As filed with the Securities and Exchange Commission on July 13, 2005
Registration No. 333_____________
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ARGYLE SECURITY ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6770 20-3101079
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
200 Concord Plaza, Suite 700
San Antonio, Texas 78216
(210) 829-8779
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Bob Marbut, Chairman and Co-Chief Executive Officer
200 Concord Plaza, Suite 700
San Antonio, Texas 78216
(210) 829-8779
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Kenneth S. Rose, Esq. Bob Marbut Mitchell S. Nussbaum, Esq
Morse Zelnick Rose & Lander, LLP Argyle Security Acquisition Loeb & Loeb LLP
405 Park Avenue, Suite 1401 Corporation 345 Park Avenue
New York, New York 10022 P.O. Box 6305 New York, New York 10154
(212) 838-5030 San Antonio, TX 78209 (212) 407-4159
(212) 838-9190--Facsimile (210) 829-8779 (212) 407-4990--Facsimile
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
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
of 1933 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
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. |_|
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. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |X|
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 this 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 Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
CALCULATION OF REGISTRATION FEE CHART
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Title of each Class of Security Amount being Proposed Maximum Proposed Maximum Amount of
Offering Price Aggregate
being registered Registered Per Security (1) Offering Price(1) Registration Fee
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Units, each consisting of one
share of Common Stock, $.0001 par
value, and one Warrant (2) 14,375,000 units $8.00 $115,000,000 $13,535.50
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Shares of Common Stock included
as part of the units (2) 14,375,000 Shares -- -- --(3)
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Warrants included as part of the
units (2) 14,375,000 Warrants -- -- --(3)
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Shares of Common Stock underlying
the Warrants included in the
units (4) 14,375,000 Shares $6.00 $86,250,000 $10,151.63
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Underwriter's Unit Purchase Option 1 $100 $100 --(3)
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Units underlying the
Underwriter's Unit Purchase
Option ("Underwriter's Units") (4) 625,000 units $8.80 $5,500,000 $647.35
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Shares of Common Stock included
as part of the Underwriter's
Units (4) 625,000 Shares -- -- --(3)
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Warrants included as part of the
Underwriter's Units (4) 625,000 Warrants -- -- --(3)
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Shares of Common Stock underlying
the Warrants included in the
Underwriter's Units (4) 625,000 Shares $6.00 $3,750,000 $441.38
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
Total $210,500,100 $24,775.86
- ----------------------------------- ----------------------- ------------------- ------------------ -------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 1,875,000 units and 1,875,000 shares of Common Stock and
1,875,000 Warrants underlying such units which may be issued on exercise
of a 45-day option granted to the underwriter to cover over-allotments, if
any.
(3) No fee pursuant to Rule 457(g).
(4) Pursuant to Rule 416, there are also being registered such indeterminable
additional securities as may be issued as a result of the anti-dilution
provisions contained in the Warrants, the underwriter's Unit Purchase
Option and the Warrants included in the underwriter's Units.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Preliminary Prospectus
Subject to Completion, July 13, 2005
PROSPECTUS
$100,000,000
Argyle Security Acquisition Corporation
12,500,000 units
Argyle Security Acquisition Corporation is a blank check company recently
formed for the purpose of acquiring, through merger, capital stock exchange,
asset acquisition or other similar business combination, one or more
unidentified operating businesses. We intend to focus on identifying one or more
prospective target businesses in the security industry. We do not have any
specific merger, capital stock exchange, asset acquisition or other similar
business combination under consideration and have not contacted any prospective
target business or had any discussion with respect to such a transaction.
This is an initial public offering of our securities. Each unit will be
offered at a price of $8.00 per unit and will consist of:
o One share of our common stock; and
o One warrant.
Each warrant entitles the holder to purchase one share of our common stock
at a price of $6.00. Each warrant will become exercisable on the later of our
completion of a business combination or ____, 2006 [one year from the date of
this prospectus], and will expire on ____, 2010 [five years from the date of
this prospectus], or earlier upon redemption.
