financial statements.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from July 26, 2010 (date of inception) to December 31, 2010
The accompanying notes are an integral part of these consolidated financial statements.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the period July 26, 2010 (date of inception) to December 31, 2010
1. Description of Organization and Business Operations
L&L Acquisition Corp. and Subsidiary (collectively, the “Company”), a corporation in the development stage, was incorporated in Delaware on July 26, 2010. The Company was formed for the purposed of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, one or more operating businesses or assets that we have not yet identified (“Business Combination”). The Company has neither engaged in any operations nor generated significant revenue to date with the exception of dividend income. The Company is considered to be in the development stage as defined in FASB Accounting Standard Codification, or ASC 915, “Development Stage Entities,” and is subject to the risks associated with activities of development stage companies. The Company has selected December 31 as its fiscal year end.
At December 31, 2010, the Company had not commenced any operations. All activity through December 31, 2010 relates to the Company’s formation and initial public offering (“Offering”) described below.
The registration statement for the initial public offering (the “Offering”) was declared effective on November 23, 2010. The Company consummated the Offering on November 29, 2010 and received net proceeds of $38,248,234, before deducting deferred underwriting compensation of $1,000,000 and includes $200,000 received for the purchase of 266,667 warrants by the underwriters. The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering, although 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 affect a Business Combination.
Upon the closing of the Offering and the private placement of warrants, $40,400,000 was placed in a trust account (“Trust Account”) and invested in U.S. “government securities,” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 (the “1940 Act”) with a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the 1940 Act, until the earlier of (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account as described below.
The Company, after signing a definitive agreement for the acquisition of one or more target businesses or assets, will not submit the transaction for stockholder approval, unless otherwise required by law. The Company will proceed with a Business Combination if it is approved by the board of directors. In the event that the Company is required to seek stockholder approval in connection with its initial Business Combination, it will proceed with a Business Combination if a majority of the outstanding shares of common stock voted are voted in favor of a Business Combination. In connection with such a vote, if a Business Combination is approved and completed, stockholders that vote against a Business Combination and elect to put their shares of common stock back to the Company for cash will be entitled to receive their pro-rata portion of the Trust Account as follows: (i) public stockholders voting against a Business Combination and electing to put shares of common stock to the Company shall be entitled to receive a per share pro-rata portion of the Trust Account excluding interest and net of franchise and income taxes payable and (ii) public stockholders voting in favor of a Business Combination and electing to put shares of common stock to the Company shall be entitled to receive a per share pro-rata portion of the Trust Account together with interest thereon but net of franchise and income taxes payable. These shares of common stock were recorded at a fair value and classified as temporary equity upon the completion of the Offering, in accordance with FASB ASC 480, “Distinguishing Liabilities from Equity”. John L. Shermyen, LLM Structured Equity Fund L.P., and LLM Investors L.P. (the “Sponsors”) and John A. Svahn, E. David Hetz, Alan W. Pettis, William A. Landman, Diane M. Daych, Mitchell Eisenberg, M.D. and Alan R. Hoops (the “Assignees” and, collectively with the Sponsors, the “initial stockholders”) have agreed, in the event the Company is required to seek stockholder approval of a Business Combination, to vote their initial shares in accordance with the majority of the votes cast by the public stockholders and to vote any public shares purchased during or after the Offering in favor of a Business Combination. The initial stockholders have also agreed to vote shares of common stock acquired by them in the Offering or in the aftermarket in favor of a Business Combination submitted to the Company’s stockholders for approval.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the period July 26, 2010 (date of inception) to December 31, 2010
The Company’s Sponsors, officers and directors have agreed that the Company will only have 18 months from November 23, 2010, the date of the closing for the Offering, to consummate a Business Combination. If the Company does not consummate a Business Combination within such 18 month period, it shall (i) cease all operations except for the purposes of winding up, (ii) as promptly as reasonably possible, but not more than two business days thereafter, redeem 100% of its public shares for cash equal to their pro-rata share of the aggregate amount then on deposit in the Trust Account (including interest), less franchise and income taxes payable, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and subject to the requirement that any refund of income taxes that were paid from the Trust Account which is received after the redemption shall be distributed to the former public stockholders, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and its board of directors, dissolve and liquidate the balance of the Company’s net assets to its remaining stockholders, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. The initial stockholders have waived their rights to participate in any redemption with respect to their initial shares. However, the initial stockholders acquired shares of common stock in the Offering, entitling them to a pro-rata share of the Trust Account upon the Company’s redemption or liquidation in the event the Company does not consummate a Business Combination within the required time period. In the event of such distribution, it is possible 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.
2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The Company’s consolidated financial statements include the accounts of L&L Acquisition Corp. and its wholly-owned subsidiary, L&L Acquisition Securities Corp. (“Subsidiary”). All significant intercompany balances and transactions have been eliminated in consolidation.
