MAIL STOP 3561
August 11, 2005
Mr. Bob Marbut, Chairman
Argyle Security Acquisition Corporation
200 Concord Plaza, Suite 700
San Antonio, Texas 78219
Re: Argyle Security Acquisition Corporation
Registration Statement on Form S-1
Filed July 13, 2005
File No. 333-126569
Dear Mr. Marbut:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General
1. Please furnish supplementally a statement as to whether or not
the
amount of compensation to be allowed or paid to the underwriters
has
been cleared with the NASD. Prior to the effectiveness of this
registration statement, the staff requests that we be provided
with a
copy of the letter informing that the NASD has no objections.
2. We note that your initial business combination must have a fair
market value of at least 80% of your net assets at the time of
acquisition. Please clarify throughout that there is no
limitation
on your ability to raise funds privately or through loans that
would
allow you to acquire a company or portfolio with a fair market
value
in excess of 80% of your net assets at the time of acquisition.
Disclose as well whether any such financing arrangements have been
entered into or contemplated with any third parties.
3. We note the structure of this offering and its similarity to
numerous blank check offerings underwritten on a firm commitment
basis that recently have been registered with the Commission.
With a
view toward disclosure, identify for us supplementally the names
of
the companies that have registered or are seeking to register
blank
check offerings underwritten on a firm commitment basis in which
an
officer, director, affiliate, underwriter or attorney for any of
the
above have been involved; the Securities Act Form the companies`
filed on; if applicable, the date of effectiveness; and, the
status
of the offering thus far. In this regard, tell us the amount
escrowed to date and whether the blank checks have engaged in the
desired business combination outlined in the prospectus. To
assist
the staff in this regard, please present the information in a
tabular
format.
4. Provide disclosure with respect to the conversion rights to
discuss the relative benefits and financial advantages to
utilization
of such feature between the existing stockholders and the public
stockholders. This disclosure should include, in part, an
analysis
and comparison of the financial consequences of the exercise of
the
conversion right when exercised by an existing stockholder as
compared to a public stockholder. We may have further comment.
Table of Contents
5. The legend beneath the table of contents should be relocated or
deleted.
Prospectus Summary
6. Clarify that the Current Report on Form 8-K will be filed with
the
Securities & Exchange Commission and whether it will be
distributed
to unit holders.
Risk Factors, page 8
7. Please state the amount per share that public stockholders will
receive if you are forced to liquidate before a business
combination
in risk factor three.
8. Discuss in risk factor four the "certain circumstances" that
certain officers and directors will be personally liable for the
claims of certain vendors.
9. Please update the disclosure in risk factor six.
10. Please identify the officers, directors and key personnel
referenced in risk factor 9.
11. Clarify in risk factor 10 that your officers and directors
"will"
allocate their time to other businesses.
12. You disclose in risk factor 11 that certain of your officers
and
directors are currently involved in other business that are
similar,
including blank check companies, to the business activities that
you
intend to conduct following a business combination. Please
identify
who these individuals are and the businesses they are involved.
13. Please revise risk factor 12 to name the officers, directors,
affiliates, and designees. We also note the statement that they
"will" purchase warrants in the market.
14. Please identify the "certain segments" referenced in risk
factor
21.
15. Risk factors 15, 18, 20, and 27 do not appear to represent
material risks, are generic, and/or duplicate others. We suggest
they be deleted.
16. Please avoid the generic conclusions you reach in several of
your
risk factor narratives and subheadings that the risk could have an
"adverse affect," "material adverse affect," "adversely affect,"
or
other such similar yet generic results on your business, financial
condition, or results of operations. Instead, replace this
language
with specific disclosure of how your business, financial condition
and operations would be affected. See, for example, risk factors
19,
21-24, and 30-32.
17. Risk factors 37 and 39 are repetitious and should be combined.
18. Please identify the officers referenced in risk factor 40 that
reside outside of the US.
Use of Proceeds, page 21
19. We note that you have allocated $400,000 towards due diligence
of
prospective target companies. Considering that current management
will not devote a set amount of time to these endeavors, please
revise to discuss how due diligence will be performed and who will
perform it.
Capitalization, page 25
20. Please revise your table to include the notes payable,
stockholders (i.e. $125,000).
Proposed Business, page 28
21. The current disclosure does not adequately discuss your stated
target industry. Please expand the disclosure to more fully
discuss
the security industry. In this regard, we also note from various
risk factors that you may seek a target abroad and that various
government regulations could affect your business and contracts.
These matters should also be discussed in greater detail.
22. It appears that management may obtain employment or consulting
agreements at the same time as the business combination. State
how
this will be determined and whether this will be a term of the
business combination agreement. This should be discussed in
greater
detail, focusing on any potential conflicts of interest that may
arise. Include risk factor disclosure as appropriate.
23. Under the heading "Fair market value of target businesses,"
clarify whether the discussion in the last sentence means that no
fairness opinion will be required in a transaction involving an
affiliated entity if the board makes an independent determination
as
to fair value and a lack of conflicts.
Management, page 37
24. Please provide the full business description for your officers
and directors as required by Item 401 of Regulation S-K. In this
regard, it appears Mr. Marbut also hold a directorships and VEC
Trust.
