As filed with the Securities and Exchange Commission on August 18, 2004
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CONTRARIAN PUBLIC INVESTMENT I, INC.
Exact name of registrant as specified in its charter)
COLORADO 6770 20-1481636
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification ID No.)
Code Number)
735 Broad Street, Suite 218
Chattanooga, Tennessee 37402
(423) 265-5062
(Address, including zip code, and telephone
number, including area code, of registrant's principal
executive offices)
Douglas A. Dyer
735 Broad Street, Suite 218
Chattanooga, Tennessee 37402
(423) 265-5062
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
WITH COPIES TO:
Craig G. Ongley
Vial, Hamilton, Koch & Knox, LLP
1700 Pacific Avenue, Suite 2800
Dallas, Texas 75201
(214) 712-4400
Facsimile: (214) 712-4402
------------------------
Approximate date of commencement of proposed sale to
the public: As soon as practicable after this registration
statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering period. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering period. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering period. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. |_|
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that the registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE
Proposed Maximum
------------------------
Title of Each Class of Amount to be Offering Price Aggregate Offering Registration Fee
Securities to be Registered Registered Per Share (1) (1)
Common Stock, $0.001 par
value:
To be issued by the
Registrant in acquisition
transactions (2) 15,000,000 $0.001 $15,000 $2.00
1. Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457.
2. If the fair market value of property received in exchange for
acquisition shares exceeds $.001 per share, we will recalculate the registration
fee in accordance with Rule 457 and pay an additional fee at the time of our
post-effective amendment.
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Part I. Information Required in Prospectus
Item No. Required Item Location or Caption
- ------------ -------------------------------------------------- ---------------------------------------
1. Front of Registration Statement and Outside Front Front of Registration Statement and
Cover of Prospectus Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page of Prospectus
Prospectus and Outside Front Cover Page of
Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Front Cover Page;
Plan of Distribution
6. Dilution Dilution
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Promoters and Management
Control Persons
11. Security Ownership of Certain Beneficial Owners Principal Stockholders
and Management
12. Description of Securities Description of Securities
13. Interest of Counsel Legal Matters
14. Disclosure of Commission Position on Statement as to Indemnification
Indemnification for Securities Act Liabilities
15. Organization Within Last Five Years Management; Certain Transactions
16. Description of Business Proposed Business
17. Management's Discussion and Analysis Proposed Business - Plan of Operation
of Plan of Operation
18. Description of Property Proposed Business
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Stock and Related Front Cover Page; Market for our
Stockholder Matters Common Stock; Plan of Distribution
21. Executive Compensation Remuneration
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants Not Applicable
on Accounting and Financial Disclosure
(THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)
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Preliminary Prospectus Subject to Completion
CONTRARIAN PUBLIC INVESTMENT I, INC.
15,000,000 SHARES OF COMMON STOCK
This registration statement covers an initial public distribution of our
stock. We are a "blank check company" as defined by the Securities and Exchange
Commission ("SEC") in Rule 419 of the Securities Act of 1933 (the "Securities
Act"). Our registration statement includes 15,000,000 shares that we may offer
to issue in connection with a business combination. We will receive equity
consideration in exchange for these shares. The proceeds from the resale of such
shares may be substantial.
This is a "self-underwritten" distribution. That means we will not use an
underwriter in connection with the negotiation of a business combination or the
issuance of any shares. However, we reserve the right to enter into appropriate
underwriting or brokerage contracts if warranted.
Investing in our shares is extremely speculative. The offering described
in this prospectus involves a very high degree of risk. Persons who cannot
afford to lose their entire investment should not consider an investment in our
shares. SEE "RISK FACTORS."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement we filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted
The date of this prospectus is _______________, 2004
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TABLE OF CONTENTS
PROSPECTUS SUMMARY..........................................................7
SUMMARY OF THE BUSINESS COMBINATION OFFERING................................7
SUMMARY OF THE CONSOLIDATED FINANCIAL INFORMATION...........................9
YOUR RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419.......................9
RISK FACTORS...............................................................10
FORWARD-LOOKING STATEMENTS.................................................14
USE OF PROCEEDS............................................................15
ARBITRARY DETERMINATION OF OFFERING PRICE..................................15
DILUTION...................................................................16
CAPITALIZATION.............................................................16
LEGAL PROCEEDINGS..........................................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION............................... .......................16
BUSINESS...................................................................18
BUSINESS DESCRIPTION.......................................................19
MANAGEMENT.................................................................27
EXECUTIVE COMPENSATION OF OFFICERS AND DIRECTORS...........................33
PRINCIPAL STOCKHOLDERS.....................................................35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................35
DESCRIPTION OF SECURITIES..................................................36
INTEREST OF NAMED EXPERTS AND COUNSEL IN REGISTRATION STATEMENT............39
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES................................ ................39
RECENT TRANSACTIONS IN UNREGISTERED SECURITIES.............................41
MARKET FOR OUR COMMON STOCK................................................41
PLAN OF DISTRIBUTION.......................................................42
EXPERTS....................................................................45
LEGAL MATTERS..............................................................45
WHERE YOU CAN FIND ADDITIONAL INFORMATION..................................45
INDEX TO FINANCIAL STATEMENTS..............................................F-1
5
UNTIL 90 DAYS AFTER THE DATE WHEN THE STOCK
CERTIFICATES ARE RELEASED FROM THE ESCROW ACCOUNT, ALL
DEALERS THAT EFFECT TRANSACTIONS
IN OUR SHARES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
6
PART I
NARRATIVE INFORMATION REQUIRED IN PROSPECTUS
INSIDE FRONT AND OUTSIDE BACK COVER PAGES
SEE FRONT AND BACK COVER pages of this prospectus.
PROSPECTUS SUMMARY
We have registered this distribution under the Securities Act for the
purpose of creating a "public shell" and facilitating our efforts to effect a
business combination with an unidentified, privately held company.
Our company is classified as a "blank-check" company, sometimes referred
to as a "shell" company. It is a legally formed entity that is designed to
facilitate transactions with and for other corporations that have ongoing
operations, but may not have, in the past, structured their corporate formation
to facilitate the eventual trading of their stock. As a "blank-check"
corporation, our company may present an advantageous merger candidate, as it has
already established an identity with the Securities and Exchange Commission
("SEC") in the form of a reporting history.
Blank check companies may offer alternative routes to "go public" for
smaller companies that cannot secure an underwriter for an initial public
offering ("IPO"). Companies that can complete an underwritten IPO may find that
route to be more advantageous, as it is a process that can raise a significant
amount of capital for the company in a relatively short amount of time.
Certain disadvantages are inherent in becoming a public company, and these
should be carefully considered by any business considering a possible business
combination with our company. Immediately upon consummation of a merger with the
Company, the surviving entity would be subject to all of the reporting
requirements of the Securities Exchange Act of 1934 (the "1934 Act").
Additionally, management would assume certain fiduciary duties with respect to
shareholders and the public, including, but not limited to; the timely
disclosure of all material information regarding our company that might bear
upon the consideration of our company's stock as a suitable investment; the
duties of care and loyalty in the conducting of our company's business; and the
duty not to misappropriate corporate opportunities.
Prior to entering into a business combination, our company will fulfill
the reporting requirements of the 1934 Act through the services of its officers,
directors and general counsel.
We were incorporated in the State of Colorado on August 21, 2003. Our
principal executive office is located at 735 Broad Street, Suite 218,
Chattanooga, Tennessee 37402. Our telephone number is (423) 265-5062. We do not
currently have a website or Internet home page.
SUMMARY OF THE BUSINESS COMBINATION OFFERING
Securities 15,000,000 shares of our
common stock, $0.001 par value
Offering Price $.001 per share
Offering Proceeds Not Applicable.
Expiration Date The offering
will expire
eighteen (18)
months from the
date of this
prospectus.
Common stock outstanding prior
to the offering 1,850,000 shares
Common stock to be outstanding after
the business combination 16,850,000 shares
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Information Applicable to Offerings:
If we negotiate a business combination, we will send each existing
shareholder an updated prospectus that describes the proposed business
combination and all related transactions. Each shareholder will then be required
to either approve the proposed transactions in writing and retain their shares,
or reject the proposed transactions and instruct us to cancel their shares from
our shareholder ledger. Although we have not commenced the search for a business
combination target we plan to do so upon the date this registration statement
becomes effective. There can be no assurances that we will be able to locate a
target or negotiate a business combination on acceptable terms.
If we complete a business combination and existing shareholders of our
company agree to accept their physical stock certificates as outlined below,
they will be required to retain ownership of at least one hundred (100) shares
until the earlier of (a) six months after the closing of the business
combination, or (b) the listing of the stock of the combined companies on a
nationally recognized exchange.
If we ultimately conclude that we will be unable to negotiate a suitable
business combination, comply with Rule 419 and close the proposed transactions
within 18 months from the date of this prospectus, we intend to distribute any
remaining assets to our existing stockholders and liquidate.
Stock Certificates and NASDAQ Listing
Our existing shareholders will not receive a physical stock certificate or
be permitted to sell their shares until we negotiate a business combination,
comply with the requirements of Rule 419 and close the transaction. Our
shareholder ledger will be held in escrow so that physical stock certificates
may be issued to all of our shareholders only upon consummation of the business
combination transaction and each shareholder's confirmation that they wish to
retain their shares.
Our shares are not expected to qualify for immediate inclusion in the
national exchange after completion of a business combination and may never
qualify for such a listing. If a national exchange listing is unavailable, the
likely alternative would be a listing on the OTC Bulletin Board, an inter-dealer
automated quotation system for equity securities that do not qualify for
inclusion on any national exchange. If a public market for our shares develops,
it is likely to be illiquid and volatile.
General Business Combination Strategy
The following example provides summary forward-looking information on the
future ownership of our company assuming that 15,000,000 shares are issued in
connection with a business combination and 1,850,000 original shareholder shares
are held and not sold to the owners of a target.
Original Stock issuances Potential future Percent of
Holdings and (sales) ownership total
----------- ------------- ----------- -----------
Our Original Shareholders 1,850,000 1,850,000 1,850,000 10.98%
Stock currently outstanding --
Owners of the Target
business combination shares -- 15,000,000 15,000,000 89.02%
---------- ----------
received
Total Shares Outstanding
after business combination 16,850,000 100.00%
========== ==========
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SUMMARY OF THE CONSOLIDATED FINANCIAL OFFERING
The following table sets forth our historical selected consolidated
financial information for the periods indicated. The data for the year ended
June 30, 2004 are derived from our audited financial statements, which are
included elsewhere in this prospectus.
STATEMENT OF OPERATIONS DATA PERIOD ENDED JUNE 30, 2004
- ---------------------------- --------------------------
Net Sales (Loss) Income Before Taxes $ . 00
Net (Loss) Income (1,850)
(Loss) Earnings Per Share: (.001)
Diluted (.001)
BALANCE SHEET DATA PERIOD ENDED JUNE 30, 2004
- ------------------ --------------------------
Current Assets $ .00
Total Assets .00
Current Liabilities .00
Long-Term Debt and Other Long-Term
Liabilities .00
Stockholders' (Deficit) Equity .00
YOUR RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419
Deposit of Certificates
Rule 419 requires that securities held or transferred by affiliates be deposited
into the escrow account governed by an agreement which contains certain terms
and provisions specified by Rule 419. Under Rule 419, the securities will be
released to existing shareholders only after we have met the following basic
conditions:
o We must file a post-effective amendment to our registration statement
which includes the results of this offering including, but not limited to,
the gross offering proceeds raised, the amounts paid for underwriting
commissions, underwriting expenses and dealer allowances, if any, amounts
disbursed to us and amounts remaining in the escrow account. The
post-effective amendment must also contain information regarding the
acquisition candidate and its business, including audited financial
statements.
o Within five business days after the effective date of the post-effective
amendment, we will send by first class mail or other equally prompt means,
to all shareholders of securities held in escrow or trust, a copy of the
prospectus contained in the post-effective amendment and any amendment or
supplement thereto;
o Each shareholder shall have no fewer than 20 business days and no more
than 45 business days from the effective date of the post-effective
amendment to notify us in writing that he/she elects to keep their shares.
If we have not received such written notification by the 45th business day
following the effective date of the post-effective amendment, such
shareholder will be stricken from the shareholder ledger held in the
escrow or trust account and notice shall be sent by first class mail or
other equally prompt means within five business days;
o After we submit a signed representation to the escrow agent that the
requirements of Rule 419 have been met and after the acquisition is
closed, the escrow agent can release the physical stock certificates to
our existing shareholders.
Accordingly, we have entered into an escrow agreement with Lane Capital Markets,
Fairfield County, Connecticut which provides that:
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o The shareholder ledger is to be deposited promptly upon receipt into the
escrow account maintained by the escrow agent.
o All securities issued in this offering and any other securities issued to
affiliates and/or their assigns as a result of their ownership of the
registered securities, including securities issued as a result of stock
splits, stock dividends or similar rights are to be deposited directly
into the escrow account promptly upon issuance. Names must be included on
the shareholder ledger or other documents evidencing the securities. The
securities held in the escrow account are to remain as issued, and are to
be held for the existing shareholder's sole benefit. Such shareholders
still retain the voting rights, if any to the securities held in their
name. The securities held in the escrow account may neither be transferred
or disposed of nor any interest created in them other than by will or the
laws of descent and distribution, or under a qualified domestic relations
order as defined by the Internal Revenue Code of 1986 or Table 1 of the
Employee Retirement Income Security Act.
RISK FACTORS
We provide the following risk factor disclosure in connection with our
continuing effort to qualify our written and oral forward looking statements for
the safe harbor protection of the Litigation Reform Act and any other similar
safe harbor provisions. However, the Litigation Reform Act safe harbor does not
apply to initial public offerings. Important factors currently known to us that
could cause actual results to differ materially from those in forward looking
statements include the following disclosures:
The shares offered hereby are speculative and involve a high degree of
risk and should not be purchased by investors who cannot afford the loss of
their entire investment.
General Risk Factors
IF WE NEED ADDITIONAL FINANCING TO CONTINUE OPERATIONS, OUR ABILITY TO
LOCATE THE BEST AVAILABLE BUSINESS OPPORTUNITY MAY BE IMPAIRED.
We have very limited funds, and such funds may not be adequate to take
advantage of any available business opportunities. Even if our funds prove to be
sufficient to acquire an interest in, or complete a transaction with, a business
opportunity, we may not have enough capital to exploit the opportunity. Our
ultimate success may depend upon our ability to raise additional capital. We
have not investigated the availability, source, or terms that might govern the
acquisition of additional capital and will not do so until we determine a need
for additional financing. If additional capital is needed, there is no assurance
that funds will be available from any source or, if available, that they can be
obtained on terms acceptable to us. If not available, our operations will be
limited to those that can be financed with our modest capital.
OUR LIMITED OPERATING HISTORY MAY SEVERELY IMPACT OUR ABILITY TO OPERATE
AND LOCATE THE BEST AVAILABLE BUSINESS OPPORTUNITY.
Our company was formed in August of 2003 for the purpose of registering
its common stock under the 1933 Act and acquiring a business opportunity. We
have no operating history, revenues from operations, or assets. We face all of
the risks of a new business plus the special risks inherent in the
investigation, acquisition, or involvement in a potential new business
opportunity. We must be regarded as a new or "start-up" venture with all of the
unforeseen costs, expenses, problems, and difficulties to which such start-up
ventures are subject.