Development stage company
The Company complies with the reporting requirements of FASB ASC 915, “Development Stage Entities.” At December 31, 2010, the Company has not commenced any operations nor generated revenue to date. All activity through December 31, 2010 relates to the Company’s formation and the Offering. Following such Offering, the Company will not generate any operating revenues until after completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest and dividend income on the designated Trust Account after the Offering.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the period July 26, 2010 (date of inception) to December 31, 2010
Net loss per common share
The Company complies with accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. At December 31, 2010, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted loss per common share is the same as basic loss per common share for the period. The Company’s statement of operations includes a presentation of income per share for common stock subject to possible redemption in a manner similar to the two-class method of income per share. Net income per common share, basic and diluted amount for the maximum number of shares subject to possible redemption is calculated by dividing the income, net of applicable income taxes and franchise taxes, attributable to common shares subject to redemption by the weighted average number of common shares subject to possible redemption.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times may exceed the federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Investments held in the Trust Account
The amounts held in the Trust Account represent substantially all of the proceeds of the Offering and are classified as restricted assets since such amounts can only be used by the Company in connection with the consummation of a Business Combination. The funds held in the Trust Account are invested in a money market mutual fund that meets the conditions of Rule 2a-7 of the 1940 Act. The Company considers the investment in the money market mutual fund to be a cash equivalent.
Fair value of financial instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet due to their short-term nature.
Redeemable common stock
The Company accounts for redeemable common stock that is redeemable for cash or other assets, by classifying it outside of permanent equity if it is redeemable at the option of the holder. In addition, the amount of common stock subject to redemption is classified outside of permanent equity to the extent that such redemption does not cause a liquidation event.
Accordingly, 3,480,000 of common shares have been classified outside of permanent equity at redemption value. The Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying value of common stock subject to redemption equal its redemption value at the end of each reporting period.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the period July 26, 2010 (date of inception) to December 31, 2010
Cash and cash equivalents
The Company considers all highly-liquid instruments with original maturities of three months or less to be cash equivalents.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income taxes
The Company complies with the accounting and reporting requirements of FASB ASC 740, “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 has the following deferred tax assets and liabilities at December 31, 2010:
The Company has net operating losses amounting to approximately $18,700 that expire in 2030. The ultimate realization of the net operating losses is dependent upon future taxable income, if any, of the Company and may be limited in any one period by alternative minimum tax rules. Although management believes that the Company will have sufficient future taxable income to absorb the net operating loss carryovers before the expiration of the carryover period, the current global economic crisis imposes additional profitability risks that are beyond the Company’s control. Accordingly, management has determined that a full valuation allowance of the deferred tax asset is appropriate at this time.
Internal Revenue Code Section 382 imposes limitations on the use of net operating loss carryovers when the stock ownership of one or more 5% stockholders (stockholders owning 5% or more of the Company’s outstanding capital stock) has increased by more than 50 percentage points. Management cannot control the ownership changes occurring as a result of public trading of the Company’s common stock. Accordingly, there is a risk of an ownership change beyond the control of the Company that could trigger a limitation of the use of the loss carryover.
The Company established a valuation allowance of $62,900 as of December 31, 2010, which fully offset the deferred tax assets of $62,900. The deferred tax asset results from applying an effective combined federal and state tax rate of 41% to start-up costs of approximately $139,300 and net operating losses of approximately $18,700. Effective tax rates differ from statutory rates due to timing differences in the deductibility of expenses.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the period July 26, 2010 (date of inception) to December 31, 2010
The statutory federal income tax rate and the effective rate are reconciled as follows:
There were no unrecognized tax benefits as of December 31, 2010. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at December 31, 2010. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The adoption of the provisions of ASC 740 did not have a material impact on the Company’s financial position and results of peroration and cash flows as of and for the period July 26, 2010 (date of inception) to December 31, 2010.
Recently issued accounting standards
In January 2010, the FASB issued “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which provides guidance on how investment assets and liabilities are to be valued and disclosed. Specifically, the amendment requires reporting entities to disclose (i) the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 or Level 3 positions, (ii) transfers between all levels (including Level 1 and Level 2) will be required to be disclosed on a gross basis (i.e. transfers out must be disclosed separately from transfers in) as well as the reason(s) for the transfers and (iii) purchases, sales, issuances and settlements must be shown on a gross basis in the Level 3 rollforward rather than as one net number. The effective date of the amendment is for interim and annual periods beginning after December 15, 2009. However, the requirement to provide the Level 3 activity for purchases, sales, issuances and settlements on a gross basis will be effective for interim and annual periods beginning after December 15, 2010. The adoption of the amendment did not have a material impact on the Company’s consolidated financial statements.
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 consolidated financial statements.
