Highbury Financial Inc.
(a company in the development stage)
Financial Statements
For the Periods from July 13, 2005 (inception) to January 31, 2006
and from January 1, 2006 to January 31, 2006
and from July 13, 2005 (inception) to December 31, 2005
Highbury Financial Inc.
(a company in the development stage)
| Report of Independent Registered Public Accounting Firm | | | 3 | |
| | | | | |
| Financial Statements | | | | |
| Balance Sheets (as restated) | | | 4 | |
| Statements of Operations | | | 5 | |
| Statements of Stockholders' Equity (as restated) | | | 6 | |
| Statements of Cash Flows | | | 7 | |
| | | | | |
| Notes to Financial Statements | | | 8 | |
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Highbury Financial Inc.
We have audited the accompanying balance sheet of Highbury Financial Inc. (a company in the development stage) as of January 31, 2006 and December 31, 2005, and the related statements of operations, stockholders’ equity and cash flows for the periods from July 13, 2005 (inception) to January 31, 2006, January 1, 2006 to January 31, 2006 and July 13, 2005 (inception) to December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Highbury Financial Inc. as of January 31, 2006 and December 31, 2005, and the results of its operations and its cash flows for the periods from July 13, 2005 (inception) to January 31, 2006, January 1, 2006 to January 31, 2006 and July 13, 2005 (inception) to December 31, 2005, in conformity with United States generally accepted accounting principles.
As discussed in Note 2, the accompanying balance sheet at January 31, 2006 and statements of stockholders’ equity for the periods then ended have been restated to reflect the warrants and the unit purchase option issued in connection with Highbury Financial Inc.’s initial public offering as liabilities.
/s/ Goldstein Golub Kessler LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
January 31, 2006, except for Note 2,
as to which the date is October 10, 2006
Highbury Financial Inc.
(a company in the development stage)
Balance Sheets
| | | | Restated January 31, 2006 | | | December 31, 2005 | |
| Current assets | | | | | | | |
| Cash | | $ | 1,300,109 | | $ | 36,902 | |
| Cash in Trust Fund (Note 1) | | | 37,542,667 | | | — | |
| Prepaid expenses | | | 148,869 | | | — | |
| Total current assets | | | 38,991,645 | | | 36,902 | |
| | | | | | | | |
| Deferred registration costs | | | — | | | 483,492 | |
| | | | | | | | |
| Total assets | | $ | 38,991,645 | | $ | 520,394 | |
| | | | | | | | |
| Current liabilities | | | | | | | |
| Accounts payable and accrued expenses | | $ | 261,637 | | $ | 427,846 | |
| Notes payable, stockholders (Note 3) | | | — | | | 70,000 | |
| Common stock warrants (Note 2) | | | 7,590,000 | | | — | |
| Underwriters’ purchase option (Note 2) | | | 614,000 | | | — | |
| Deferred underwriting fees | | | 673,333 | | | — | |
| Total current liabilities | | | 9,138,970 | | | 497,846 | |
| | | | | | | | |
| Common stock, subject to possible conversion, | | | | | | | |
| 1,346,666 shares at conversion value (Note 1) | | | 7,508,530 | | | — | |
| | | | | | | | |
| Stockholders' equity (Notes 1, 2, 4, 5, 6, 7) | | | | | | | |
| Preferred stock, $.0001 par value, authorized 1,000,000 | | | | | | | |
| shares; none issued | | | — | | | — | |
| Common stock, $.0001 par value, authorized 50,000,000 | | | | | | | |
| shares; issued and outstanding 8,625,000 shares | | | | | | | |
| (which includes 1,346,666 subject to possible conversion) | | | | | | | |
| and 1,725,000, respectively | | | 863 | | | 173 | |
| Additional paid-in capital | | | 22,348,667 | | | 24,827 | |
| Deficit accumulated during the development stage | | | (5,385 | ) | | (2,452 | ) |
| Total stockholders' equity | | | 22,344,145 | | | 22,548 | |
| | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 38,991,645 | | $ | 520,394 | |
See notes to financial statements
Highbury Financial Inc.