A DESIRABLE BUSINESS COMBINATION TARGET WILL BE UNAVAILABLE TO OUR COMPANY
IF THE TARGET CANNOT PROVIDE AUDITED FINANCIAL STATEMENTS.
Section 13 of the Securities Exchange Act of 1934 (the "1934 Act"),
requires companies subject to that section to provide certain information about
significant acquisitions, including certified financial statements for the
company acquired, covering one or two years, depending on the relative size of
the acquisition. The time and additional costs that may be incurred by some
target entities to prepare such statements may significantly delay or
essentially preclude consummation of an otherwise desirable acquisition by us.
Acquisition prospects that do not have or are unable to obtain the required
audited statements may not be appropriate for acquisition so long as the
reporting requirements of the 1934 Act are applicable.
10
We will be putting significant reliance upon Financial Statements in
selecting a potential business combination which could result in a poor choice
of candidates. The Company will require audited financial statements from
companies that it proposes to acquire. Given cases where audited financials are
available, the Company will have to rely upon interim period unaudited
information received from target companies' management that has not been
verified by outside auditors. The lack of the type of independent verification
which audited financial statements would provide, increases the risk that the
Company, in evaluating an acquisition with such a target company, will not have
the benefit of full and accurate information about the financial condition and
recent interim operating history of the target company. This risk increases the
prospect that the acquisition of such a company might prove to be an unfavorable
one for the Company or the holders of the Company's securities.
NO POTENTIAL BUSINESS OPPORTUNITY HAS BEEN IDENTIFIED AND WILL BE HIGHLY
RISKY.
We have not identified and have no commitments to enter into or acquire a
specific business opportunity and, therefore, we can only disclose the risks and
hazards of a business or opportunity that it may enter into in only a general
manner, and we cannot currently disclose the risks and hazards of any specific
business or opportunity that we may enter into. A shareholder can expect any
potential business opportunity we might consider to be quite risky. Our
acquisition of or participation in a business opportunity will likely be highly
illiquid and could result in a total loss to us and our stockholders if the
business or opportunity proves to be unsuccessful.
OUR COMPANY MAY NOT BE ABLE TO CONDUCT AN EFFECTIVE AND EXHAUSTIVE
INVESTIGATION AND ANALYSIS OF POTENTIAL BUSINESS OPPORTUNITIES AS OUR OPERATING
FUNDS ARE LIMITED AND SUCH FAILURE MAY RESULT IN A POOR SELECTION OF A BUSINESS
OPPORTUNITY.
We have very limited funds and the lack of full-time management will
likely make it impracticable to conduct a complete and exhaustive investigation
and analysis of a business opportunity before we commit our capital or other
resources thereto. Management decisions, therefore, will likely be made without
detailed feasibility studies, independent analysis, market surveys and the like
which, if we had more funds available to us, would be desirable. Because our
officers and directors have a limited experience in business analysis, there can
be no assurance that they will consummate a business combination transaction
with the most optimal target available.
We will be particularly dependent in making decisions upon information
provided by the promoter, owner, sponsor, or others associated with the business
opportunity seeking our participation. A significant portion of our available
funds may be expended for investigative expenses and other expenses related to
preliminary aspects of completing an acquisition transaction, whether or not any
business opportunity investigated is eventually acquired.
OUR COMPANY MAY NOT BE ABLE TO CONSUMMATE THE MOST OPTIMAL BUSINESS
COMBINATION TRANSACTION AS PARTICIPATION BY MANAGEMENT IN THE DAILY OPERATIONS
OF THE COMPANY IS LIMITED.
We currently have three individuals who are serving as our only officers
and directors. We will be heavily dependent upon their skills, talents, and
abilities to implement our business plan, and may, from time to time, find that
the inability of our officers and directors to devote their full time attention
to our business results in a delay in progress toward implementing our business
plan. Furthermore, since only five individuals are serving as our officers and
directors, we will be entirely dependent upon their experience in seeking,
investigating, and acquiring a business and in making decisions regarding our
operations. We anticipate that our officers and directors will only be capable
of spending an aggregate of 10 hours per week on the operation of our business.
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THERE CAN BE NO ASSURANCE THAT WE WILL BE SUCCESSFUL IN SELECTING A
PROFITABLE BUSINESS COMBINATION.
There can be no assurance that we will acquire a favorable business
opportunity. If we become involved in a business opportunity, there is no
assurance that it will generate revenue or profits, or that the market price of
our common stock will increase as a result of the operations of the business
combination.
IF WE FAIL TO MAINTAIN AN EXEMPTION FROM THE INVESTMENT COMPANY ACT, OUR
OPERATING FLEXIBILITY WOULD BE RESTRICTED, WHICH COULD RESULT IN NEGATIVE
EFFECTS TO OUR BUSINESS, FINANCIAL CONDITIONS OR RESULTS OF OPERATIONS.
We intend to conduct our business so as not to become regulated as an
investment company under the Investment Company Act. If we fail to qualify for
exemption from registration as an investment company, our ability to operate
efficiently and effectively utilizing our limited funds would be substantially
reduced, and we would be unable to conduct our business as we currently do. Any
failure to qualify for this exemption would have a material adverse effect on
us.
Risks for Certain Non-Affiliate Shareholders
DEPENDING ON THE NATURE OF THE BUSINESS COMBINATION ENTERED INTO, IT IS
POSSIBLE THAT MANAGEMENT WILL RECEIVE FAVORABLE TERMS OF EXCHANGE WITH THE
TARGET COMPANY THAT WILL NOT BE AVAILABLE TO OTHER SHAREHOLDERS.
Management may actively negotiate or otherwise consent to the purchase of
any portion of their common shares as a condition to or in connection with a
proposed merger or acquisition transaction. It is emphasized that our management
may effect transactions having a potentially adverse impact upon our
shareholders pursuant to the authority and discretion of our management to
complete acquisitions without submitting any proposal to the stockholders for
their consideration. In some instances, however, the proposed participation in a
business opportunity may be submitted to the stockholders for their
consideration, either voluntarily by such directors to seek the stockholders'
advice and consent or because state law so requires.
EXISTING SHAREHOLDERS OF THE COMPANY MAY SUFFER SIGNIFICANT DILUTION TO
THEIR OWNERSHIP PERCENTAGE OF THE COMPANY, INSOFAR AS THE BUSINESS COMBINATION
ENTERED INTO MAY INVOLVE THE ISSUANCE OF A LARGE NUMBER OF AUTHORIZED BUT
UNISSUED SHARES TO THE TARGET COMPANY.
It is likely that we will acquire our participation in a business
opportunity through the issuance of our common stock or other securities.
Although the terms of any such transaction cannot be predicted, it should be
noted that in certain circumstances the criteria for determining whether or not
an acquisition is a so-called "tax free" reorganization under the Internal
Revenue Code of 1986, depends upon the issuance to the stockholders of the
acquired company of a controlling interest (i.e. 80% or more) of the common
stock of the combined entities immediately following the reorganization. If a
transaction were structured to take advantage of these provisions rather than
other "tax free" provisions provided under the Internal Revenue Code, our
current stockholders would retain in the aggregate 20% or less of the total
issued and outstanding shares. By the terms of this registration statement, we
are anticipating issuing up to 15,000,000 shares of our common stock in a
business combination transaction. This could result in substantial dilution in
the equity of those who were our stockholders prior to such reorganization
whereby our current stockholders' ownership would be reduced from 100% to
10.98%. Any such issuance of additional shares might also be done simultaneously
with a sale or transfer of shares representing a controlling interest in our
company by the current officers, directors and principal shareholders.
YOU WILL NOT BE ABLE TO SELL YOUR SHARES UNTIL WE COMPLETE A BUSINESS
COMBINATION AND WILL HAVE NO POTENTIAL LIQUIDITY FOR YOUR SHARES UNTIL SUCH
BUSINESS COMBINATION IS CONSUMMATED AND AN ACTIVE TRADING MARKET DEVELOPS.
12
Our shareholder ledger and stock certificates, if any, for all existing
shareholders will be promptly deposited in an escrow account and held in trust
until we close a business combination. Current stockholders will not be able to
sell or transfer their shares until we have completed a business combination and
the escrow agent has mailed their stock certificates to them.
WE EXPECT A BUSINESS COMBINATION WILL RESULT IN A CHANGE OF CONTROL AND
OUR CURRENT OFFICERS WILL NOT HAVE ANY POWER TO ENSURE THAT AN ACTIVE TRADING
MARKET DEVELOPS.
We plan to issue up to 15,000,000 acquisition shares in connection with a
business combination. Therefore we expect a business combination to result in a
change in control. After a change in control, the owners of the target will have
the right to appoint their own officers and directors and our current officers
will have no power to influence future decisions, seek a listing for our stock
or take any other action to promote an active public market. There can be no
assurance that we will be able to negotiate appropriate after-market support
agreements or that any terms we negotiate will be effective. If the combined
companies do not devote sufficient time and resources to developing and
promoting an active trading market, you may be unable to sell your shares at any
price.
THE PERSONAL PECUNIARY INTERESTS OF OUR OFFICERS MAY CONFLICT WITH THEIR
FIDUCIARY DUTIES TO OUR SHAREHOLDERS.
It is likely that a business combination and the potential resale of
certain shares issued to our officers and directors will result in the transfer
of property to us and the payment of cash to our officers and directors.
Therefore, the personal pecuniary interests of our officers and directors may
conflict with their fiduciary duties to our shareholders since they may
separately negotiate the sale of their shares prior to an active trading market
developing. Consequently, it is possible that our officers and directors may
select a target for a business combination that has the ability to purchase
affiliate shares but does not necessarily represent the best business
combination for our shareholders. We will not receive any proceeds from the sale
of our affiliate shares.
OUR INABILITY TO COMPENSATE OUR OFFICERS AND PRINCIPAL ADVISORS WITH CASH
WILL INCREASE THE POTENTIAL FOR CONFLICTS OF INTEREST.
Certain conflicts of interest exist between us and our officers and
directors as follows:
(a) They have other business interests to which they devote their attention,
and they may be expected to continue to do so. As a result, conflicts of
interest may arise that can be resolved only through their exercise of
such judgment as to whether certain needs of our company may not be
adequately and necessarily addressed, provided our officers and directors
elect to devote attention to outside interest when they could be attending
to the needs of our company;
(b) Certain of our officers and directors will own all of the issued and
outstanding stock of several additional corporations to be formed in the
future which are likely to be used as additional shell companies. Thus, we
may be in competition with other shell companies owned by our officers and
directors. in seeking merger candidates.
(c) It is anticipated that our officers and directors may actively negotiate
or otherwise consent to the purchase of a portion of their common stock as
a condition to, or in connection with, a proposed merger or acquisition
transaction. In this process, our officers and/or directors may consider
their own personal pecuniary benefit rather than the best interests of our
shareholders, and our shareholders are not expected to be afforded the
opportunity to approve or consent to any particular stock buy-out
transaction. See "Conflicts of Interest."
Certain Risks for Owners of Potential Target Companies
YOU SHOULD EXPECT INCREASED SCRUTINY FROM THE REGULATORY COMMUNITY AND
SKEPTICISM FROM THE FINANCIAL COMMUNITY IF YOU ENTER INTO A BUSINESS COMBINATION
WITH OUR COMPANY.
13
Congress has found that blank check companies have been common vehicles
for fraud and manipulation in the penny stock market. Moreover, the financial
community views shell transactions with a high degree of skepticism until the
combined companies have been active for a sufficient period of time to
demonstrate credible operating performance. Increased regulatory scrutiny and
heightened market skepticism may increase your future costs of regulatory
compliance and make it more difficult for the combined companies to establish an
active trading market.
YOU SHOULD NOT CONSIDER A BUSINESS COMBINATION WITH OUR COMPANY IF YOU
CURRENTLY NEED ADDITIONAL CAPITAL, OR WILL REQUIRE ADDITIONAL CAPITAL WITHIN 12
TO 18 MONTHS.
A business combination with our company will not provide an effective
means of accessing capital markets. Therefore, you should not consider a
business combination with us if you currently need additional capital, or will
require additional capital within 12 to 18 months. Until the combined companies
have been active for a sufficient period of time to demonstrate credible
operating performance, it will be very difficult, if not impossible, for you to
raise additional capital to finance the combined companies' operations. You
cannot assume that the combined companies will ever be able to raise additional
capital.
IF THE COMBINED COMPANIES ARE SUCCESSFUL, THERE MAY NOT BE ENOUGH SHARES
AVAILABLE TO SATISFY THE MARKET.
Our capital structure has been designed to foster the development of an
orderly trading market. However, if the combined companies are successful, but
existing stockholders who hold the common stock registered in this offering,
decide not to sell their shares, the small number of shares traded may make it
difficult to satisfy market demands. Our existing stockholders can be expected
to maximize their personal benefit and if substantial quantities of our shares
are withheld from the market, the supply and demand imbalances may drive the
market price of the stock of the combined companies to levels that cannot be
sustained over the long-term.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. When used in our documents or in any
oral presentation, statements which are not historical in nature, including the
words "anticipate," "estimate," "should," "expect," "believe," "intend," and
similar expressions are intended to identify forward-looking statements. They
also include statements containing a projection of revenues, earnings (loss),
capital expenditures, dividends, capital structure or other financial terms.
Certain statements regarding the following particularly are forward-looking in
nature:
o our business strategy;
o our management capabilities;
o projected acquisitions or joint ventures; and
o projected capital expenditures.
The forward-looking statements in this prospectus are based on our
management's beliefs, assumptions, and expectations of our future economic
performance, taking into account the information currently available to them.
These statements are not statements of historical fact. Forward-looking
statements involve risks and uncertainties, some of which are not currently
known to us, that may cause our actual results, performance or financial
condition to be materially different from the expectations of future results,
performance or financial position to differ materially from expectations are:
o general volatility of the capital markets and the market price of our
shares;
o changes in the interest rates or the general economy of the markets in
which we operate;
o our ability to identify and complete acquisitions and successfully
integrate the businesses we acquire;
o disruption in the economic and financial conditions primarily from the
impact of recent terrorist attacks in the United States, threats of future
attacks, police and military activities overseas and other disruptive
worldwide political events;
o changes in the demand for our services;
o the degree and nature of our competition; and
o the other factors referenced in this prospectus, including, without
limitation, under the "Risk Factors" section.
14
We provide these disclosures in connection with our continuing effort to
qualify our written and oral forward looking statements for the safe harbor
protection of the Litigation Reform Act and any other similar safe harbor
provisions. However, the Litigation Reform Act safe harbor does not apply to
initial public offerings.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties, and assumptions,
the forward-looking events discussed in this prospectus might not occur, we
qualify any and all of our forward-looking statements entirely by these
cautionary factors.
USE OF PROCEEDS
If we close a business combination, we will retain equity consideration in
connection with the issuance of our shares. It is impossible to predict the
value of such shares.
There can no assurances that any business combination will be completed.
In that event, there is a substantial risk to us that failure to complete a
business combination will significantly restrict our business operation and
force management to cease operations and liquidate our company.
Subject to the limitations described in this prospectus, certain
affiliates may resell or transfer all or any portion of their shares to existing
shareholders, participants in a business combination and others. The proceeds
from the resale of affiliate shares may be substantial. We will not have any
interest in the proceeds from the resale of any affiliate shares.
Reports to Stockholders
We plan to furnish our stockholders with an annual report for each fiscal
year containing financial statements audited by our independent certified public
accountants. Additionally, we may, in our sole discretion, issue unaudited
quarterly or other interim reports to our stockholders when we deem appropriate.
We intend to comply with the periodic reporting requirements of the 1934 Act for
so long as we are subject to those requirements.