We have granted Rodman & Renshaw, LLC, the underwriter, a 45-day option to
purchase up to 1,875,000 additional units solely to cover over-allotments, if
any (over and above the 12,500,000 units referred to above). The over-allotment
will be used only to cover the net syndicate short position resulting from the
initial distribution. We have also agreed to sell to the underwriter, for $100,
as additional compensation, an option to purchase up to a total of 625,000 units
at a per-unit offering price of $8.80. The units issuable upon exercise of this
option are identical to those offered by this prospectus. The purchase option
and its underlying securities have been registered under the registration
statement of which this prospectus forms a part.
There is presently no public market for our units, common stock or
warrants. We anticipate that the units will be quoted on the OTC Bulletin Board
under the symbol ____ on or promptly after the date of this prospectus. The
common stock and warrants comprising the units will trade separately within the
first 20 trading days following the earlier to occur of the expiration of the
underwriter's over-allotment option or its exercise in full, provided we have
filed with the Securities and Exchange Commission a Current Report on Form 8-K,
which includes an audited balance sheet reflecting our receipt of the proceeds
of this offering, including any proceeds we receive from the exercise of the
over-allotment option, if such option is exercised prior to the filing of the
Form 8-K. Once the securities comprising the units begin separate trading, the
common stock and warrants will be traded on the OTC Bulletin Board under the
symbols ____ and ____, respectively. We cannot assure you, however, that any of
such securities will continue to be quoted on the OTC Bulletin Board.
Investing in our securities involves a high degree of risk. See "Risk
Factors" beginning on page 7 of this prospectus for a discussion of information
that should be considered in connection with an investment in our securities.
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.
- --------------------------------------------- --------------------- --------------------- ---------------------
Underwriting
Public offering discount and Proceeds, before
price commissions expenses, to us
- --------------------------------------------- --------------------- --------------------- ---------------------
Per unit $ 8.00 $ 0.48 $ 7.52
- --------------------------------------------- --------------------- --------------------- ---------------------
Total $ 100,000,000 $ 6,000,000 $ 94,000,000
- --------------------------------------------- --------------------- --------------------- ---------------------
Of the net proceeds we receive from this offering, $90,625,000 ($7.25 per
unit) will be deposited into a trust account at JPMorgan Chase NY Bank
maintained by American Stock Transfer & Trust Company acting as trustee.
We are offering the units for sale on a firm-commitment basis. Rodman &
Renshaw, LLC, acting as the underwriter, expects to deliver our securities to
investors in the offering on or about _____, 2005.
Rodman & Renshaw, LLC
, 2005
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................................... 1
Summary Financial Data....................................................... 6
Risk Factors................................................................. 7
Use of Proceeds.............................................................. 21
Dilution .................................................................... 24
Capitalization............................................................... 25
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 26
Proposed Business............................................................ 28
Management................................................................... 37
Principal Stockholders....................................................... 40
Certain Transactions......................................................... 42
Description of Securities.................................................... 43
Underwriting................................................................. 48
Legal Matters................................................................ 52
Experts .................................................................... 52
Where You Can Find Additional Information.................................... 52
Index to Financial Statements................................................F-1
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer is not
permitted.
PROSPECTUS SUMMARY
This summary highlights certain information appearing elsewhere in this
prospectus. For a more complete understanding of this offering, you should read
the entire prospectus carefully, including the risk factors and the financial
statements. Unless otherwise stated in this prospectus, references to "we," "us"
or "our company" refer to Argyle Security Acquisition Corporation. Unless we
tell you otherwise, the information in this prospectus assumes that the
underwriter will not exercise its over-allotment option and that the existing
stockholders will not exercise their options.
We are a blank check company organized under the laws of the State of
Delaware on June 22, 2005. We were formed to acquire, through merger, capital
stock exchange, asset acquisition or other similar business combination, one or
more businesses in the security industry. To date, our efforts have been limited
to organizational activities. We do not have any specific business combination
under consideration, nor have we had any discussions with any target business
regarding a possible business combination.