(a company in the development stage)
Statements of Operations
| | | | Period from July 13, 2005 (inception) to January 31, 2006 | | | Period from January 1, 2006 to January 31, 2006 | | | Period from July 13, 2005 (inception) to December 31, 2005 | |
| | | | | | | | | | | |
| Expenses | | | | | | | | | | |
| Formation costs | | $ | (456 | ) | $ | — | | $ | (456 | ) |
| Franchise taxes | | | (1,996 | ) | | — | | | (1,996 | ) |
| D&O insurance | | | (1,481 | ) | | (1,481 | ) | | — | |
| Administrative fees | | | (1,452 | ) | | (1,452 | ) | | — | |
| Net loss for the period | | $ | (5,385 | ) | $ | (2,933 | ) | $ | (2,452 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Weighted average shares outstanding, basic and diluted | | | 1,928,941 | | | 3,060,484 | | | 1,725,000 | |
| | | | | | | | | | | |
| Net loss per share, basic and diluted | | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) |
See notes to financial statements
Highbury Financial Inc.
(a company in the development stage)
Statements of Stockholders' Equity
(as restated)
| | | Common Stock | | | | | Deficit Accumulated During the | | | | |
| | | | Shares | | | Amount | | | | | | Development Phase | | | Total | |
| | | | | | | | | | | | | | | | | |
| Sale of 1,725,000 shares of common stock to | | | | | | | | | | | | | | | | |
| initial stockholders on August 1, 2005 | | | | | | | | | | | | | | | | |
| at $0.0145 per share (Note 7) | | | 1,725,000 | | $ | 173 | | $ | 24,827 | | $ | — | | $ | 25,000 | |
| | | | | | | | | | | | | | | | | |
| Net loss for the period | | | | | | | | | | | | (2,452 | ) | | (2,452 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2005 | | | 1,725,000 | | $ | 173 | | $ | 24,827 | | $ | (2,452 | ) | $ | 22,548 | |
| | | | | | | | | | | | | | | | | |
| Sale of 166,667 units in a private placement | | | 166,667 | | | 17 | | | 999,985 | | | — | | | 1,000,002 | |
| | | | | | | | | | | | | | | | | |
| Sale of 6,733,333 units, net of underwriters' | | | | | | | | | | | | | | | | |
| discount and offering expenses (includes | | | | | | | | | | | | | | | | |
1,346,666 shares subject to possible conversion) | | | 6,733,333 | | | 673 | | | 37,036,285 | | | — | | | 37,036,958 | |
| | | | | | | | | | | | | | | | | |
| Proceeds subject to possible conversion of | | | | | | | | | | | | | | | | |
| 1,346,666 shares | | | — | | | — | | | (7,508,530 | ) | | — | | | (7,508,530 | ) |
| | | | | | | | | | | | | | | | | |
| Reclassification of derivative liability for part of proceeds from the sale of units relating to warrants | | | — | | | — | | | (7,590,000 | ) | | — | | | (7,590,000 | ) |
| | | | | | | | | | | | | | | | | |
| Reclassification of derivative liability relating to value of underwriters’ purchase option | | | — | | | — | | | (614,000 | ) | | — | | | (614,000 | ) |
| | | | | | | | | | | | | | | | | |
| Proceeds from issuance of underwriters’ purchase option | | | — | | | — | | | 100 | | | — | | | 100 | |
| | | | | | | | | | | | | | | | | |
| Net loss for the period | | | — | | | — | | | — | | | (2,933 | ) | | (2,933 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at January 31, 2006 | | | 8,625,000 | | $ | 863 | | $ | 22,348,667 | | $ | (5,385 | ) | $ | 22,344,145 | |
See notes to financial statements
Highbury Financial Inc.