ARBITRARY DETERMINATION OF OFFERING PRICE
We have not commenced negotiating a price for our shares since we are not
in a position to negotiate a price until a business combination candidate is
available and a post-effective amendment is prepared, filed and distributed to
all of our shareholders.
15
DILUTION
On the date of this prospectus, our net tangible book value is $0.00, or
approximately $0.00 per share. Since the potential transfer and/or sale of our
original shareholder shares involves currently issued and outstanding shares, it
will not change the net tangible book value of our stock. We cannot predict
whether a business combination will ultimately result in dilution to the
investors. If the target has a weak balance sheet, a business combination may
result in significant dilution. If a target has a relatively strong balance
sheet, there may be no material dilution. Assuming all $5,000,000 shares of
common stock are used in acquiring the business combination, the current
stockholders will experience a dilution of their ownership in the Company from
100% to 10.98%.
CAPITALIZATION
The following table sets forth our capitalization at June 30, 2004. The
table also presents as adjusted information that gives retroactive effect to the
completion of the original shareholder distribution. This data is qualified in
its entirety by our financial statements.
As of June 30,
2004
Common stock, $0.001 par value, 50,000,000 shares
authorized, 1,850,000 shares issued and outstanding, $ 1,850
Preferred, $0.001 par value, 50,000,000 shares authorized,
no shares issued and outstanding 0
Additional paid-in capital 0
Deficit accumulated during development stage (1,850)
-------
Total stockholders' deficit $ .00
-------
LEGAL PROCEEDINGS
Neither our company nor any of our affiliates are a party, nor is any of
their property subject, to material pending legal proceedings or material
proceedings known to be contemplated by governmental authorities.
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We intend to seek to acquire assets or shares of an entity actively
engaged in business which generates revenues, in exchange for its securities. We
have no particular acquisitions in mind and have not entered into any
negotiations regarding such an acquisition. None of our officers, directors,
promoters or affiliates have engaged in any preliminary contact or discussions
with any representative of any other company regarding the possibility of an
acquisition or merger between our company and such other company as of the date
of this registration statement.
As stated hereinabove, we will not acquire or merge with any entity which
cannot provide independent audited financial statements prior to our filing a
post-effective amendment and subsequently closing of the proposed transaction.
We will be subject to all of the reporting requirements included in the 1934 Act
upon filing a Form 8-K subsequent to the effectiveness of this registration
statement. Included in these requirements is the affirmative duty to file
independent audited financial statements as part of its Form 8-K to be filed
with the SEC upon consummation of a merger or acquisition, as well as the
Company's audited financial statements included in its annual report on Form
10-K (or 10-KSB, as applicable). If such audited financial statements are not
available prior to closing, or within time parameters necessary to insure our
compliance with the requirements of Rule 419, or if the audited financial
statements provided do not conform to the representations made by the candidate
to be acquired in the closing documents, the closing will not be possible.
16
Present Financial Condition
We were incorporated in the State of Colorado on August 23, 2003. Our
founders acquired 1,850,000 shares of our common stock at our company's par
value of $0.001, for services rendered in connection with the organization of
our company. They also agreed to pay all organization costs from their personal
funds.
The shares were issued pursuant to Section 4(2) of the Securities Act of
1933 (the "Act") and are restricted securities within the meaning of Rule 144 of
the Act.
While we incurred organization, operating and offering costs through June
30, 2004, our Company paid none of these costs. All costs were paid by our
officers who will continue to do so until a business combination is completed on
behalf of the Company.
Liquidity and Capital Resources
Our company remains in the development stage and, since inception, has
experienced no significant change in liquidity or capital resources or
stockholder's equity. Our company's balance sheet as of June 30, 2004, reflects
a current asset value of $0.00, and a total asset value of $0.00.
Results of Operations
During the period from August 23, 2003 (inception) through June 30, 2004,
our company has engaged in no significant operations other than organizational
activities and preparation for registration of its securities under the
Securities Act, as amended. No revenues were received by our company during this
period.
For the current fiscal year, our company anticipates incurring a loss as a
result of organizational expenses, expenses associated with registration under
the Securities Act, and expenses associated with locating and evaluating
acquisition candidates. We also anticipate that until a business combination is
completed with an acquisition candidate, we will not generate revenues, and may
continue to operate at a loss after completing a business combination, depending
upon the performance of the acquired business.
All of our affiliate shareholders, officers and directors have verbally
agreed that they will advance to us certain additional funds which we need for
operating capital and for costs in connection with searching for or completing
an acquisition or merger. These will primarily consist of services rendered,
specifically SEC compliance and the due diligence required as a condition
precedent to any business combination. These individuals will share all costs
and/or expenses equally and will distribute their portion to us when such cost
and/or expense is incurred. These persons have also agreed that such advances
will be made interest free without expectation of repayment unless the owners of
the business which we acquire or merge with agree to repay all or a portion of
such advances. Such repayment will in no way be a condition to the selection of
a target company.
We will not borrow any funds from anyone other than our current
shareholders for the purpose of repaying advances made by our affiliate
shareholders, officers and directors, and we will not borrow any funds to make
any payments to any promoters, management or their affiliates or associates.
We have no cash-in-hand or working capital, other than that relied upon
from our affiliate shareholders, officers and directors as described above. We
have sustained a Net Loss of $1,850 from our inception date through June 30,
2004 and will continue to incur additional losses in connection with maintaining
the operations of our business until a business combination is consummated.
There can be no assurance that we will be able to continue to rely on our
affiliate shareholders, offices and directors for providing us with working
capital and/or cash-in-hand and may not be able to continue our operations if
such contributions are not received.
17
Ongoing Plan of Operations
We believe that our affiliate shareholders, officers and directors will
assist us to meet the various cash needs, including the costs of compliance with
the continuing reporting requirements of the 1934 Act, as amended, for a period
of approximately eighteen (18) months. Accordingly, in the event we are able to
complete a business combination during this period, we anticipate that our
affiliate's loans will be sufficient to allow us to accomplish our goal of
completing a business combination. There is no assurance, however, that these
available funds will ultimately prove to be adequate to allow us to complete a
business combination, and once a business combination is completed, our needs
for additional financing are likely to increase substantially. We plan to
maintain our operations during the next twelve months by working to make this
registration statement effective and handling the costs and expenses that will
be incurred in that process. Subsequent to the effective date, we can move
forward with our reporting obligations under the 1934 Act and work to secure a
relationship with a target company that will move towards the completion of a
business combination with that entity.
We do not plan any further research and development with respect to
refining our business plan and do not expected to purchase or sale any
significant equipment. Also, we do not expect any significant changes within our
human resource network nor do we expect to add additional employees.
BUSINESS
General
Requirements of Rule 419
Generally, all securities issued in connection with an offering by a blank
check company and the gross proceeds from the offering shall be deposited
promptly into an escrow account maintained by an "insured depository
institution," as that term is defined in section 3(c)(2) of the Federal Deposit
Insurance Act; or a separate bank account established by a broker or dealer
registered under the 1934 Act maintaining net capital equal to or exceeding
$25,000 (as calculated pursuant to 1934 Act Rule 15c3-1, in which the broker or
dealer acts as trustee for persons having the beneficial interests in the
account, prior to the consummation of a business combination transaction.
Although we will receive no proceeds prior to the consummation of a business
combination transaction, we will deposit our shareholder ledger in escrow as
described above and include all shareholders, their respective addresses and
telephone numbers and number of shares held.
Our initial registration statement shall disclose the specific terms of
our offering, including, but not limited to:
1. The terms and provisions of the escrow or trust agreement and the
effect of the escrow or trust agreement upon the shareholder's securities
required to be deposited into the escrow or trust account;
2. The obligation of us to provide, and the right of our shareholder to
receive, information regarding an acquisition, including the requirement that
shareholders confirm in writing their investment in our securities.
If, during any period in which offers or sales are being made, a
significant acquisition becomes probable, we shall file promptly a
post-effective amendment disclosing and including, our financial statements and
the company to be acquired as well as certain pro forma financial information.
Upon execution of an agreement for the acquisition of a business or assets
that will constitute our business (or a line of business) and for which the fair
value of the business or net assets to be acquired represents at least 80
percent of the maximum offering proceeds, including proceeds received or to be
received upon the exercise or conversion of any securities offered, but
excluding amounts payable to non-affiliates for underwriting commissions,
underwriting expenses, and dealer allowances, we shall file a post-effective
amendment that disclose various information, including our financial statements
and the company acquired or to be acquired and certain pro forma financial
information.
18
Terms of the Rule 419 offering
The terms of our offering must provide, and we must satisfy, the following
conditions:
1. Within five business days after the effective date of the
post-effective amendment, we shall send by first class mail or other equally
prompt means, to each shareholder of securities held in escrow or trust, a copy
of the prospectus contained in the post-effective amendment and any amendment or
supplement thereto;
2. Each shareholder shall have no fewer than 20 business days and no more
than 45 business days from the effective date of the post-effective amendment to
notify us in writing that they elect to remain a shareholder. If we have not
received such written notification by the 45th business day following the
effective date of the post-effective amendment, stock certificates held in the
escrow or trust account shall be sent by first class mail or other equally
prompt means to the shareholder within five business days; and
3. The acquisition(s) meeting the criteria set forth above will be
consummated if a sufficient number of shareholders confirm their investments.
Post Offering Considerations
The shareholder ledger held in the escrow or trust account may be released
to us and securities may be delivered to the shareholder or other registered
holder identified on the shareholder ledger only at the same time as or after:
1. The escrow agent or trustee has received a signed representation from
us, together with other evidence acceptable to the escrow agent or trustee, that
the foregoing requirements have been met; and
2. Consummation of an acquisition(s) meeting the requirements set forth
above has occurred.
Provided funds and securities are released from the escrow or trust account to
us, the prospectus shall be supplemented to indicate the amount of funds and
securities released and the date of release.
BUSINESS DESCRIPTION
History and Operations
Our company was incorporated under the laws of the State of Colorado on
August 23, 2003, and is in the early developmental and promotional stages. To
date our only activities have been organizational ones, directed at developing
our business plan. We have not commenced any commercial operations. We have no
full-time employees and own no real estate.
Regulation of "Blank Check" Companies
The proposed business activities described herein classify us as a "blank
check" or "shell company" whose sole purpose at this time is to seek,
investigate and, if warranted, and consummate a merger or acquisition with a
private entity. Many states have enacted statutes, rules and regulations
limiting the sale of securities of "blank check" companies in their respective
jurisdictions. We do not believe we will undertake any efforts to cause a market
to develop in our securities until such time as we have successfully implemented
our business plan described herein.
19
Regulation of "blank check" companies by the State of Colorado mirrors, to
a large extent, the regulation thereof by the SEC The State of Colorado has
adopted legislation based upon Section 21E of The Private Securities Litigation
Reform Act of 1995. The Act provides a safe harbor for issuers regarding certain
forward-looking statements, but specifically excludes from the safe harbor
issuers making statements in connection with an offering of securities of a
blank check company. Colorado has also adopted an amended Rule 504, made
effective August 13, 1992 as part of the Commission's Small Business
Initiatives. The amended Rule 504 exempts from registration certain offerings up
to $1,000,000. Notably, "blank check" or "development stage" companies are
excluded from this exemption also.
Shareholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include:
1. control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer;
2. manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases;
3. "boiler room" practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
4. excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
5. the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level, along with
the resulting inevitable collapse of those prices and with consequent investor
losses. The Company's management is aware of the abuses that have occurred
historically in the penny stock market. Although the Company does not expect to
be in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to the Company's securities.
Search for Business Opportunity
As stated earlier, our business plan is to seek, investigate, and, if
warranted, acquire one or more properties or businesses, and to pursue other
related activities intended to enhance shareholder value. The acquisition of a
business opportunity may be made by purchase, merger, exchange of stock, or
otherwise, and may encompass assets or a business entity, such as a corporation,
joint venture, or partnership. We have very limited capital available through
loans by our affiliate shareholders, officers and directors, and it is unlikely
that we will be able to take advantage of more than one such business
opportunity. We intend to seek opportunities demonstrating the potential of
long-term growth as opposed to short-term earnings.
At the present time we have not identified any business opportunity that
we plan to pursue, nor have we reached any agreement or definitive understanding
with any person concerning an acquisition. Our officers and directors have
previously been involved in transactions involving a merger between an
established company and a shell entity, and have a number of contacts within the
field of corporate finance. As a result, they have had preliminary contacts with
representatives of numerous companies concerning the general possibility of a
merger or acquisition by a shell company. However, none of these preliminary
contacts or discussions involved the possibility of a merger or acquisition
transaction with us.
It is anticipated that our officers and directors may contact
broker-dealers and other persons with whom they are acquainted who are involved
in corporate finance matters to advise them of our existence and to determine if
any companies or businesses they represent have an interest in considering a
merger or acquisition with us. No assurance can be given that we will be
successful in finding or acquiring a desirable business opportunity, given the
limited funds that are expected to be available for acquisitions, or that any
acquisition that occurs will be on terms that are favorable to us or our
stockholders.
20
Our search will be directed toward small and medium-sized enterprises
which have a desire to become public corporations and which are able to satisfy,
or anticipate in the reasonably near future being able to satisfy, the minimum
asset requirements in order to qualify shares for trading on NASDAQ or on a
stock exchange. We anticipate that the business opportunities presented to us
will:
1. be recently organized with no operating history, or a history of losses
attributable to under-capitalization or other factors;
2. be experiencing financial or operating difficulties;
3. be in need of funds to develop a new product or service or to expand
into a new market;
4. be relying upon an untested product or marketing concept; or
5. have a combination of the characteristics mentioned in (1) through (4).
We intend to concentrate our acquisition efforts on properties or
businesses that we believe to be undervalued. Given the above factors,
shareholders should expect that any acquisition candidate may have a history of
losses or low profitability.
We do not propose to restrict our search for investment opportunities to any
particular geographical area or industry, and may, therefore, engage in
essentially any business, to the extent of its limited resources. This includes
industries such as service, finance, natural resources, manufacturing, high
technology, product development, medical, communications and others. Our
discretion in the selection of business opportunities is unrestricted, subject
to the availability of such opportunities, economic conditions, and other
factors.
Potential Consequences of Business Combination
As a consequence of this registration of its securities, any entity which
has an interest in being acquired by, or merging into our company, is expected
to be an entity that desires to become a public company and establish a public
trading market for its securities. In connection with such a merger or
acquisition, it is highly likely that an amount of stock constituting control of
our company would be issued by us or purchased from the current principal
shareholders of our company by the acquiring entity or its affiliates. If stock
is purchased from the current shareholders, the transaction is very likely to
result in substantial gains to them relative to their purchase price for such
stock.
All of the outstanding shares of Common Stock held by our present
stockholders are "restricted securities" within the meaning of Rule 144 under
the Securities Act of 1933, as amended. As restricted shares, these shares may
be resold only pursuant to an effective registration statement or under the
requirements of Rule 144 or other applicable exemptions from registration under
the Act and as required under applicable state securities laws. However, recent
correspondence directed from the Commission to the NASD suggests that Rule 144
sales by affiliates or their successors/assigns will generally not be afforded
an opportunity to rely on Rule 144 for "safe harbor" re-selling under such rule
and will most likely only be able to transfer such securities pursuant to an
effective registration statement filed under the Securities Act of 1933 (the
"Act"). Specifically, the S.E.C., in a January 21, 2000, letter to Mr. Ken Worm
of the NASD, has expressed the view that promoters and affiliates of blank-check
companies are "underwriters", within the meaning of the '33 Act. Accordingly,
securities acquired by non-affiliates from the promoters or affiliates of our
Company could not be resold prior to registration under the Act.