We intend to leverage the industry experience of our executive officers by
focusing our efforts on identifying prospective target businesses in the
security industry. We may target businesses operating in one or more of the
following segments of the security industry:
o The development, sale or distribution of software solutions for
security systems;
o The development, manufacture, sale or distribution of components to
be used in security systems;
o Consultation on the design of security systems;
o The development, manufacture, construction, assembly, sale or
distribution of security or surveillance systems; and
o The development, manufacture, sale, distribution or assembly of
electronic devices that restrict, deny or grant access to areas
using technology such as biometrics and other coded means.
We have not conducted any research with respect to identifying the
likelihood of consummating a business combination or the specific number and
characteristics of the potential target businesses within any segment of the
security industry, or the likelihood or probability of success of any proposed
business combination. In addition, we have not compiled a database of entities
that are suitable target businesses. We cannot assure you that we will be able
to locate a target business meeting the criteria described above in these
segments or that we will be able to engage in a business combination with a
target business on favorable terms.
While we may seek to effect business combinations with more than one
target business, our initial business combination must be with a target business
or businesses with a collective fair market value of at least equal to 80% of
our net assets at the time of such acquisition. As used in this prospectus, a
"target business" shall include an operating business in the security industry
and a "business combination" shall mean the acquisition by us of one or more
target businesses. We have not, nor has anyone on our behalf, either directly or
indirectly, contacted any potential target businesses or their representatives
or had any discussions with respect to effecting any potential business
combination with our company. Moreover, we have not engaged or retained any
agent or other representative to identify or locate any suitable acquisition
candidate for us. Neither we nor any of our agents or affiliates has yet taken
any measure, directly or indirectly, to locate a target business.
Our offices are located at Argyle Security Acquisition Corporation, 200
Concord Plaza, Suite 700, San Antonio, Texas 78216, and our telephone number is
(210) 829-8779.
The Offering
Securities offered: 12,500,000 units, at $8.00 per unit, each unit
consisting of:
o One share of common stock; and
o One warrant.
The units will begin trading on or promptly after
the date of this prospectus. The common stock and
warrants will trade separately within the first 20
trading days following the earlier to occur of the
expiration of the underwriter's over-allotment
option or its exercise in full; provided, however,
in no event will Rodman & Renshaw LLC allow separate
trading of the common stock and warrants until we
file an audited balance sheet reflecting our receipt
of the gross proceeds of this offering. We will file
a Current Report on Form 8-K, including an audited
balance sheet, upon the consummation of this
offering, which is anticipated to take place three
business days from the date of this prospectus. The
audited balance sheet will include those proceeds we
receive from the exercise of the over-allotment
option if the over-allotment option is exercised
prior to the filing of the Form 8-K. If the
over-allotment option is exercised following the
initial filing of such Form 8-K, an amended Form 8-K
will be filed to provide updated financial
information to reflect the exercise of the
over-allotment option.
Common stock:
Number outstanding before this offering 3,125,000 shares
Number to be outstanding after this 15,625,000 shares, or 17,968,750 shares if the
offering underwriter's over-allotment option is exercised in
full and theexisting stockholders' options to
purchase up to 468,750 shares are exercised in full
Warrants:
Number outstanding before this offering 0
Number to be outstanding after this 12,500,000 warrants
offering
Exercisability Each warrant is exercisable for one share of common
stock and may be exercised on a cashless basis.
Exercise price $6.00
Exercise period The warrants will become exercisable on the later
of:
o The completion of a business combination with a target
business, or
o |_|, 2006 [one year from the date of this prospectus].
2
The warrants will expire at 5:00 p.m., New York City
time, on [__], 2010 [five years from the date of
this prospectus] or earlier upon redemption.
Redemption We may redeem the outstanding warrants (including
any warrants issued upon exercise of Rodman &
Renshaw, LLC's unit purchase option):
o In whole and not in part,
o At a price of $.01 per warrant at any time after the
warrants become exercisable,
o Upon a minimum of 30 days' prior written notice of
redemption, and
o If, and only if, the last sales price of our common
stock equals or exceeds $11.50 per share for any
20 trading days within a 30 trading day period
ending three business days before we send the notice
of redemption.