(a company in the development stage)
Statements of Cash Flows
| | | | Period from July 13, 2005 (inception) to January 31, 2006 | | | Period from January 1, 2006 to January 31, 2006 | | | Period from July 13, 2005 (inception) to December 31, 2005 | |
| | | | | | | | | | | |
| Cash flows from operating activities | | | | | | | | | | |
| Net loss for the period | | $ | (5,385 | ) | $ | (2,933 | ) | $ | (2,452 | ) |
| Increase in prepaid expenses | | | (12,600 | ) | | (12,600 | ) | | — | |
| Increase in accrued expenses | | | 5,385 | | | 2,933 | | | 2,452 | |
| Net cash used in operating activities | | | (12,600 | ) | | (12,600 | ) | | — | |
| | | | | | | | | | | |
| Cash flows from investing activities | | | | | | | | | | |
| Cash held in trust fund | | | (37,542,667 | ) | | (37,542,667 | ) | | — | |
| Net cash used in investing activities | | | (37,542,667 | ) | | (37,542,667 | ) | | — | |
| | | | | | | | | | | |
| Cash flows from financing activities | | | | | | | | | | |
| Proceeds from sale of shares of common stock and warrants | | | 41,425,000 | | | 41,400,000 | | | 25,000 | |
| Proceeds from issuance of option | | | 100 | | | 100 | | | — | |
| Proceeds from notes payable, stockholders | | | 70,000 | | | — | | | 70,000 | |
| Payments of notes payable, stockholders | | | (70,000 | ) | | (70,000 | ) | | — | |
| Payment of costs of public offering | | | (2,569,724 | ) | | (2,511,626 | ) | | (58,098 | ) |
| Net cash from financing activities | | | 38,855,375 | | | 38,818,474 | | | 36,902 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net increase in cash | | | 1,300,109 | | | 1,263,207 | | | 36,902 | |
| Cash at beginning of period | | | — | | | 36,902 | | | — | |
| Cash at end of period | | $ | 1,300,109 | | $ | 1,300,109 | | $ | 36,902 | |
| | | | | | | | | | | |
| Supplemental schedule of non-cash financing activities: | | | | | | |
| Accrual of costs of public offering | | $ | 119,983 | | $ | 46,707 | | $ | 425,394 | |
| Accrual of deferred underwriting fees | | $ | 673,333 | | $ | 673,333 | | $ | — | |
See notes to financial statements
Highbury Financial Inc.
(a company in the development stage)
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Organization and Business Operations
Highbury Financial Inc. (the "Company") was incorporated in Delaware on July 13, 2005 as a blank check company whose objective is to acquire, or acquire control of, one or more operating businesses in the financial services industry that may provide significant opportunities for growth, with a particular focus on investment management and securities firms.
All activity from July 13, 2005 (inception) through January 31, 2006 relates to the Company's formation and initial public offering described below. The Company has selected December 31 as its fiscal year-end.
The registration statement for the Company's initial public offering ("Offering") was declared effective January 25, 2006. The Company consummated the Offering on January 31, 2006. Immediately preceding the Offering, all of the Company's stockholders prior to the Offering, including all of the officers and directors of the Company (the “Initial Stockholders”) purchased an aggregate of 166,667 units from the Company in a private placement (the “Private Placement”). The units sold in the Private Placement were identical to the units sold in the Offering, but the purchasers in the Private Placement have waived their rights to conversion and receipt of distribution on liquidation in the event the Company does not complete a business combination (as described below). The Company received proceeds from the Private Placement and the Offering, net of the underwriters’ discount, of approximately $38,037,000 (Note 2).