Depending upon the nature of the transaction, our current officers and
directors may resign their management positions with our company in connection
with our acquisition of a business opportunity. In the event of such a
resignation, our current management would not have any control over the conduct
of the company following our combination with a business opportunity. It is
anticipated that business opportunities will come to our attention from various
sources, including our officers and directors, our existing stockholders,
professional advisors such as attorneys and accountants, securities
broker-dealers, venture capitalists, members of the financial community, and
others who may present unsolicited proposals. We have no plans, understandings,
agreements, or commitments with any individual for such person to act as a
finder of opportunities for us.
21
We do not foresee that we would enter into a merger or acquisition
transaction with any business where our officers or directors are currently
affiliated. Should we determine in the future, contrary to the foregoing
expectations, that a transaction with an affiliate would be in the best
interests of our company and our stockholders, we are in general permitted by
Colorado law to enter into such a transaction if:
1. The material facts as to the relationship or interest of the affiliate
and as to the contract or transaction are disclosed or are known to the Board of
Directors, and the Board in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors constitute less than a quorum; or
2. The material facts as to the relationship or interest of the affiliate
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
3. The contract or transaction is fair as to the Company as of the time it
is authorized, approved or ratified, by the Board of Directors or the
stockholders.
Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon our analysis of the quality of the other company's
management and personnel, the anticipated acceptability of new products or
marketing concepts, the merit of technological changes, the perceived benefit
the company will derive from becoming a publicly held entity, and numerous other
factors which are difficult, if not impossible, to analyze through the
application of any objective criteria. In many instances, it is anticipated that
the historical operations of a specific business opportunity may not necessarily
be indicative of the potential for the future because of the possible need to
shift marketing approaches substantially, expand significantly, change product
emphasis, change or substantially augment management, or make other changes. We
will be dependent upon the owners of a business opportunity to identify any such
problems which may exist and to implement, or be primarily responsible for the
implementation of, required changes.
Because we may participate in a business opportunity with a newly
organized firm or with a firm which is entering a new phase of growth, it should
be emphasized that we will incur further risks, because management in many
instances will not have proved its abilities or effectiveness, the eventual
market for such company's products or services will likely not be established,
and such company may not be profitable when acquired.
It is anticipated that we will not be able to diversify, but will
essentially be limited to one such venture because of our limited financing.
This lack of diversification will not permit us to offset potential losses from
one business opportunity against profits from another, and should be considered
an adverse factor affecting any decision to purchase our securities.
The analysis of business opportunities will be undertaken by or under the
supervision of the our officers and directors, who are not professional business
analysts. Since our management has no current plans to use any outside
consultants or advisors to assist in the investigation and selection of business
opportunities, no policies have been adopted regarding use of such consultants
or advisors, the criteria to be used in selecting such consultants or advisors,
the services to be provided, the term of service, or regarding the total amount
of fees that may be paid.
We anticipate that we will consider, among other things, the following
factors:
1. Potential for growth and profitability, indicated by new technology,
anticipated market expansion, or new products;
2. Our perception of how any particular business opportunity will be
received by the investment community and by our stockholders;
22
3. Whether, following the business combination, the financial condition of
the business opportunity would be, or would have a significant prospect in the
foreseeable future of becoming sufficient to enable the securities of our
company to qualify for listing on an exchange or on a national automated
securities quotation system, such as NASDAQ, so as to permit the trading of such
securities to be exempt from the requirements of Rule 15c2-6 recently adopted by
the SEC.
4. Capital requirements and anticipated availability of required funds, to
be provided by us or from operations, through the sale of additional securities,
through joint ventures or similar arrangements, or from other sources;
5. The extent to which the business opportunity can be advanced;
6. Competitive position as compared to other companies of similar size and
experience within the industry segment as well as within the industry as a
whole;
7. Strength and diversity of existing management, or management prospects
that are scheduled for recruitment;
8. The cost of participation by the Company as compared to the perceived
tangible and intangible values and potential; and
9. The accessibility of required management expertise, personnel, raw
materials, services, professional assistance, and other required items.
No one of the factors described above will be controlling in the selection
of a business opportunity, and management will attempt to analyze all factors
appropriate to each opportunity and make a determination based upon reasonable
investigative measures and available data. Potentially available business
opportunities may occur in many different industries and at various stages of
development, all of which will make the task of comparative investigation and
analysis of such business opportunities extremely difficult and complex.
Shareholders and potential investors must recognize that, because of our
officers and directors' limited capital available for investigation and
management's limited experience in business analysis, we may not discover or
adequately evaluate adverse facts about the opportunity to be acquired.
We are unable to predict when we may participate in a business
opportunity. We expect, however, that the analysis of specific proposals and the
selection of a business opportunity may take several months or more.
Prior to making a decision to participate in a business opportunity, we
will generally request that wet be provided with written materials regarding the
business opportunity containing such items as a description of products,
services and company history; management resumes; financial information;
available projections, with related assumptions upon which they are based; an
explanation of proprietary products and services; evidence of existing patents,
trademarks, or services marks, or rights thereto; present and proposed forms of
compensation to management; a description of transactions between such company
and its affiliates during relevant periods; a description of present and
required facilities; an analysis of risks and competitive conditions; a
financial plan of operation and estimated capital requirements; audited
financial statements, and other information deemed relevant.
As part of the our investigation, our executive officers and directors may
meet personally with management and key personnel, may visit and inspect
material facilities, obtain independent analysis or verification of certain
information provided, check references of management and key personnel, and take
other reasonable investigative measures, to the extent of our officers and
directors' limited financial resources and management expertise. We do not
intend to raise any operating capital by implementing private placements of
restricted stock and/or public offerings of our common stock. It is possible
that the range of business opportunities that might be available for
consideration by us could be limited by the impact of SEC regulations regarding
purchase and sale of "penny stocks." The regulations would affect, and possibly
impair, any market that might develop in our securities until such time as they
qualify for listing on NASDAQ or on another exchange which would make them
exempt from applicability of the "penny stock" regulations.
23
In regard to the possibility that our shares would qualify for listing on
NASDAQ, the current standards include the requirements that the issuer of the
securities that are sought to be listed have total shareholder's equity of at
least $5,000,000. Many, and perhaps most, of the business opportunities that
might be potential candidates for a combination with us would not satisfy the
NASDAQ listing criteria.
Our management believes that various types of potential merger or
acquisition candidates might find a business combination with us to be
attractive. These include acquisition candidates desiring to create a public
market for their shares in order to enhance liquidity for current shareholders,
acquisition candidates which have long-term plans for raising capital through
the public sale of securities and believe that the possible prior existence of a
public market for their securities would be beneficial, and acquisition
candidates which plan to acquire additional assets through issuance of
securities rather than for cash, and believe that the possibility of development
of a public market for their securities will be of assistance in that process.
Acquisition candidates which have a need for an immediate cash infusion are not
likely to find a potential business combination with us to be an attractive
alternative.
Form of Acquisition
Specific business opportunities will be reviewed as well as the respective
needs and desires of our company. We may implement a structure that may require
the merger, consolidation or reorganization of our company with the target
company, and although it is likely, there is no assurance that we will be the
surviving entity. In addition, our management and stockholders will most likely
not have control of a majority of the voting shares of our company following a
reorganization transaction. As part of such a transaction, our existing
directors may resign and new directors may be appointed. It is likely that we
will acquire our participation in a business opportunity through the issuance of
our Common Stock or other securities to the target company. Although the terms
of any such transaction cannot be predicted, it should be noted that in certain
circumstances the criteria for determining whether or not an acquisition is a
so-called "tax free" reorganization under the Internal Revenue Code of 1986,
depends upon the issuance to the stockholders of the acquired company of a
controlling interest (i.e. 80% or more) of the common stock of the combined
entities immediately following the reorganization.
If a transaction were structured to take advantage of these provisions
rather than other "tax free" provisions provided under the Internal Revenue
Code, our current stockholders would retain in the aggregate 20% or less of the
total issued and outstanding shares. This could result in substantial additional
dilution in the equity of those who were stockholders of our company prior to
such reorganization.
We will participate in a business opportunity only after the negotiation
and execution of a written agreement. Although the terms of such agreement
cannot be predicted, generally such an agreement would require specific
representations and warranties by all of the parties thereto, specify certain
events of default, detail the terms of closing and the conditions which must be
satisfied by each of the parties thereto prior to such closing, outline the
manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
As a general matter, we anticipate that we will enter into a letter of
intent with the management, principals or owners of a prospective business
opportunity prior to signing a binding agreement. Such a letter of intent will
set forth the terms of the proposed acquisition but will not bind any of the
parties to consummate the transaction. Execution of a letter of intent will by
no means indicate that consummation of an acquisition is probable. Neither our
company nor any of the other parties to the letter of intent will be bound to
consummate the acquisition unless and until a definitive agreement concerning
the acquisition as described in the preceding paragraph is executed. Even after
a definitive agreement is executed, it is possible that the acquisition would
not be consummated should any party elect to exercise any right provided in the
agreement to terminate it on specified grounds, or our shareholders do not
confirm the transaction during the reconfirmation offering.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and substantial costs for accountants, attorneys
and others. If a decision is made not to participate in a specific business
opportunity, the costs theretofore incurred in the related investigation would
not be recoverable.
24
Investment Company Act and Other Regulations
We may participate in a business opportunity by purchasing, trading or
selling the securities of such business. We do not, however, intend to engage
primarily in such activities. Specifically, we intend to conduct our activities
so as to avoid being classified as an "investment company" under the Investment
Company Act of 1940 (the "Investment Act"), and therefore to avoid application
of the costly and restrictive registration and other provisions of the
Investment Act, and the regulations promulgated thereunder.
Section 3(a) of the Investment Act contains the definition of an
"investment company," and it excludes any entity that does not engage primarily
in the business of investing, reinvesting or trading in securities, or that does
not engage in the business of investing, owning, holding or trading "investment
securities" (defined as "all securities other than government securities or
securities of majority-owned subsidiaries") the value of which exceeds 40% of
the value of its total assets (excluding government securities, cash or cash
items). We intend to implement our business plan in a manner which will result
in the availability of this exception from the definition of "investment
company." Consequently, our participation in a business or opportunity through
the purchase and sale of investment securities will be limited.
Our plan of business may involve changes in our capital structure,
management, control and business, especially if it consummates a reorganization
as discussed above. Each of these areas is regulated by the Investment Act, in
order to protect purchasers of investment company securities. Since our company
will not register as an investment company, our stockholders will not be
afforded these protections.
An acquisition made by our company may be in an industry which is
regulated or licensed by federal, state or local authorities. Compliance with
such regulations can be expected to be a time-consuming and expensive process.
Competition
We expect to encounter substantial competition in our efforts to locate
attractive opportunities, primarily from business development companies, venture
capital partnerships and corporations, venture capital affiliates of large
industrial and financial companies, small investment companies, and wealthy
individuals. Many of these entities will have significantly greater experience,
resources and managerial capabilities than our company and will therefore be in
a better position than us to obtain access to attractive business opportunities.
We also will experience competition from other public "blind pool" companies,
many of which may have more capital available than us.
We will remain an insignificant player among the firms that engage in
business combinations. There are many established venture capital and financial
concerns which have significantly greater financial and personnel resources and
technical expertise than us. In view of our combined limited financial resources
and limited management availability, we will continue to be at a significant
competitive disadvantage compared to our competitors.
Also, we will be competing with a large number of other small public,
blank check companies located throughout the United States.
Business Diversification is Unlikely
Under Rule 419, we will be required to file our post-effective amendment
and deliver a final prospectus to existing shareholders as soon as we agree to a
business combination where the valuation of the business to be acquired exceeds
$12,000, calculated as 80% of the offering proceeds from the sale of the maximum
number of shares registered in each of the public offerings contemplated hereby.
Since we intend to issue shares in connection with a business combination, any
substantial acquisition will probably result in a change in control. Therefore,
we will probably not be in a position to make multiple acquisitions and do not
intend to negotiate multiple or sequential acquisitions.
More than likely, we will not be able to diversify our operations or
benefit from the possible spreading of risks or offsetting of losses. Our
probable lack of diversification may subject us to numerous economic,
competitive and regulatory developments, any or all of which may have a
substantial adverse impact on our future business. In addition, by consummating
a business combination with a single entity, the prospects for our success may
become dependent upon the development or market acceptance of a single or
limited number of products, processes or services. Accordingly, we cannot assure
you that our future operations will prove to be commercially viable.
25
No Right to Approve Specific Terms
We do not intend to provide information to our stockholders regarding the
potential targets being considered by our management. Our officers and directors
will have the executive and equity voting power to unilaterally approve all
corporate actions until we negotiate a business combination. As a result,
investors in this offering will have no effective voice in decisions made by our
management and will be entirely dependent on our management's judgment in the
selection of a target and the negotiation of the specific terms of a business
combination.
Under Colorado law, the stockholders of a corporation are not entitled to
vote with respect to a stock issuance transaction that does not involve a
statutory merger, even if the transaction will result in a change in control. We
presently intend to structure a business combination as a voluntary exchange of
stock in our company for the assets or outstanding stock of a target. Since we
do not intend to conduct a statutory merger or share exchange with a target, we
do not intend to seek prior stockholder approval of the terms of a proposed
business combination but are still required to file a post-effective amendment
to this registration statement and conduct a reconfirmation offering under Rule
419 as outlined above.
Employees
We presently have no full or part time employees. Our officers and
directors are engaged in outside business activities, and the aggregate amount
of time they will collectively devote to our business will be approximately ten
(10) hours per week; however, they will receive no compensation from us for
their activity other than the common stock shares issued and disclosed in this
offering. Upon completion of the public offering, it is anticipated that
management will devote the time necessary each month to our affairs or until a
successful acquisition of a business has been completed.
Facilities
We are presently using the offices of two of our beneficial shareholders,
Mr. Dyer and Mr. Brennan, as our office, an arrangement which we expect to
continue until the completion of the business combination transaction. We
presently do not own any equipment, and do not intend to purchase or lease any
equipment prior to or upon completion of this offering.
Periodic Reporting and Audited Financial Statements
We have filed a Form S-1 registration statement for this offering.
Therefore, the combined companies will be subject to the reporting requirements
of the 1934 Act, including the requirement that we file annual and quarterly
reports with the SEC. In accordance with the requirements of Rule 419(f)(1) the
combined companies will furnish stockholders audited financial statements for
the first full fiscal year of operations following consummation of a business
combination.
We will not enter into a business combination agreement with a target that
cannot have its financial statements audited in accordance with the requirements
of Regulation S-X. In connection with our reconfirmation offering, we will
deliver a final prospectus to investors that includes, among other things,
audited financial statements for the target and pro forma financial information
for the combined companies.
26
MANAGEMENT
Officers and Directors
The following table identifies our directors and executive officers.
Name Age Position
- -------------------- --- -----------------------
Douglas A. Dyer 42 President and Director
Jack W. Eversull, Jr. 62 Secretary and Director
John D. Lane 57 Director
The directors named above will serve until the first annual meeting of our
stockholders. Thereafter, directors will be elected for three-year terms at the
annual stockholders' meeting. Officers will hold their positions at the pleasure
of the board of directors, absent any employment agreement, of which none
currently exists or is contemplated. There is no arrangement or understanding
between our directors and/or officers and any other person pursuant to which any
director or officer was or is to be selected as a director or officer.