3. Initial Public Offering
On November 29, 2010, the Company sold to the public 4,000,000 units at $10 per unit (“Units”). Each Unit consists of one share of the Company’s common stock, $0.0001 par value, and one redeemable common stock purchase warrant (“Warrant”). Each Warrant will entitle the holder to purchase from the Company one share of common stock at an exercise price of $11.50 commencing on the later of (a) 30 days after the completion of a Business Combination or (b) one year from November 23, 2010, the date of the prospectus for the Offering, and will expire five years from the consummation of a Business Combination. The Warrants will be redeemable by the Company 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 $17.50 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which notice of redemption is given.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the period July 26, 2010 (date of inception) to December 31, 2010
4. Related Party Transactions
In July 2010, Mr. Shermyen, LLM Structured Equity Fund L.P. and LLM Investors L.P. purchased an aggregate of 1,437,500 shares of the Company’s common stock, for an aggregate purchase price of $25,000, or approximately $0.0174 per share. Subsequently, on November 22, 2010, Mr. Shermyen, LLM Structured Equity Fund L.P. and LLM Investors L.P. each returned to the Company an aggregate of 287,500 of such initial shares, which have been cancelled. These shares are referred to as the “initial shares” and consist of (i) 511,111 shares (up to 66,667 of which have been forfeited as the underwriters’ over-allotment option was not exercised in full) which will be held in escrow until the first anniversary of a Business Combination and (ii) 638,889 shares (up to 83,333 of which have been forfeited as the underwriters’ over-allotment option was not exercised in full) which will be held in escrow and forfeited on the fifth anniversary of a Business Combination unless, prior to such time, either (x) the last sales price of the Company’s common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period or (y) a transaction is consummated following a Business Combination in which all stockholders have the right to exchange their common stock for cash consideration which equals or exceeds $18.00 per share. Subsequent to the purchase of these shares, (i) Mr. Shermyen transferred at cost an aggregate of 58,219 of these shares to William A. Landman and Mitchell Eisenberg, each of whom is a member of the Company’s advisory board, and Alan W. Pettis, E. David Hetz and Diane M. Daych, each of whom is a director, (ii) LLM Investors L.P. transferred at cost an aggregate of 2,197 of these shares to E. David Hetz and Diane M. Daych and (iii) LLM Structured Equity Fund L.P. transferred at cost an aggregate of 56,022 of these shares to Alan R. Hoops, a member of our advisory board, John A. Svahn, a director, E. David Hetz and Diane M. Daych. The Company’s initial stockholders have contractually agreed with the Company that they will have no ability to vote any of the 638,889 shares being held in escrow until such time, if ever, that such shares are released to them.
The Sponsors, certain of the Company’s directors and advisors and the underwriters purchased, in a private placement, 3,040,000 Warrants (“Sponsor Warrants”) prior to the Offering at a price of $0.75 per Warrant (a purchase price of $2,280,000) from the Company. Based on the observable market prices, the Company believes that the purchase price of $0.75 per Warrant for such Sponsor Warrants exceeds the fair value of such Sponsor Warrants on the date of the purchase. The valuation is based on comparable initial public offerings by previous blank check companies. The holders have agreed that such Sponsor Warrants will not be sold or transferred until 30 days following consummation of a Business Combination, subject to certain limited exceptions. If the Company does not complete a Business Combination, then the proceeds will be part of the liquidating distribution to the public stockholders and the Sponsor Warrants issued to such holders will expire worthless. The Company intends to classify the Sponsor Warrants within permanent equity as additional paid-in capital in accordance with FASB ASC 815, “Derivatives and Hedging”.
In connection with the Offering, the Sponsors purchased 586,400 Units at $10 per Unit on November 29, 2010.
Also in connection with the Offering, LLM Structured Equity Fund L.P. advanced the Company $260,000 on November 29, 2010. This advance was repaid by the Company on January 7, 2011.
Commencing on November 29, 2010, the Company entered into an Administrative Services Agreement with LLM Capital Partners LLC for an aggregate monthly fee of $7,500 for office space, general and administrative services. This agreement will expire upon the earlier of: (a) the successful completion of the Company’s Business Combination, (b) 18 months from November 23, 2010, the date of the prospectus for the Offering, or (c) the date on which the Company is dissolved and liquidated.
L&L Acquisition Corp. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the period July 26, 2010 (date of inception) to December 31, 2010
The initial stockholders are entitled to registration rights pursuant to a registration rights agreement signed on November 23, 2010, the date of the prospectus for the Offering. The initial stockholders are entitled to demand registration rights and certain “piggy-back” registration rights with respect to their shares of common stock, the Warrants and the common stock underlying the Warrants, commencing on the date such common stock or Warrants are released from escrow. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
5. Commitments and Contingencies
The Company granted the underwriters a 45-day option to purchase up to 600,000 additional Units to cover the over-allotment at the initial public offering price less the underwriting discounts and commissions. This option was not exercised by the underwriters.
The underwriters will be entitled to two and one half percent (2.5%) of the funds released from the Trust Account to the Company or the target upon closing of a Business Combination, which shall be paid as a placement fee to Morgan Joseph LLC or such other firms, if any, who are instrumental in advising the Company with respect to the completion of a Business Combination.
6. Fair Value Measurement
The Company complies with Fair Value measurements 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.
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2010, 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 in markets that are not active, 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, 2010
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 sheet for other current assets and accrued expenses approximate fair value due to their short-term maturities.
EXHIBIT INDEX
*
Filed herewith.
**
Previously filed and incorporated by reference to our registration statement on Form S-1, filed with the SEC on August 20, 2010, as amended.
†
Furnished herewith.