The Company's management has broad discretion with respect to the specific application of the net proceeds of this Offering and the Private Placement, although substantially all of the net proceeds are intended to be generally applied toward consummating a business combination, or series of business combinations, with an operating business in the financial services industry ("Business Combination"). Furthermore, there is no assurance that the Company will be able to successfully affect a Business Combination. An amount of $37,542,667 of the net proceeds of the Offering and the Private Placement, including approximately $673,333 which will be paid to the underwriters of the Offering if a business combination is consummated (net of approximately $0.12 for each share of common stock converted in connection with the Business Combination as described below) but which will be forfeited if a business combination is not consummated, is being held in an interest-bearing trust account ("Trust Account") until the earlier of (i) the consummation of a Business Combination or (ii) liquidation of the Company. Under the agreement governing the Trust Account, funds will only be invested in United States "government securities" within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 with a maturity of 180 days or less. The remaining net proceeds (not held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
The Company, after signing a definitive agreement for the acquisition of a target business, will submit such transaction for stockholder approval. In the event that stockholders owning 20% or more of the shares sold in the Offering vote against the Business Combination and exercise their conversion rights described below, the Business Combination will not be consummated.
The Initial Stockholders, have agreed to vote their 1,725,000 founding shares of common stock (Note 7) as well as the 166,667 shares of common stock included in the units they purchased in the Private Placement in accordance with the vote of the majority in interest of all other stockholders of the Company ("Public Stockholders") with respect to any Business Combination. After consummation of a Business Combination, these voting safeguards will no longer be applicable.
With respect to a Business Combination which is approved and consummated, any Public Stockholder who voted against the Business Combination may demand that the Company convert his shares. The per share conversion price will equal the amount in the Trust Account, calculated as of two business days prior to the consummation of the proposed Business Combination, divided by the number of shares of common stock held by Public Stockholders at the consummation of the Offering. Accordingly, Public Stockholders holding 19.99% of the aggregate number of shares owned by all Public Stockholders may seek conversion of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per-share interest in the Trust Account computed without regard to the shares held by Initial Stockholders. Accordingly, a portion of the net proceeds from the offering (19.99% of the amount held in the Trust Account) has been classified as common stock subject to possible conversion in the accompanying January 31, 2006 balance sheet.
Highbury Financial Inc.
(a company in the development stage)
Notes to Financial Statements
The Company's Certificate of Incorporation, as amended, provides for mandatory liquidation of the Company in the event that the Company does not consummate a Business Combination within 18 months from the date of the consummation of the Offering, or 24 months from the consummation of the Offering if certain extension criteria have been satisfied. In the event of liquidation, it is likely that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per share in the Offering due to costs related to the Offering and since no value would be attributed to the Warrants contained in the Units sold (Note 2).
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash in bank deposit accounts in the United States of America which, at times, may exceed applicable insurance limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Deferred Income Taxes
Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company recorded a deferred income tax asset aggregating approximately $834 and $1,831 at December 31, 2005 and January 31, 2006, respectively, for the tax effect of net operating loss carryforwards and temporary differences. In recognition of the uncertainty regarding the ultimate amount of income tax benefits to be derived, the Company has recorded a full valuation allowance at December 31, 2005 and January 31, 2006. The net operating loss carryforward at January 31, 2006 amounts to approximately $5,385 and expires in 2026.
The effective tax rate differs from the statutory rate of 34% due to the increase in the valuation allowance.
Income (Loss) Per Common Share
Loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.
Highbury Financial Inc.