Our directors and officers will devote their time to our affairs on an "as
needed" basis. As a result, the actual amount of time which they will devote to
our affairs is unknown and is likely to vary substantially from month to month.
However, we believe that our officers and directors will be capable of
delivering an aggregate of at least ten (10) hours per week to our operations.
The following is a brief account of the business experience of each of our
directors and executive officers.
Douglas A. Dyer, Director and President. Mr. Dyer has been the president
of Contrarian since its inception in August 2003. Concurrently and since 1998,
Mr. Dyer has been a founder and owner of Broad Street Ventures, LLC, an
investment banking and venture capital firm. Prior to joining Broad Street, Mr.
Dyer was a licensed representative, holding a Series 7 license, with several
securities firms, including First Allied Securities, Inc. (1994-1996); Keogler
Mergan, Inc. (1992-1994); Mid Atlantic Securities, Inc. (1991-1992); and Raymond
James and Associates, Inc. (1986-1991).
Mr. Dyer has a Bachelor of Science degree in Finance from the University
of Tennessee.
Jack W. Eversull, Jr., Director and Secretary. Mr. Eversull became an
officer and director of Contrarian in March 2004. He is also currently engaged
as the president of The Eversull Group, Inc., an investor relations firm which
he founded in 1997. From 1964 to 1997, Mr. Eversull held various positions with
Atmos Energy Corporation and its predecessors, including Vice President of
Investor Relations (1989-1997); Senior Vice President, Governmental Affairs and
Investor Relations (1988-1989); and Division President, Trans Louisiana Gas
Company (1987-1988).
Mr. Eversull received an MBA in Finance and Marketing from Louisiana State
University and a Bachelor of Science in Business Administration and Accounting
from Northwestern State University.
John D. Lane, Director. Mr. Lane has been a director of Contrarian since
August 2003. Concurrently and ----------------------- since 2001, Mr. Lane has
been the principal executive officer of Lane Capital Markets, Inc., an
investment banking concern. Prior to founding Lane Capital Markets, Inc., Mr.
Lane held positions in several investment banking firms from 1984 to 2000,
including Boettcher & Co., Inc.; Advest & Co., Inc.; Dain Bosworth, Inc.; and
Moseley Hallgarten, Inc.
Since 2002, Mr. Lane has served as chairman of the National Association of
Security Dealers ("NASD") District Business Conduct Committee (Boston,
Massachusetts); he currently serves on the NASD Small Firm Advisory Board and on
the NASD Corporate Finance Committee.
27
Administration of Our Affairs
Our officers and directors have agreed to provide certain administrative
services for us until we complete a business combination. Under this
arrangement, they are authorized to:
1. provide all necessary office facilities and equipment,
2. provide all necessary clerical, support and accounting staff,
3. manage our day-to-day operations,
4. manage our administrative, accounting and reporting functions,
5. assist in the investigation of potential targets, and
6. provide administrative support services to our officers and
directors in connection with their efforts to identify a suitable
target and negotiate a business combination.
We believe that our officers and director's facilities and staff will be
adequate for our needs until we complete a business combination or liquidate our
company.
Management's Prior Involvement in Shell Transactions
Current management and affiliates have been involved in the
formation of other blank check companies. The following summary reflects other
activity by our officers and affiliates.
28
Name of combined companies Leapfrog Smart Products Americas Power Partners, Inc. Cytation Corporation
Original name of the shell company Albara Corporation Oak Brook Capital II, Inc. Stylex Homes, Inc.
Inactive since September 2002 Still active Still active
Name of target company Leapfrog Smart Products, Inc. Americas Power Partners, Inc. Cytation Corporation
Business of combined companies Software Engineering Energy Consulting and Web-Based Education
Project Mgmt.
Closing date February 2000 September 1999 February 1999
Cash Fees paid by target None $100,000 None
Shares issued to certain of our 242,000 330,000 286,000
Affiliates
Percentage of ownership of Target
held by certain of our affiliates (1)
Douglas A. Dyer 1.43% 1.71% 1.55%
James H. Brennan 1.43% 1.71% 1.55%
Number of shares issued by Target to
certain of our affiliates:
Douglas A. Dyer 121,000 165,000 143,000
James H. Brennan 121,000 165,000 143,000
Shares held by original public
stockholders (2) 792,000 378,000 1,200,000
Shares issued to target/advisors 7,650,000 9,300,000 8,050,000
OTC Symbol FROG APPN CYON
Trading since February 2000 January 2000 February 1999
Highest sale price (*) $9.50 $6.75 $13.75
Lowest sale price (*) ** $0.01 $0.10
Recent Bid (*) ** $0.01 $3.00
- ----------
(*) Obtained from Bloomberg and PC Quote, January 1, 1999 through July 31, 2004
(**) No longer quoted or active
29
1. The table does not include information on the profits received by Mr.
Dyer or Mr. Brennan from the resale of shares held by them since the amount of
services rendered to the each issuer was in excess of any income they derived
from the sale of such shares.
2. "Shares held by original public stockholders" is defined as those total
number of shares that were issued and outstanding, prior to the issuance of
shares in connection with the business combination.
In prior transactions, the stock of the combined companies has only
qualified for listing on the OTC Bulletin Board or American Stock Exchange. In
each of these transactions, the market prices have been highly volatile, and the
markets have not been active, liquid or sustained. Leapfrog Smart Products, Inc.
has subsequently been de-listed from the OTC Bulletin Board for failure to file
their required 1934 Act reports in a timely manner and appears to have ceased
any gainful activity.
Even if we are successful in completing a business combination our
ultimate business goal of achieving an active, liquid, stable and sustained
public market for our common stock may not be achieved as there can be no
assurance that our business plan will be successful. Our shareholders are
encouraged to independently review the available public information, including
SEC reports, press releases and historical trading data, on the prior
transactions effected by our officers and directors.
Detailed information on our officers and director's activities with
respect to these companies is included in the proxy statements and other SEC
reports filed both before and after the business combinations. Additional
information, including press releases and the trading history of these companies
is available from other public sources. Our shareholders are encouraged to
independently review the available public information, including SEC reports,
press releases and historical trading data, for the companies that were
previously managed by certain of our officers and directors.
Conflicts of Interest
Our officers and directors will devote only a small portion of their time
to the affairs of the Company, estimated to be no more than an aggregate of 10
hours per week. There will be occasions when the time requirements of our
business conflict with the demands of their other business and investment
activities. Such conflicts may require that we attempt to employ additional
personnel. There is no assurance that the services of such persons will be
available or that they can be obtained upon terms favorable to us.
Douglas Dyer, our President, and certain of the Company's officers and
directors intend to promote other "blank check" entities in the future. To the
extent that other "blank check" entities exist and Contrarian has not been
utilized, then a conflict would exist, as our officers and directors may be
promoting more than one blank check company at any time.
There is no procedure in place which would allow our officers and
directors to resolve potential conflicts in an arms-length fashion. Accordingly,
they will be required to use their discretion to resolve them in a manner which
they consider appropriate.
Our officers and directors may actively negotiate or otherwise consent to
the purchase of a portion of their common stock as a condition to, or in
connection with, a proposed merger or acquisition transaction. It is anticipated
that a substantial premium over the initial cost of such shares may be paid by
the purchaser in conjunction with any sale of shares by our officers and
directors which is made as a condition to, or in connection with, a proposed
merger or acquisition transaction. The fact that a substantial premium may be
paid to our officers and directors to acquire their shares creates a potential
conflict of interest for them in satisfying their fiduciary duties to us and our
other shareholders.
Even though such a sale could result in a substantial profit to them, they
would be legally required to make the decision based upon the best interests of
our company and our other shareholders, rather than their own personal pecuniary
benefit.
30
Shareholders have certain rights with regards to our management, in the
event of breaches of certain obligations including loyalty and the
misappropriation of a corporate opportunity. Shareholders may seek remedies
under several provisions of the 1933 and 1934 acts. Sections 11 and 12 of the
'33 Act help safeguard investors against materially false statements in
Registration Statements (section 11); and against materially false statements in
prospectuses and other communications (section 12). Remedies available under
these sections include the reimbursement to the investor, by the company, of the
consideration paid for the security minus any gain received thereupon. Investors
are also protected by section 10(b) of the '34 Act, which proscribes
manipulative or deceptive practices in connection with the purchase or sale of a
security; and by section 14(e) of the '34 Act, which proscribes material
misstatements in connection with proxies. As many states, including Colorado,
have securities laws modeled after the '33 and '34 Acts, remedies may be
available under state law as well. In any case, lawsuits under section 11 of the
'33 Act may be brought "at law or in equity, in any court of competent
jurisdiction."
Indemnification of Officers and Directors
As permitted by Colorado law, our Articles of Incorporation provide that
we will indemnify our directors and officers against expenses and liabilities
they incur to defend, settle, or satisfy any civil or criminal action brought
against them on account of their being or having been our directors or officers
unless, in any such action, they are adjudged to have acted with gross
negligence or willful misconduct. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the company pursuant to the foregoing provisions, we have
been informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable.
Exclusion of Liability
Pursuant to the Colorado Business Corporation Act, our Articles of
Incorporation exclude personal liability for our directors for monetary damages
based upon any violation of their fiduciary duties as directors, except as to
liability for any breach of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
acts in violation of Section 7-106-401 of the Colorado Business Corporation Act,
or any transaction from which a director receives an improper personal benefit.
This exclusion of liability does not limit any right which a director may have
to be indemnified and does not affect any director's liability under federal or
applicable state securities laws.
Board of Directors
Colorado provides that a corporation's board of directors may be divided
into various classes with staggered terms of office. Our directors are elected
for a term of three years and until their successors are elected and qualified.
We do not have an audit committee or a compensation committee. We do not
intend to create an audit committee or a compensation committee until after the
completion of a business combination.
Number of Directors
Our board of directors currently consists of three directors. The number
of directors on our board may only be changed by a vote of a majority of our
directors, subject to the rights of the holders of any outstanding series of our
company's preferred stock to elect additional directors.
Removal of Directors
Our directors, or the entire board, may be removed for cause by the
affirmative vote of the holders of at least 50% of the outstanding shares of
common stock entitled to vote in the election of directors, voting as a single
class and subject to the rights of the holders of any outstanding series of our
company's preferred stock.
31
Filling Vacancies on the Board of Directors
Any newly created directorships in our board of directors, resulting from
any increase in the number of authorized directors or any vacancies, may be
filled by a majority of the remaining members of such board of directors, even
though less than a quorum, or in the case of our company, by a sole remaining
director, subject to the rights of holders of any outstanding series of
preferred stock. Newly created directorships or decreases in directorships in
our board of directors are to be apportioned among the classes of directors so
as to make all classes as nearly equal in number as practicable, provided that
no decreases in the number of directors in our board of directors may shorten
the term of any director then in office.
To the extent reasonably possible, any newly created directorship will be
added to the class of directors whose term of office is to expire at the latest
date following the creation of that directorship, unless otherwise provided for
by resolution of the majority of the directors then in office.
Any newly eliminated directorship will be subtracted from the class whose
office is to expire at the earliest date following the elimination of the
directorship, unless otherwise provided for by resolution of the majority of the
directors then in office.
Ability to Call Special Meetings
Special meetings of our stockholders may be called by our board of
directors, by affirmative vote of a majority of the total number of authorized
directors at that time, regardless of any vacancies, or by the Chief Executive
Officer.
Advance Notice Provisions for Stockholder Nominations and Proposals
Our bylaws allow stockholders to nominate candidates for election to the
board of directors at any annual or any special stockholder meeting at which the
board of directors has determined that directors will be elected. In addition,
the bylaws allow stockholders to propose business to be brought before any
annual stockholder meeting. However, nominations and proposals may only be made
by a stockholder who has given timely written notice to our Secretary before the
annual or special stockholder meeting.
Under our bylaws, to be timely, notice of stockholder nominations or
proposals to be made at our annual stockholder meeting must be received by our
Secretary no less than 60 days nor more than 90 days before the first
anniversary of the preceding year's annual stockholder meeting. If the date of
the annual meeting is more than 30 days before or more than 60 days after the
anniversary of the preceding year's annual stockholder meeting, notice will also
be timely if delivered within 10 days of the date on which public announcement
of the meeting was first made by us.
In addition, if the number of directors to be elected is increased and no
public announcement is made by us naming all of the nominees or specifying the
size of the increased board of directors at least 70 days before the first
anniversary of the preceding year's annual meeting, or, if the date of the
annual meeting is more than 30 days before or 60 days after the anniversary of
the preceding year's annual meeting, at least 70 days before the annual meeting,
a stockholder's notice will be considered timely, with respect to the nominees
for any new positions created by the increase, if it is delivered to our
Secretary within 10 days of the date on which public announcement of the meeting
was first made by us.
Under our bylaws, to be timely, notice of a stockholder nomination to be
made at a special stockholder meeting must be received no less than 60 days, nor
more than 90 days, before a special meeting at which directors are to be elected
or within 10 days of the date on which public announcement of the special
meeting was first made by our company.
32
A stockholder's notice to us must set forth all of the following:
o all information required to be disclosed in solicitations of proxies
for election of directors, or information otherwise required by
applicable law, relating to any person that the stockholder proposes
to nominate for election or re-election as a director, including
that person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected
o a brief description of the business the stockholder proposes to
bring before the meeting, the reasons for conducting that business
at that meeting and any material interest of the stockholder in the
business proposed
o the stockholder's name and address as they appear on our books and
the class and number of shares which are beneficially owned by the
stockholder
o The chairman of our stockholder meeting will have the power to
determine whether the nomination or proposal was made by the
stockholder in accordance with the advance notice procedures set
forth in our bylaws.
o If the chairman determines that the nomination or proposal is not in
compliance with advance notice procedures, the chairman may declare
that the defective proposal or nomination will be disregarded.
EXECUTIVE COMPENSATION OF OFFICERS AND DIRECTORS
At our inception, our officers and directors received 1,007,097 shares of
Common Stock valued at $0.001 (par value) per share in consideration for
pre-incorporation services rendered to our company related to investigating and
developing our proposed business plan and capital structure, and completion of
the incorporation and organization of our company. None of our officers or
directors has received any other compensation.
SUMMARY COMPENSATION TABLE
The following summary compensation table presents information about the
compensation paid by us during our three most recent fiscal years to those
individuals who were (i) our Chief Executive Officer (the "CEO") at the end of
the last completed fiscal year, regardless of compensation level and (ii) our
most highly compensated executive officer other than the CEO who was serving as
an executive officer at the end of the last completed fiscal year and whose
total annual salary and bonus for the last completed fiscal year exceeded
$100,000 and (iii) three additional individuals who served as executive officers
during 2003 (collectively, the "Named Executive Officers").
ANNUAL COMPENSATION LONG-TERM COMPENSATION
NAME AND PRINCIPAL YEAR 2004 BASE BONUS OPTIONS COMPENSATION
POSITION SALARY GRANTED
Douglas A. Dyer 2004 0 0 0 0
Jack Eversull 2004 0 0 0 0
John D. Lane 2004 0 0 0 0
It is possible that, after we successfully consummate a merger or
acquisition with an unaffiliated entity, that entity may desire to employ or
retain one or more members of our management for the purposes of providing
services to the surviving entity, or otherwise provide other compensation to
such persons. However, we have adopted a policy whereby the offer of any
post-transaction remuneration to members of management will not be a
consideration in our decision to undertake any proposed transaction. Each member
of management has agreed to disclose to our Board of Directors any discussions
concerning possible compensation to be paid to them by any entity which proposes
to undertake a transaction with us and further, to abstain from voting on such
transaction. Therefore, as a practical matter, if each member of our Board of
Directors is offered compensation in any form from any prospective merger or
acquisition candidate, the proposed transaction will not be approved by our
Board of Directors as a result of the inability of the Board to affirmatively
approve such a transaction.