Principal Stockholders, page 40
25. We note reference to Rule 462(b) both here and in the Certain
Transaction section. Prior to going effective, supplementally
confirm that you have no intention of increasing the offering
size.
26. We note that Messrs. Marbut and Chaimovski have agreed to
purchase warrants in the open market following the offering.
Clarify
whether they are obligated to purchase any specific amount of
warrants following the offering. Indicate the specific
information
that they will look at in determining to purchase warrants in the
open market following the offering. In addition, discuss whether
a
purpose of such purchases is to stabilize prices and if so,
discuss
what may happen to market prices after all such purchases are
made.
Certain Relationships and Related Transactions, page 42
27. Provide the basis for the statement that "All ongoing and
future
transactions" between the company and its officers, directors or
their affiliates will be on terms believed to be no less favorable
than would be available from unaffiliated third parties.
Underwriting, page 48
28. Tell us whether the underwriter or any member of the
underwriting
syndicate will engage in any electronic offer, sale or
distribution
of the shares and describe their procedures to us supplementally.
If
you become aware of any additional members of the underwriting
syndicate that may engage in electronic offers, sales or
distributions after you respond to this comment, promptly
supplement
your response to identify those members and provide us with a
description of their procedures. Briefly describe any electronic
distribution in the filing, and confirm, if true, that the
procedures
you will follow with respect to any electronic distribution will
be
consistent with those previously described to and cleared by the
Office of Chief Counsel.
29. Tell us whether you or the underwriter has any arrangements
with
a third party to host or access your preliminary prospectus on the
Internet. If so, identify the party and the website, describe the
material terms of your agreement, and provide us with a copy of
any
written agreement. Provide us also with copies of all information
concerning your company or prospectus that has appeared on their
website. Again, if you subsequently enter into any such
arrangements, promptly supplement your response.
30. If the company or the underwriter intends to engage a directed
share program in conjunction with this offering, please describe
to
us the mechanics of how and when these shares were or will be
offered
and sold to investors in the directed share program for this
offering. For example, tell us how the prospective recipients and
number of reserved shares is determined. Tell us how and when the
company and underwriter notified or will notify the directed share
investors, including the types of communications used. Discuss
the
procedures these investors must follow in order to purchase the
offered securities, including how and when any communications are
sent or received or funds are received by the underwriters or you.
How do the procedures for the directed share program differ from
the
procedures for the general offering to the public? Provide us
with
copies of all written communications with prospective purchasers
about the directed share program.
Where You Can Find Additional Information, page 52
31. Please note the Commission`s new address:
100 F Street, NE
Washington, DC 20549.
Financial Statements
Note 5 - Commitments and Contingencies, F-10
32. Regarding the options granted to your existing shareholders,
please provide the required disclosures of SFAS 123 (as amended by
SFAS 148), specifically paragraphs 45 through 48, and 362.
33. We note that in your option pricing model assumptions you used
a
volatility factor of .10 and a weighted average expected life of
..13
years for options granted to existing shareholders. Please
explain
your basis for how these factors were determined.
34. We note your disclosure regarding the underwriter purchase
option
(UPO). Please tell us in detail how you intend to account for the
UPO in your financial statements. Explain your basis for the
proposed treatment and cite the specific authoritative literature
you
used to support your accounting treatment. The fair value of the
UPO
would appear to be material to your financial statements, please
disclose its estimated fair value and the significant assumptions
used to value the UPO. As applicable, expand MD&A to discuss the
transaction and quantify the likely future effect on your
financial
condition and results of operations.
Other
35. Please ensure the consent provided by your independent
accountant
accurately reflects the date of the audit report (see F-3).
Part II
Item 15. Recent Sales of Unregistered Securities
36. It appears options were granted to your existing shareholders
to
purchase up to 468,750 shares of common stock in order to maintain
their 20% ownership after the offering. We are unable to locate
the
disclosure required by Item 701 of Regulation S-K for these
options.
In addition, since no consideration appears to have been given in
exchange for these options, we view the grant of the options as a
form of consideration, and we request that you include the
information required under Item 402 of Regulation S-K. In this
regard, we also request that you revise the disclosure throughout
to
reflect the fact that compensation has been paid to your exiting
shareholders. By way of illustration only, we direct your
attention
to page 22 where you state "No compensation of any kind...."
Item 16. Exhibits
37. Section 6 to exhibit 1.1 has been "intentionally omitted."
Please advise.
38. We note in exhibit 10.11 that Rodman & Renshaw LLC will "fill
such order in such amounts and at such times as it may determine."
Please revise to discuss in the prospectus the factors Rodman &
Renshaw will consider in making these purchases and how such
purchases will be timed. Is it possible for you to seek the "best
price and execution"?
Closing Statements
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Blaise Rhodes at (202) 551-3774 if you have
questions regarding comments on the financial statements and
related
matters. Please contact William Bennett at (202) 551-3389 with
any
other questions.
Sincerely,
John Reynolds
Assistant Director
cc: Mitchell S. Nussbaum, Esq.
Fax: (212) 407-4990
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Mr. Bob Marbut, Chairman
Argyle Security Acquisition Corporation
August 11, 2005
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