(a company in the development stage)
Notes to Financial Statements
Deferred Registration Costs
Deferred registration costs consist of legal, accounting and other fees incurred through the balance sheet data that are related to the Offering and that have been charged to capital upon the consummation of the Offering.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
2. Initial Public Offering
On January 26, 2006, the Company sold 6,733,333 units ("Units") in the Offering. Each Unit consists of one share of the Company's common stock, $.0001 par value, and two redeemable common stock purchase warrants ("Warrants"). Each Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $5.00 commencing the later of the completion of a Business Combination or one year from the effective date of the Offering and expiring four years from the effective date of the Offering. The Warrants will be redeemable, at the Company's option, at a price of $.01 per Warrant upon 30 days' notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $8.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given. In connection with the Offering, the Company paid the underwriters an underwriting discount of approximately 5.2% of the gross proceeds of the Offering. Immediately preceding the Offering, all of the Company's stockholders prior to the Offering, including all of the officers and directors of the Company (the “Initial Stockholders”) purchased an aggregate of 166,667 units from the Company in a private placement (the “Private Placement”). The units sold in the Private Placement were identical to the units sold in the Offering, but the purchasers in the Private Placement have waived their rights to conversion and receipt of distribution on liquidation in the event the Company does not complete a business combination
Under EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentialy Settled in, a Company’s Own Stock” (“EITF No. 00-19”), the fair value of the Warrants issued as part of the Units, including the Private Placement units described in Note 1, have been reported as a liability. The Warrant agreement provides for the Company to register the shares underlying the Warrants and is silent as to the penalty to be incurred in the absence of the Company’s ability to deliver registered shares to the Warrant holders upon Warrant exercise. Under EITF No. 00-19, registration of the common stock underlying the warrants is not within the Company’s control. As a result, the Company must assume that it could be required to settle the Warrants on a net-cash basis, thereby necessitating the treatment of the potential settlement obligation as a liability. Further EITF No. 00-19, requires the Company to record the potential settlement liability at each reporting date using the current estimated fair value of the Warrants, with any changes being recorded through the Company’s statement of operations. The potential settlement obligation will continue to be reported as a liability until such time as the Warrants are exercised, expire, are redeemed by the Company (should the common stock attain the sales prices described above) or the Company is otherwise able to modify the Warrant agreement to remove the provisions which require this treatment. As a result, the Company could experience volatility in its net income due to changes that occur in the value of the Warrant liability at each reporting date.
Since the Warrants were not trading separately from the Units at the balance sheet date, the fair value of the derivative Warrant liability in the accompanying balance sheet has been determined based on a survey of the initial trading prices for the Warrants issued by 28 of the publicly-traded blank check companies which have used the same structure as the Company (i.e. a $6.00 unit which includes one share of common stock and two warrants). In the future, the fair value of the Warrant liability will be determined using the trading value of the Warrant on the last day of each period. The value assigned to the Warrant liability at January 31, 2006 (the date of issuance) was $7,590,000.
In connection with this Offering, the Company issued an option, pursuant to the underwriting agreement, to the underwriters to purchase up to an additional 1,010,000 units from the Company for $6.00 with an underwriting discount of $0.31 per unit. On January 30, 2006, the underwriters notified the Company that they intended to exercise the option in its entirety. The closing of this sale occurred on February 3, 2006.
Highbury Financial Inc.
(a company in the development stage)
Notes to Financial Statements
In connection with this Offering, the Company issued an option, for $100, to the underwriters to purchase 336,667 Units at an exercise price of $7.50 per Unit. Under EITF No. 00-19, the fair value of the option (the “UPO”) has been reported as a liability. The warrant agreement provides for the Company to register the shares underlying the UPO and includes a damages provision in the event the Company is unable to deliver registered shares to the UPO holders upon exercise. Under EITF No. 00-19, registration of the common stock underlying the UPO is not within the Company’s control. As a result, the Company must assume that it could be required to settle the UPO on a net-cash basis, thereby necessitating the treatment of the potential settlement obligation as a liability. Further EITF No. 00-19, requires the Company to record the potential settlement liability at each reporting date using the current estimated fair value of the UPO, with any changes being recorded through the Company’s statement of operations. The potential settlement obligation will continue to be reported as a liability until such time as the UPO is exercised, expires, or the Company is otherwise able to modify the UPO agreement to remove the provisions which require this treatment. As a result, the Company could experience volatility in its net income due to changes that occur in the value of the UPO liability at each reporting date.
The Company estimates that the fair value of this option is approximately $614,000 ($1.82 per Unit) using a Black-Scholes option pricing model. The fair value of the option granted to the Representative is estimated as of the date of grant using the following assumptions: (1) expected volatility of 41.3%, (2) risk-free interest rate of 4.34% and (3) expected life of four years. The option may be exercised for cash or on a "cashless" basis, at the holder's option, such that the holder may use the appreciated value of the option (the difference between the exercise prices of the option and the underlying warrants and the market price of the units and underlying securities) to exercise the option without the payment of any cash. In addition, the warrants underlying such Units are exercisable at $6.25 per share.