33
We do not have an audit committee or a compensation committee. We do not
intend to create an audit committee or a compensation committee until after the
completion of a business combination.
No member of our management will receive any finders fee, either directly
or indirectly, as a result of their respective efforts to implement our business
plan outlined herein. Also, there are no plans, proposals, arrangements or
understandings with respect to the sale or issuance of additional securities by
our company prior to the location of an acquisition or merger candidate.
Although we have a very large amount of authorized but unissued common and
preferred stock that may be issued without further shareholder approval or
notice, it is our intention to avoid inhibiting certain transactions with
prospective acquisition or merger candidates, based upon the perception by such
candidate that they may be engaged in a rapidly expanding industry and cannot
afford to proxy shareholders each time their management needs to authorize
additional shares.
Compensatory Stock Plans
We have adopted certain plans that will allow our company to pay or accrue
additional compensation to our officers and directors for services related to
seeking business opportunities and completing a merger or acquisition
transaction. We have also adopted a compensatory stock-option plan for the
benefit of directors and/or officers or other employees, and the Board of
Directors may recommend implementation of such program in the foreseeable
future.
Under the terms of our present consulting and advisory services plan, our
Company is authorized to issue a maximum of 1,000,000 common shares from time to
time, for the benefit of directors, officers, full time employees, consultants
and advisors of our company or its subsidiaries and companies wholly owned by
these individuals.
There have been no common shares or options issued under our compensatory
stock option plan or under our consulting and advisory services plan
Director Compensation
Our directors, no matter whether they are officers or not, are not
compensated for serving.
Limitation of Liability and Indemnification
Our Articles of Incorporation provide that a director of our company shall
not be personally liable to us or any of our shareholders for monetary damages
for breach of fiduciary duty as a director, except for liability:
1. for any breach of the director's duty of loyalty to our company or our
shareholders,
2. for acts or omissions not in good faith or which involve gross
negligence, intentional misconduct or a knowing violation of law,
3. for any unlawful distribution as set forth in the Colorado Model
Business Corporation Act of Colorado; or
4. for any transaction from which the director derived an improper
personal benefit. These provisions may have the effect in certain circumstances
of reducing the likelihood of derivative litigation against directors.
While these provisions may eliminate the right to recover monetary damages
from directors in various circumstances, rights to seek injunctive or other
non-monetary relief is not eliminated.
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PRINCIPAL STOCKHOLDERS
The following table contains information on the beneficial ownership of
our common stock at June 30, 2004, as adjusted to reflect the issuance of
15,000,000 shares and the potential resale of 1,850,000 shares in connection
with a business combination. Unless otherwise indicated, all persons named in
the table have sole voting and investment power with respect to the shares
beneficially owned by them. The table identifies:
o Each person known by us to be the owner of more than 5% of the
outstanding shares of common stock.
o Each of our officers and directors and their affiliates.
o All our officers and directors as a group.
Before this Offering(1) After this Offering(1) After Combination(1)
---------------------- --------------------- ----------------------
Name and Address of
Beneficial Owner (2) Shares Percent Shares Percent Shares Percent
- -------------------- ------ ------- ------ ------- ------ -------
Douglas A. Dyer 403,394 21.8% 403,394 21.8% 0 0
James H. Brennan, III 403,394 21.8% 403,394 21.8% 0 0
Lane Capital Markets(3) 200,000 10.8% 200,000 10.8% 0 0
Chester Berry 92,592 5.0% 92,592 5.0% 0 0
Tommy Lee Graham 92,610 5.0% 92,610 5.0% 0 0
James F. Sattler 92,610 5.0% 92,610 5.0% 0 0
Jack Eversull 50,000 2.7% 50,000 2.7% 0 0
All Officers and Directors
as a Group (three persons) 653,394 35.3% 653,394 35.3% 0 0
(1) Based upon a total of 1,850,000 common shares being issued and outstanding,
none of the 1,850,000 original shareholder shares will be sold in this offering
but assumes that all shares will be sold at the time of completion of the
business combination (2) Unless otherwise specifically stated the address for
all those listed is 735 Broad Street, Suite 218, Chattanooga, TN 37402.
(3) This entity is owned solely by one of our directors, John D. Lane and its
address is; 263 Queens Grant Rd. Fairfield, CT. 06824.
Management has no plans to issue any additional securities to management,
promoters or their affiliates or associates and will do so only if such issuance
is in the best interests of shareholders of our company and complies with all
applicable federal and state securities rules and regulations.
Each of our officers may be deemed to be a "promoter" of our company as
that term is defined in Rule 12b-2 of the General Rules of the SEC promulgated
under the 1934 Act.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the organization of our company, our founders received
1,850,000 shares of common stock at a price of $0.001 (par value) per share in
connection with advisory and consulting services rendered. These services
included pre-incorporation planning, strategic planning and basic organizational
planning, including, but not necessarily limited to, drafting of the business
plan, attending organizational meetings and general corporate governance
planning. The shares were also issued in connection with future services
expected to be rendered in connection with the implementation of the business
plan.
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Our officers and directors have also paid organizational costs, filing
fees and auditing costs in connection with the incorporation of our company and
filing of this registration statement. These costs have been shared
proportionally by our officers, directors and affiliates. The aggregate amount
of these costs is calculated at approximately $1,850 and there is no requirement
or commitment that our company must reimburse these individuals for such
payments.
Our company maintains a business address at the office of two of our
affiliate shareholders, Mr. Dyer and Mr. Brennan. As a result, we pay no rent
and incur no expense for maintenance of an office and do not anticipate paying
rent or incurring office expense in the future. All transactions between us and
any of our officers or their respective affiliates will be on terms that we
believe are no less favorable than the terms that could have been negotiated
with unaffiliated third parties. All related party transactions will require
prior approval from a majority of our disinterested directors.
DESCRIPTION OF SECURITIES
General
We are authorized to issue 50,000,000 shares of common stock, par value
$0.001, and 50,000,000 shares of preferred stock, par value $0.001. As of the
date of this prospectus, 1,850,000 shares of common stock are outstanding, held
of record by 33 persons. No shares of preferred stock are currently outstanding.
Our common shareholders do have preemptive rights and are not entitled to
cumulative voting.
After the completion of a business combination, we will have approximately
33,150,000 shares of authorized and unissued common stock and 50,000,000 shares
of authorized and unissued preferred stock. These authorized and unissued shares
may be issued without stockholder approval at any time, in the sole discretion
of our board of directors. The authorized and unissued shares may be issued for
cash, to acquire property or for any other purpose that is deemed in the best
interests of our company. Any decision to issue additional shares will reduce
the percentage of our stockholders' equity held by the purchasers of the shares
and could result in dilution of our net tangible book value.
The following is a summary of the principal attributes of the share
capital of our company.
Common Shares
The rights, privileges, restrictions and conditions attached to the common
shares are as follows:
Voting
Holders of our common shares shall be entitled to receive notice of and to
attend and vote at all meetings of shareholders of our company, except meetings
of holders of another class of shares. Each common share shall entitle the
holder thereof to one vote.
Dividends
Subject to the preferences accorded to holders of our preferred shares and
any other shares ranking senior to the common shares from time to time with
respect to the payment of dividends, holders of common shares shall be entitled
to receive, if, as and when declared by the board of directors, such dividends
as may be declared thereon by the board of directors from time to time.
Liquidation, Dissolution or Winding-Up
In the event of the voluntary or involuntary liquidation, dissolution or
winding-up of our company, or any other distribution of its assets among its
shareholders for the purpose of winding-up its affairs, such event referred to
herein as a distribution, holders of common shares shall be entitled, subject to
the preferences accorded to our holders of the preferred shares and any other
shares ranking senior to the common shares from time to time with respect to
payment on a distribution, to share equally, share for share, in the remaining
property of our company.
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Preferred Shares
Our articles of incorporation provide that the board of directors is
authorized to provide for the issuance of shares of undesignated preferred stock
in one or more series, and to fix the designations, powers, preferences and
rights of the shares of each series and any qualifications, limitations or
restrictions thereof.
The number of our authorized shares of undesignated preferred stock may be
increased by the affirmative vote of the holders of a majority of our common
stock, without a vote of the holders of preferred stock, unless their vote is
required pursuant to the terms of any preferred stock then outstanding. The
number of our authorized shares of undesignated preferred stock may be reduced
or eliminated by the affirmative vote of the holders of 80% of our outstanding
capital stock entitled to vote in the election of directors, voting together as
a single class.
Attributes
Subject to the filing of Articles of Amendment in accordance with the Act,
our board of directors may from time to time fix, before issuance, the
designation, rights, privileges, restrictions and conditions attached to each
series of preferred shares including, without limiting the generality of the
foregoing, the amount, if any, specified as being payable preferentially to such
series on a distribution; the extent, if any, of further participation on a
distribution; voting rights, if any; and dividend rights (including whether such
dividends be preferential, cumulative or non-cumulative), if any.
Liquidation
In the event of a distribution, holders of each series of preferred shares
shall be entitled, in priority to holders of our common shares and any other
shares ranking junior to the preferred shares from time to time with respect to
payment on a distribution, to be paid ratably with holders of each other series
of preferred shares the amount, if any, specified as being payable
preferentially to the holders of such series on a distribution.
Dividends
The holders of each series of our preferred shares shall be entitled to
dividends. We have never paid any dividends on our common shares and intend to
retain our earnings to finance the growth and development of our business and do
not expect to pay dividends in the near future. Our board of directors will
review this policy from time to time having regard to our financing
requirements, financial condition and other factors considered relevant.
Certain Protective Provisions
General
Our articles and bylaws and the Colorado revised statutes contain certain
provisions designed to enhance the ability of the board of directors to deal
with attempts to acquire control of our company. These provisions may be deemed
to have an anti-takeover effect and may discourage takeover attempts that have
not been approved by the board of directors (including potential takeovers which
certain shareholders may deem to be in their best interest) and may adversely
effect the price that a potential purchaser would be willing to pay for our
stock. These provisions also could discourage or make more difficult a merger,
tender offer or proxy contest, even though such transaction may be favorable to
the interests of shareholders, and could potentially adversely effect the price
of our common stock.
The following briefly summarizes protective provisions contained in the
articles, the bylaws and the Colorado revised statutes. This summary is
necessarily general and is not intended to be a complete description of all the
features and consequences of these provisions, and is qualified in its entirety
by reference to our articles, bylaws and the provisions of the Colorado revised
statutes.
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Amendment of Articles of Incorporation
Under Colorado law, articles of incorporation of a Colorado corporation
may be amended by approval of the board of directors of the corporation and the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote for the amendment, unless a higher vote is required by the corporation's
articles of incorporation.
Our articles of incorporation provides that the affirmative vote of the
holders of at least 50% of the outstanding shares of capital stock of our
company entitled to vote in the election of directors, voting together as a
single class, will be required to reduce or eliminate the number of authorized
shares of common stock or preferred stock, or to amend, repeal or adopt any
provision inconsistent with the provisions of the articles of incorporation
which deal with the following:
o undesignated preferred stock
o matters relating to the board of directors, including number of
members, board classification, vacancies and removal
o the powers and authority expressly conferred upon the board of
directors
o the manner in which stockholder action may be effected
o amendments to bylaws
o business combinations with interested stockholders of our company
o indemnification of officers and directors of our company
o the personal liability of directors to our company or our
stockholders for breaches of fiduciary duty
o the amendment of our company's articles of incorporation
Amendment of Bylaws
Under Colorado law, stockholders entitled to vote have the power to adopt,
amend or repeal bylaws. In addition, a corporation may, in its articles of
incorporation, confer such power upon the board of directors. The stockholders
always have the power to adopt, amend or repeal bylaws, even though the board
may also be delegated such power. Our board of directors is expressly authorized
to adopt, amend and repeal the bylaws by an affirmative vote of a majority of
the total number of authorized directors at that time, regardless of any
vacancies.
Our bylaws may also be adopted, amended and repealed by the affirmative
vote of the holders of at least 50% of the outstanding shares of capital stock
entitled to vote in the election of directors, voting together as a single
class.
Limitation of Liability of Directors
The Colorado revised statutes permits a corporation to include a provision
in its articles of incorporation eliminating or limiting the personal liability
of a director or officer to the corporation or its stockholders for damages for
a breach of the director's fiduciary duty, subject to certain limitations. Our
articles of incorporation include such a provision to the maximum extent
permitted by law.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate that
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his duty of care.
Indemnification of Directors and Officers
The Colorado revised statutes permit a corporation to indemnify officers
and directors for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. Our articles of incorporation and bylaws provide that any
person who was or is a party or is threatened to be a party to or is involved in
any action, suit, or proceeding, whether civil, criminal, administrative or
investigative, because that person is or was a director or officer, or is or was
serving at the request of either of us as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, will be indemnified against expenses, including attorney's fees, and
held harmless by each of us to the fullest extent permitted by the Colorado
revised statutes. The indemnification rights conferred by each of us are not
exclusive of any other right to which persons seeking indemnification may be
entitled under any statute, our articles of incorporation or bylaws, any
agreement, vote of stockholders or disinterested directors or otherwise.
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In addition, each of us is authorized to purchase and maintain insurance
on behalf of its directors and officers. Additionally, each of us may pay
expenses incurred by our directors or officers in defending a civil or criminal
action, suit or proceeding because that person is a director or officer, in
advance of the final disposition of that action, suit or proceeding. However,
such payment will be made only if we receive an undertaking by or on behalf of
that director or officer to repay all amounts advanced if it is ultimately
determined that he or she is not entitled to be indemnified by us, as authorized
by our articles of incorporation and bylaws.
Transfer Agent
We are currently serving as our own transfer agent, and plan to continue
to serve in that capacity until such time as management believes it is necessary
or appropriate to employ an independent transfer agent in order to facilitate
the creation of a public trading market for our securities. Since we do not
currently expect any public market to develop for our securities until after we
have completed a business combination, we do not currently anticipate that we
will seek to employ an independent transfer agent until we have completed such a
transaction.
INTEREST OF NAMED EXPERTS AND COUNSEL
IN REGISTRATION STATEMENT
No expert named in this prospectus was paid on a contingent basis or had a
material interest in our company or any of its subsidiaries or was connected
with our company or any of its subsidiaries as a promoter, underwriter, voting
trustee, director, officer or employee.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation provide that a director shall not be
personally liable to any of its shareholders for monetary damages for breach of
fiduciary duty as a director, except liability for the following:
1. any breach of the director's duty of loyalty to our Company or its
shareholders;
2. acts or omissions not in good faith or which involve gross negligence
intentional misconduct or a knowing violation of law;
3. any unlawful distribution as set forth in the General Corporation Law
of the State of Colorado; or
4. any transaction from which the director derived an improper personal
benefit.
These provisions may have the effect in certain circumstances of reducing
the likelihood of derivative litigation against directors. While these
provisions may eliminate the right to recover monetary damages from directors in
various circumstances, rights to seek injunctive or other non-monetary relief
are not eliminated.
Our By-laws provide for indemnification of our directors to the fullest
extent permitted by law. The bylaws also permit us, through action of the board
of directors, to indemnify our officers or employees to the fullest extent
permitted by law.
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Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of our
company pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by our company of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, our
company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Rule 144 and Shares Eligible for Future Sale
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of an
issuer (or other persons whose shares are aggregated), who has owned restricted
shares of Common Stock beneficially for at least one year is entitled to sell,
within any three month period, a number of shares that does not exceed the
greater of one percent of the total number of outstanding shares of the same
class or the average weekly trading volume during the four calendar weeks
preceding the sale. A person who has not been an affiliate of an issuer for at
least the three months immediately preceding the sale and who has beneficially
owned shares of Common Stock for at least two years is entitled to sell such
shares under Rule 144 without regard to any of the limitations described above.
All of the outstanding shares of Common Stock held by our present
stockholders are "restricted securities" within the meaning of Rule 144 under
the Securities Act of 1933, as amended. As restricted shares, these shares may
be resold only pursuant to an effective registration statement or under the
requirements of Rule 144 or other applicable exemptions from registration under
the Act and as required under applicable state securities laws. However, recent
correspondence directed from the Commission to the NASD suggests that Rule 144
sales by affiliates or their successors/assigns will generally not be afforded
an opportunity to rely on Rule 144 for "safe harbor" re-selling under such rule
and will most likely only be able to transfer such securities pursuant to an
effective registration statement filed under the Securities Act of 1933 (the
"Act"). Specifically, the S.E.C., in a January 21, 2000, letter to Mr. Ken Worm
of the NASD, has expressed the view that promoters and affiliates of blank-check
companies are "underwriters", within the meaning of the '33 Act. Accordingly,
securities acquired by non-affiliates from the promoters or affiliates of our
Company could not be resold prior to registration under the Act.
Prior to this Offering, there has been no market for the common stock and
no prediction can be made as to the effect, if any, that market sales of shares
of common stock or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of common stock may be sold in the public market may
adversely affect prevailing market prices for the common stock and could impair
our ability to raise capital through the sale of its equity securities.
Secondary Trading Exemptions:
Section 4(1) of the Act exempts transactions by any person other than an
issuer, underwriter, or dealer.
Section 4(3) of the Act exempts transactions by a dealer (including an
underwriter no longer acting as an underwriter in respect of the security
involved in such transaction), except--
(a) transactions taking place prior to the expiration of 40 days
after the first date upon which the security was bona fide offered to the public
by the issuer or by or through an underwriter;
(b) transactions in a security as to which a registration statement
has been filed taking place prior to the expiration of 40 days.
Based upon the foregoing, we believe that secondary trading opportunities
may exist pursuant to Sections 4(1), 4(3) or 4(4) of the Act, provided that we
timely file reports required under Section 13 or 15(d) of the Exchange Act and
effectuate any filings that may be required in each respective state listed
above, if any.
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Although the above information may provide secondary trading exemptions
for shareholders, provided they sell in full compliance with Rule 144 of the
Act, nonetheless, we must still timely file the reports required to be filed as
prescribed by Section 13 or 15(d) of the Exchange Act and must file any required
material with each respective state authority.
RECENT TRANSACTIONS IN UNREGISTERED SECURITIES
Unregistered Securities Issued or Sold Within One Year--Recent Sales of
Unregistered Securities.
The following transactions reflect the issuance during the previous two
years of securities not registered under the Securities Act.
On August 23, 2003, we issued 1,850,000 restricted shares to our founding
shareholders in connection with services rendered for pre-incorporation
services. All such securities were issued to the shareholders of our company
with no broker-dealer or underwriter involved and no commissions paid to any
person in respect thereto. The shares were issued pursuant to Section 4(2) of
the Securities Act of 1933 (the "Act") and are restricted securities within the
meaning of Rule 144 of the Act.
Section 4(2) Sales
In particular, we confirmed that with respect to any exemption claimed
under section 4(2) of the Securities Act:
1. Each shareholder referred to gave written assurance of investment
intent and certificates for the shares distributed to each shareholder bear a
legend consistent with such investment intent and restricting transfer;
2. Share issuances within any offering were made to a limited number of
United States citizens. No general solicitation to the public was made in
connection with such share issuances;
3. Each shareholder represented in writing that they (or in the case of
corporate shareholders) that their management are sophisticated investors;
4. Neither our company nor any person acting on our behalf offered or sold
the shares by means of any form of general solicitation or general advertising;
5. Services were performed by certain shareholders as consideration for
the shares issued; and
6. The shareholders represented in writing that they acquired the shares
for their own accounts.
We will continue to take the following action to ensure that a public
re-distribution of the shares does not take place:
1. a restrictive legend will be placed on each stock certificate issued in
connection with the founder transactions;
2. stop transfer order instructions will be placed on each stock
certificate issued in connection with the founder transactions; and
3. shareholders have been placed on notice that their securities will need
to be sold in compliance with Rule 144 of the Act, and may not be transferred
otherwise.
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MARKET FOR OUR COMMON STOCK
No public trading market exists for our securities and all of our
outstanding securities are restricted securities as defined in Rule 144. There
were thirty-three (33) holders of record of our common stock on June 30, 2004.
No dividends have been paid to date and our Board of Directors does not
anticipate paying dividends in the foreseeable future.
We have not issued any options or warrants to purchase, or securities
convertible into, our common equity. The 1,850,000 shares of our common stock
currently outstanding are restricted securities as that term is defined in the
Securities Act. Generally, Rule 144 provides that director, executive officer,
and persons or entities that they control or who control them may sell shares of
common stock in any three-month period in a limited amount. However, the SEC has
taken the position that resales cannot be made pursuant to Rule 144 for blank
check companies. Therefore, the 1,850,000 outstanding shares held by our
stockholders cannot be sold pursuant to Rule 144, but must be registered.
MARKET PRICE. Our common stock is not quoted at the present time, as there
is currently no market for our common stock.
Effective August 11, 1993, the Securities and Exchange Commission adopted
Rule 15g-9, which established the definition of a "penny stock," for purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. Should a market develop for our common stock, it is
likely that our share price would be under $5.00 per share. For any transaction
involving a penny stock, unless exempt, the rules require:
1. that a broker or dealer approve a person's account for transactions in
penny stocks; and
2. the broker or dealer receive from the investor a written agreement to
the transaction, setting forth the identity and quantity of the penny stock to
be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must:
1. obtain financial information and investment experience and objectives
of the person; and
2. make a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prepared by the Commission relating to the
penny stock market, which, in highlight form,:
1. sets forth the basis on which the broker or dealer made the suitability
determination; and
2. that the broker or dealer received a signed, written agreement from the
investor prior to the transaction. Disclosure also has to be made about the
risks of investing in penny stocks in both public offerings and in secondary
trading, and about commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and the rights
and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
PLAN OF DISTRIBUTION
The shares being offered by our selling stockholders or their respective
pledgees, donees, transferees or other successors in interest, may only be sold
in connection with the business combination transaction.
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The sale price to the public may be:
o the market price prevailing at the time of sale;
o a price related to such prevailing market price;
o at negotiated prices; or
o such other price as the selling stockholders determine from time to
time.
No selling stockholder has entered into any agreement with a prospective
underwriter and there is no assurance that any such agreement will be entered
into. If a selling stockholder enters into such an agreement or agreements, the
relevant details will be set forth in a supplement or revisions to this
prospectus.
We have agreed to pay all fees and expenses incident to the registration
of the shares, including certain fees and disbursements of counsel to the
selling shareholders. We have agreed to indemnify the selling shareholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
Conduct of the Offering
This Offering shall commence promptly upon effectiveness of the
registration statement. We will not use an underwriter or securities dealer. We
cannot provide assurances that we will complete a business combination,
significantly restricting our activities and plan of operations. We will not
compensate any person in connection with the offer and sale of the shares.
Our officers and directors (affiliate shareholders) shall distribute
prospectuses related to the offering. We estimate that they will distribute a
limited number of prospectuses to acquaintances, colleagues and sophisticated
and/or accredited investors. Provided additional officers are appointed, they
will be identified by way of an amendment to this filing.
Our officers and directors shall conduct the offering of the shares.
Although they are collectively an "associated person" as that term is defined in
Rule 3a4-1 under the 1934 Act, they will not be deemed to be a broker because:
o they will not be subject to a statutory disqualification as that
term is defined in Section 3(a)(39) of the Securities Exchange Act
at the time of the sale of our securities;
o they will not be compensated in connection with the sale of our
shares;
o they will not be an associated person of a broker or dealer at the
time of their participation in the sale of our securities; and
o they shall restrict their participation to the following activities
in order to fit within the scope of Rule 3a4-1:
(i) preparing written communications or delivering them through the
mails or other means that does not involve their oral solicitation of a
potential purchaser;
(ii) responding to inquiries of potential purchasers in
communications initiated by potential purchasers, provided however, that the
content of each response is limited to information contained in the registration
statement; or
(iii) performing ministerial and clerical work involved in effecting
any transaction.
We will also defer the detailed responsibilities and services of
negotiating and consummating a business combination transaction to our legal
counsel so that we may avoid having any of our officers and directors take part
in any processes that may outside the limits of the provisions set forth above.
43
Our officers will perform substantially all of the functions that would
ordinarily be performed by brokers in a more conventional securities offering,
but they will not seek registration as brokers because they will be acting as
principals, rather than intermediaries, in connection with the various
transactions set forth above.
If we subsequently conclude that an exemption from the broker registration
requirements of the 1934 Act is not available for a proposed transaction, we
note that several of our directors are in fact registered brokers and will
ensure that appropriate registrations are obtained before selling activities
begin. If we retain an underwriter, we will halt the distribution and amend our
registration statement accordingly.
Offering of Business Combination Shares
We have registered 15,000,000 shares that we may offer to issue in
connection with a business combination. These shares will only be used for
acquiring assets or exchanging stocks Subject to the limits described in this
prospectus, our officers will have broad discretion to structure a business
combination and establish terms for the issuance of such shares. All material
terms of a proposed business combination will be determined by arms-length
negotiations between our officers and the representatives of a potential target.
All material terms of a proposed business combination will be disclosed in our
reconfirmation offering prospectus. Any shares that are not issued in connection
with a business combination will be removed from registration in connection with
our reconfirmation offering.
Potential Transfer of Original Shareholder Shares
We have issued 1,850,000 shares that our shareholders may resell or
transfer to personal assigns, non-affiliates, advisors, participants in a
business combination and others, subject to the provisions of Rule 419.
Any proceeds from the resale of such shares may be substantial. Our
company will not have any interest in the proceeds from the resale of these
shares.
Our officers and directors have broad discretion to establish terms for
the resale or other transfer of their shares. They may also make bona fide gifts
or charitable contributions of their shares. There are no fixed numerical
limitations on such gifts or charitable contributions. All agreements for the
resale or other transfer of affiliate shares will be subject to the completion
of our reconfirmation offering. In connection with the resale of affiliate
shares, each of our officers and/or directors have agreed that they will not:
o Transfer affiliate shares to any of our current officers or their
respective affiliates;
o Transfer affiliate shares to family members of any current officer
who share that officer's residence;
o Transfer affiliate shares for value unless the purchaser is an
advisor to us or the sale is an integral element of the business
combination;
o Transfer affiliate shares at a price that represents a premium to
the per share value received by us in connection with the issuance
of business combination shares;
o Transfer affiliate shares to any person unless all material
transaction terms are described in our reconfirmation offering
prospectus;
o Permit any purchaser to pay for affiliate shares until the closing
of the business combination; or
o Complete any transfer of affiliate shares until the closing date of
the business combination.
If our officers and/or directors agree to sell or transfer affiliate
shares, they will promptly deposit stock certificates for those shares in the
Escrow Account where they will be held in trust for the benefit of the
recipients until we complete our reconfirmation offering and close a business
combination.
44
EXPERTS
The financial statements included in this prospectus have been audited by
Prescott Chatellier Fontaine & Wilkinson, LLP, independent public accountants,
as indicated in their report on such financial statements, and are included in
this prospectus in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
LEGAL MATTERS
We are not a party to any legal proceedings.
Certain legal matters, including the validity of the shares being issued,
will be passed upon for Contrarian by the law firm of Vial, Hamilton, Koch &
Knox, LLP.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a Form S-1 registration statement under the Securities Act
with the SEC. Our registration statement includes certain exhibits, schedules
and other materials that are not included in this prospectus. Although this
prospectus, which forms a part of the registration statement, contains all
material information included in the registration statement, other parts of the
registration statement have been omitted as permitted by rules and regulations
of the SEC. We refer you to the registration statement and its exhibits for
further information about our securities, this offering and us. The registration
statement and its exhibits can be inspected and copied at the SEC's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004. You may obtain information about the public
reference room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains a web site at that contains our Form S-1 and other reports, proxy and
information statements and information that we file electronically with the SEC.
(THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)
45
CONTRARIAN PUBLIC INVESTMENT I, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
PERIOD ENDED JUNE 30, 2004
Index to Financial Statements F-1
Report of Independent Auditor F-2
Balance Sheet F-3
Statement of Operations F-4
Statement of Changes in Stockholders' Equity F-5
Cash Flow Statement F-6
Notes to Financial Statements F-7 thru F-10
---------------------
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of CONTRARIAN PUBLIC INVESTMENT I, INC.
(A Development Stage Company)
We have audited the accompanying balance sheets of CONTRARIAN PUBLIC
INVESTMENT I, INC. (a development stage company) as of June 30, 2004 and the
related consolidated statements of operations and loss accumulated in the
development stage, changes in stockholders' equity and cash flows for the period
August 21, 2003 (date of inception) to June 30, 2004. 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 audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). These 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 consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides 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 CONTRARIAN
PUBLIC INVESTMENT I, INC. as of June 30, 2004, and the results of its operations
and its cash flows for the period August 21, 2003 (date of inception) to June
30, 2004 in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a development stage enterprise and has
focused its efforts on the raising of capital and acquiring existing businesses
through merger or acquisition. The Company has not yet commenced its principal
operations. Accordingly, the Company has no operating history, which raises
substantial doubt about its ability to continue as a going concern as discussed
in Note 7. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ PRESCOTT, CHATELLIER,FONTAINE & Wilkinson LLP
Providence, Rhode Island
Date: July 28, 2004
F-2
CONTRARIAN PUBLIC INVESTMENT I, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 2004
ASSETS
------
TOTAL ASSETS: $ 0
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
TOTAL LIABILITIES: $ 0
-------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 50,000,000 shares authorized
$.001 par value; 50,000,000 shares authorized;
Common stock, 1,850,000 issued and outstanding 1,850
Deficit accumulated during the development stage (1,850)
TOTAL STOCKHOLDERS' EQUITY 0
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 0
-------
SEE NOTES TO FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
F-3
CONTRARIAN PUBLIC INVESTMENT I, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS AND
LOSS ACCUMULATED IN THE DEVELOPMENT STAGE
PERIOD FROM AUGUST 21, 2003 (DATE OF INCEPTION) TO JUNE 30, 2004
August 21, 2003
(Date of Inception)
to June 30, 2004
Revenue $ 0
Expenses:
Professional fees 1,850
-------
Net loss for the period $(1,850)
Accumulated loss, beginning of the period 0
-------
Accumulated loss, end of the period $(1,850)
=======
Basic and fully diluted loss per common share (0.00)
SEE NOTES TO FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF THESE
STATEMENTS.