Because the Company’s stock had no trading history as of January 31, 2006, the Company estimated the volatility based on a survey of other publicly-traded companies in the financial services industry with market capitalizations between $30 million and $150 million and at least four years of public trading history. A universe of 55 companies was chosen and the daily price changes were calculated in each issuer’s common stock over the four year period before the Company’s public offering. The Company used the standard deviation of the daily price changes to calculate the annual volatility for each company, and then selected the average annual volatility.
The Company had previously issued financial statements which did not present the warrant liability or the UPO liability. The accompanying audited financial statements as of January 31, 2006 have been restated to correct this error. The impact of the correction of this error in previously reported balance sheets and statements of stockholders’ equity is as follows:
| | | January 31, 2006 |
| | | | As Previously Reported | | | As Restated | |
| | | | | | | | |
| Assets | | $ | 38,991,645 | | $ | 38,991,645 | |
| Liabilities | | $ | 934,970 | | $ | 9,138,970 | |
| Common stock subject to conversion | | $ | 7,508,530 | | $ | 7,508,530 | |
| Stockholders’ equity | | $ | 30,548,145 | | $ | 22,344,145 | |
| | | | | | | | |
3. Notes Payable, Stockholders
The Company issued unsecured promissory notes in the aggregate amount of $70,000 to all of its Initial Stockholders. The notes were non-interest-bearing and were repaid immediately following the consummation of the Offering from the net proceeds of such Offering.
Highbury Financial Inc.
(a company in the development stage)
Notes to Financial Statements
4. Commitments
The Company presently occupies office space provided by an affiliate of four Initial Stockholders. Such affiliate has agreed that, until the acquisition of a target business by the Company, it will make such office space, as well as certain office and secretarial services, available to the Company, as may be required by the Company from time to time. The Company has agreed to pay such affiliate $7,500 per month for such services commencing on January 26, 2006. The statement of operations for the period ended January 31, 2006 includes $1,452 related to this agreement.
In connection with the Offering, the Company has agreed to pay the underwriters upon completion of its initial business combination approximately $673,333, plus accrued interest on such amount, net of taxes payable, less approximately $0.12 for each share of common stock that the Public Stockholders elect to convert in connection with the Company’s initial business combination. The Company has recorded the deferred underwriting fees payable to the underwriters as an expense of the public offering resulting in a charge directly to stockholders' equity.
Pursuant to letter agreements dated January 25, 2006 with the Company and the underwriters, the Initial Stockholders have waived their rights to participate in any liquidation distribution occurring upon our failure to complete a business combination, with respect to those shares of common stock acquired by them prior to the Offering and with respect to the shares included in the 166,667 units they purchased in the Private Placement.
The Initial Stockholders will be entitled to registration rights with respect to their founding shares and the shares they purchased in the private placement pursuant to an agreement signed on January 25, 2006. The holders of the majority of these shares are entitled to make up to two demands that the Company register these shares at any time commencing three months prior to the third anniversary of the effective date of the Offering. In addition, the Initial Stockholders have certain "piggy-back" registration rights on registration statements filed subsequent to the third anniversary of the effective date of the Offering.
The Company has also agreed to pay the fees and issue the securities to the underwriters in the Offering as described above in Note 2.
5. Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
6. Common Stock
At January 31, 2006, 14,810,001 shares of common stock were reserved for issuance upon exercise of redeemable warrants and underwriters' unit purchase option.
7. Stock Dividend
Effective January 13, 2006, the Company's Board of Directors authorized a stock dividend of 0.15 shares of common stock for each outstanding share of common stock. All references in the accompanying financial statements to the number of shares of common stock have been retroactively restated to reflect this transaction.