F-4
CONTRARIAN PUBLIC INVESTMENT I, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD FROM AUGUST 21, 2003 (DATE OF INCEPTION) TO JUNE 30, 2004
Deficit
Accumulated
Common Stock During the
Shares Amount Development Stage Total
--------- --------- --------- ---------
Issuance of common stock at
August 21, 2003
(Date of Inception)
Inception 1,850,000 $ 1,850 1,850
Net loss for the period $ (1,850) $ (1,850)
--------- --------- --------- ---------
BALANCE at June 30, 2004 1,850,000 $ 1,850 $ (1,850) 0
========= ========= ========= =========
SEE NOTES TO FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF THESE
STATEMENTS.
F-5
CONTRARIAN PUBLIC INVESTMENT I, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM AUGUST 21, 2003 (DATE OF INCEPTION) TO JUNE 30, 2004
August 21, 2003
(Date of Inception) to
June 30, 2004
---------------------
Cash flows from operating activities:
Net loss for the period $(1,850)
Adjustments to reconcile net loss to net cash used by
operating activities
Stock issued at inception for services 1, 850
Net cash used by operating activities -0-
-------
Net increase in cash -0-
Cash, beginning of period -0-
-------
Cash, end of period -0-
=======
SEE NOTES TO FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF THESE
STATEMENTS.
F-6
CONTRARIAN PUBLIC INVESTMENT I, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DEVELOPMENT STAGE OPERATIONS
Contrarian Public Investment I, INC. (a Development Stage Company)
(the Company) was incorporated on August 21, 2003, in the State of Colorado, for
the purpose of conducting a public distribution of securities (the Proposed
Distribution) and then effecting a merger, acquisition or other business
combination transaction (Business Combination) with an unidentified
privately-held company (a Target). The Company's business strategy is also
referred to as a "blind pool" because neither the management of the Company nor
the persons who acquire securities in the Proposed Distribution know what the
business of the Company will ultimately be. The Company is in the development
stage and has had no significant business activity to date.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation". The Company accounts for stock-based compensation based on the
fair value of the consideration received or the fair value of the stock issued,
whichever is more reliably measurable.
ESTIMATES
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
INCOME TAXES
The Company accounts for income taxes based upon the liability
method as required by FASB Statement No. 109, "Accounting from Income Taxes."
Under FASB Statement No. 109, deferred tax assets and liabilities are determined
based on differences between financial reporting and the tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July, 2002 the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. In November 2002, the FASB issued
Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
The Company has evaluated the impact of the adoption of these standards and does
not believe that their adoption will have an impact on its financial position
and results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation, and also requires
that disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more prominently
and in a tabular format. Certain of the disclosure modifications are required
for fiscal years ending after December 15, 2002. Our management has adopted this
standard effective January 1, 2003, and the adoption of this standard is not
expected to have a material impact on our consolidated results of operations or
financial position, since we continue to use the intrinsic-value method of
accounting for employee stock-based compensation as outlined in APB Opinion No.
25.
F-7
SFAS No. 149, Amendment of Statement 133 on "Derivative Instruments and
Hedging Activities," was issued in April 2003 and amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. We do not believe
that the adoption of SFAS No. 149 will have a material impact on our financial
position or results of operations.
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity," was issued in May 2003 and
requires issuers to classify as liabilities (or assets in some circumstances)
three classes of freestanding financial instruments that embody obligations for
the issuer. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. We believe the adoption of
SFAS No. 150 will have no immediate impact on our financial position or results
of operations.
The FASB issued Interpretation (FIN) No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, in November 2002 and FIN No. 46, Consolidation of
Variable Interest Entities, in January 2003. FIN No. 45 is applicable on a
prospective basis for initial recognition and measurement provisions to
guarantees issued after December 2002; however, disclosure requirements are
effective immediately. FIN No. 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee and expands the required disclosures to be
made by the guarantor about its obligation under certain guarantees that it has
issued. The adoption of FIN No. 45 did not have a material impact on our
financial position or results of operations. FIN No. 46 requires that a company
that controls another entity through interest other than voting interest should
consolidate such controlled entity in all cases for interim periods beginning
after June 15, 2003. We do not believe the adoption of FIN No. 46 will have a
material impact on our financial position or results of operations.
2. STOCKHOLDERS' EQUITY
On August 21, 2003, the Company issued one million, five hundred fourteen
thousand, one hundred ninety four (1,514,194) shares of its $.001 par value
common stock at inception in exchange for legal services paid by related
parties, valued at the fair market value of the legal services provided to the
Company in the amount of $1,514. The shares were issued pursuant to Section 4(2)
of the Securities Act of 1933 (the "Act") and are restricted securities within
the meaning of Rule 144 of the Act.
Also at inception, on August 21, 2003, the Company issued three hundred
thirty five thousand, eight hundred six (335,806) shares of its $.001 par value
common stock for professional services, valued at the fair market value of the
legal services provided to the Company in the amount of $336. The shares were
issued pursuant to Section 4(2) of the Securities Act of 1933 (the "Act") and
are restricted securities within the meaning of Rule 144 of the Act.
The Company's Board of Director's has the power to issue any or all of the
authorized but unissued Common Stock without stockholder approval. The Company
currently has no commitments to issue any shares of Common Stock other than the
gift shares. However, the Company will, in all likelihood, issue a substantial
number of additional shares in connection with a Business Combination. Since the
company expects to issue additional shares of Common Stock in connection with a
Business Combination, the ultimate ownership of the gift share donees is likely
to be less than 5% of the issued and outstanding common stock of the Company. It
is impossible to predict whether a business combination will ultimately result
in dilution to donees. If the target has a relatively weak balance sheet, a
Business Combination may result in significant dilution. If a target has a
relatively strong balance sheet, there may be no dilution.
The Company authorized 50,000,000 shares of Series A convertible preferred
stock with a par value of $.001 per share. Currently, there are no shares
outstanding. Each share of preferred stock can be converted into one share of
common stock and each share is entitled to one vote, voting together with the
holders of shares of common stock. There are no shares of preferred stock issued
or outstanding.
The Board of Directors of the Company is empowered, without stockholder
approval, to issue up to 50,000,000 shares of "blank check" preferred stock
F-8
3. EARNINGS PER SHARE
The Company accounts for earnings per share under Statement of Financial
Accounting Standards No. 128 "Earnings Per Share", which requires presentation
of basic earnings per share ("Basic EPS") and diluted earnings per share
("Diluted EPS"). The computation of Basic EPS is computed by dividing net income
by the weighted average number of outstanding common shares during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding
during the period.
The shares used in the computation are as follows:
June 30, 2004
-------------
Basic EPS................................... 1,850,000
Diluted EPS................................. 1,850,000
4. RELATED PARTY TRANSACTIONS
At inception a total of 1,850,000 shares of common stock were issued to
related parties in exchange for payment of legal services provided to Contrarian
Public Investment I, Inc. in the amount of $1,850.
5. INCOME TAXES
Due to the current period's operating loss, the Company has no provision
for income taxes for 2004.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's net
deferred tax asset balances are attributable to net operating loss
carryforwards. The deferred tax asset was calculated using a blended rate of 40%
for federal and state income taxes. At June 30, 2004, the Company's deferred tax
asset consisted of the following:
Deferred tax asset................................................$ 800
Valuation allowance .............................................. (800)
-------
Net deferred tax assets recognized on the
accompanying balance sheets......................................$ 0
=======
The components of the income tax provision (benefit) consisted of the following
for the year ended June 30, 2004.
Tentative tax provision .................. (800)
Change in valuation allowance ............ 800
-------
Net income tax provision ......... $ 0
=======
The Company has a net operating and economic loss carryforward of approximately
$1,850 available to offset future federal and state taxable income through 2024.
6. INCENTIVE STOCK PLAN
The Company's 2004 Incentive Stock Plan was adopted and approved in
connection with the organization of the Company. The common stock reserved for
issuance under the plan will be the lesser of 1,000,000 shares, or 10% of the
total number of shares outstanding after the closing of a Business Combination.
There were no stock options or other incentive awards outstanding at
June 30, 2004.
F-9
The class of persons eligible to participate in the plan includes all
full-time and part-time employees of the Company, provided that the eligible
participants do not include employees who are eligible to receive awards under
the terms of any employment contract or specialty plan adopted by us in the
future. The plan permits the grant of a variety of incentive awards including
(i) non-qualified stock options, (ii) incentive stock options, (iii) shares of
restricted stock, (iv) shares of phantom stock, and (v) stock bonuses. In
addition, the plan allows us to grant cash bonuses that will be payable when an
employee is required to recognize income for federal income tax purposes because
of the vesting of Shares of restricted stock or the grant of a stock bonus.
7. GOING CONCERN
The financial statements of the Company have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
Accordingly, the financial statements do not include any adjustments that might
be necessary should the Company be unable to continue in existence.
The Company has been in the development stage since its inception in 2003
to present and has incurred losses from its inception through June 30, 2004
amounting to $1,850. The Company's ability to meet its future obligations is
dependent upon its ability to raise capital and close on a potential business
combination as discussed in Note 1. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The shareholders believe
that the necessary capital and the future acquisition of business will take
place and will provide for the Company to continue as a going concern.
F-10
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Model Business Corporation Act of the State of Colorado ("CMBCA")
provides, in general, that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), because the person is or was a director or officer of
the corporation. Such indemnity may be against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding, if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation and if, with
respect to any criminal action or proceeding, the person did not have reasonable
cause to believe the person's conduct was unlawful.
The CMBCA provides, in general, that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor because the person is or was a
director or officer of the corporation, against any expenses (including
attorneys' fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation.
The CMBCA provides, in general, that a corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a director
or officer of the corporation against any liability asserted against the person
in any such capacity, or arising out of the person's status as such, whether or
not the corporation would have the power to indemnify the person against such
liability under the provisions of the law.
The Company's Articles of Incorporation (incorporated by reference herein)
provides for indemnification of directors, officers and other persons as
follows:
To the fullest extent permitted by the CMBCA as the same now exists or may
hereafter be amended, the Corporation shall indemnify, and advance expenses to,
its directors and officers and any person who is or was serving at the request
of the Corporation as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
Corporation, by action of its board of directors, may provide indemnification or
advance expenses to employees and agents of the Corporation or other persons
only on such terms and conditions and to the extent determined by the board of
directors in its sole and absolute discretion.
The indemnification and advancement of expenses shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
45
The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corp oration as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability.
The indemnification and advancement of expenses, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such officer or director. The indemnification and advancement
of expenses that may have been provided to an employee or agent of the
Corporation by action of the board of directors, shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be an employee or agent of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such a person, after the time such person
has ceased to be an employee or agent of the Corporation, only on such terms and
conditions and to the extent determined by the board of directors in its sole
discretion.
THE COMPANY'S BY-LAWS (INCORPORATED BY REFERENCE HEREIN) PROVIDES THAT:
Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, because he
is or was a director or an officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the CMBCA, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide before such amendment), against all
expense, liability and loss (including attorney's fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith; provided, however, that,
except as provided in the section "Right of Indemnitees to Bring Suit" with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such Indemnitee in connection with a proceeding (or part
thereof) initiated by such Indemnitee only if such proceeding (or part thereof)
was authorized by the board of directors of the Corporation.
RIGHT TO ADVANCEMENT OF EXPENSES.
The right to indemnification conferred in the section "Right to
Indemnification" of this Article shall include the right to be paid by the
Corporation the expenses (including attorney's fees) incurred in defending any
such proceeding in advance of its final disposition; provided, however, that, if
the CMBCA requires, an advancement of expenses incurred by an Indemnitee in his
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such Indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such Indemnitee is
not entitled to be indemnified for such expenses under this section or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in this section and the section "Right to Indemnification" of this
Article shall be contract rights and such rights shall continue as to an
Indemnitee who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the Indemnitee's heirs, executors and administrators.
Any repeal or modification of any of the provisions of this Article shall not
adversely affect any right or protection of an Indemnitee existing at the time
of such repeal or modification.
RIGHT OF INDEMNITEES TO BRING SUIT.
If a claim under the section "Right to Indemnification" or "Right to
Advancement of Expenses" of this Article is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty (20) days, the Indemnitee may
at any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the Indemnitee shall also be entitled to be paid
the expenses of prosecuting or defending such suit. In (1) any suit brought by
the Indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the Indemnitee to enforce a right to an advancement of expenses)
it shall be a defense that, and (2) in any suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the Indemnitee has not met any applicable standard for indemnification set
forth in the CMBCA.
46
Neither the failure of the Corporation (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the Indemnitee is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct set forth in the CMBCA, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article or otherwise shall be on the Corporation.
NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification and to the advancement of expenses conferred
in this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, the Corporation's Articles of
Incorporation as amended from time to time, these By-Laws, any agreement, any
vote of stockholders or disinterested directors or otherwise.
INSURANCE.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
CMBCA.
INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the
board of directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation. The
directors and officers of our company are covered by a policy of liability
insurance.
47
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, which will be paid by
us in connection with the issuance and distribution of the securities being
registered. With the exception of the registration fees, all amounts shown are
estimates.
Registration fee $ 2
Blue sky fees and expenses (including legal and filing fees) 0
Printing expenses (other than stock certificates) 0
Legal fees and expenses (other than blue sky) 15,000
Accounting fees and expenses 10,000
Transfer Agent and Registrar fees and expenses 0
Miscellaneous expenses 10,000
-------
-------
Total $35,002
=======
UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR
The following information sets forth all securities of the Company sold by
it since inception, which securities were not registered under the Securities
Act of 1933, as amended. There were no underwriting discounts and commissions
paid in connection with the issuance of any shares of common stock prior to the
date of this Registration Statement.
All of the sales of securities prior to the date hereof were made in
reliance upon Sections 4(2) and 4(6) of the Securities Act, which provides
exemption for transactions not involving a public offering. All shares were
issued at the time of organization of the Company and a total of 1,850,000
common stock shares have been issued. Each certificate evidencing such shares of
Common Stock, will bear an appropriate restrictive legend and "stop transfer"
orders are maintained on our stock transfer records there against. None of these
sales involved participation by an underwriter or a broker-dealer.
EXHIBITS
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
x 3.1 Articles of Incorporation
x 3.2 Bylaws
x 4.1 Specimen Stock Certificate
x 4.2 Form Escrow Account Agreement between the Registrant
and escrow agent
x 5.1 Opinion of the Law Offices of Vial, Hamilton,
Koch & Knox, LLP, regarding the legality of the
securities being offered hereby.
x 10.1 2004 Stock Plan of Contrarian Public Investment I, Inc.
x 23.1 Consent of Counsel (contained in Exhibit 5.1)
x 23.2 Consent of Prescott Chatellier Fontaine & Wilkinson, LLP
----------------------------
x filed herewith
48
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit of
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497 (h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chattanooga, State of
Tennessee, on the 18th day of August, 2004.
Contrarian Public Investment I, Inc.
/s/Douglas A. Dyer
------------------------------------
President and Chief Financial Officer
Each of the officers and directors of Contrarian Public Investment I, Inc.
whose signature appears below hereby constitutes and appoints Douglas A. Dyer,
as his true and lawful attorney-in-fact and agent, with full power of
substitution, with the power to act alone, to sign and execute on behalf of the
undersigned any amendment or amendments to this registration statement on Form
S-1, and to perform any acts necessary to be done in order to file such
amendment, and each of the undersigned does hereby ratify and confirm all that
such attorney-in-fact and agent, or his substitutes, shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
49
Signature Title Date
/s/ Douglas A. Dyer President and Director August 18, 2004
------------------------ (Chief Operating
and Financial Officer)
/s/ John D. Lane Director August 18, 2004
------------------------
/s/ Jack Eversull Secretary and Director August 18, 2004
------------------------
50