We have established these criteria to provide
warrant holders with a reasonable premium to the
initial warrant exercise price as well as a
reasonable cushion against a negative market
reaction, if any, to our redemption call. If the
foregoing conditions are satisfied and we call the
warrants for redemption, each warrant holder shall
then be entitled to exercise his, her or its warrant
prior to the date scheduled for redemption, by
payment of the exercise price or on a "cashless"
basis in lieu of paying the cash exercise price as
described in this prospectus. However, there can be
no assurance that the price of the common stock will
exceed the call trigger price or the warrant
exercise price after the redemption call is made.
Proposed OTC Bulletin Board symbols for our:
Units |_|
Common stock |_|
Warrants |_|
Offering proceeds to be held in trust: $90,625,000 of the proceeds of this offering ($7.25
per unit) will be placed in a trust account at
JPMorgan Chase NY Bank maintained by American Stock
Transfer & Trust Company, pursuant to an agreement
to be entered into on the date of this prospectus.
These proceeds will not be released until the
earlier of the completion of a business combination
or our liquidation. Therefore, unless and until a
business combination is consummated, the proceeds
held in the trust account will not be available for
our use for any expenses related to this offering or
expenses which we may incur related to the
investigation and selection of a target business and
the negotiation of an agreement to acquire a target
business. These expenses may be paid prior to a
business combination only from the net proceeds of
this offering not held in the trust account
(initially, approximately $2,825,000 after the
payment of the expenses relating to this offering).
3
It is possible that we could use a portion of the
funds not in the trust account to make a deposit,
down payment or fund a "no-shop" provision with
respect to a particular proposed business
combination. In the event we were ultimately
required to forfeit such funds (whether as a result
of our breach of the agreement relating to such
payment or otherwise), we may not have a sufficient
amount of working capital available outside of the
trust account to pay expenses related to finding a
suitable business combination without securing
additional financing. If we were unable to secure
additional financing, we would most likely fail to
consummate a business combination in the allotted
time and would be forced to liquidate.
Prior to completion of a business combination, there
will be no fees, reimbursements or cash payments
made to our existing stockholders and/or officers
and directors other than:
o Repayment of $125,000 of loans with 4% interest made
by two of our existing stockholders to cover offering expenses;
o Reimbursement for any expenses incident to the offering
and finding a suitable business combination.
None of the warrants may be exercised until after
the consummation of a business combination and,
thus, after the proceeds of the trust account have
been disbursed. Accordingly, the warrant exercise
price will be paid directly to us and not placed in
the trust account.
Stockholders must approve business We will seek stockholder approval before we effect
combination: any business combination, even if the nature of the
acquisition would not ordinarily require stockholder
approval under applicable state law. In connection
with the vote required for any business combination,
all of our existing stockholders, including all of
our officers and directors, have agreed to vote the
shares of common stock owned by them immediately
before this offering in accordance with the majority
of the shares of common stock voted by the public
stockholders. The term "public stockholders" means
the holders of common stock sold as part of the
units in this offering or in the aftermarket,
including any existing stockholders to the extent
that they purchase or acquire such shares. We will
proceed with a business combination only if a
majority of the shares of common stock voted by the
public stockholders are voted in favor of the
business combination and public stockholders owning
less than 20% of the shares sold in this offering
exercise their redemption rights described below.
Voting against the business combination alone will
not result in redemption of a stockholder's shares
for a pro rata share of the trust account. Such
stockholder must have also exercised his, her or its
redemption rights described below.
Redemption rights for stockholders Public stockholders voting against a business combination
voting to reject a business combination: will be entitled to redeem their stock for a pro rata share
of the trust account, including any interest earned
on their portion of the trust account, if the
business combination is approved and completed.
Public stockholders who redeem their stock for a
share of the trust account will continue to have the
right to exercise any warrants they may hold.
4
Liquidation if no business combination: We will dissolve and promptly distribute only to our
public stockholders the amount in the trust account
(including any accrued interest) plus any remaining
net assets if we do not effect a business
combination within 18 months after consummation of
this offering (or within 24 months from the
consummation of this offering if a letter of intent,
agreement in principle or definitive agreement has
been executed within 18 months after consummation of
this offering and the business combination has not
yet been consummated within such 18-month period).
Our existing stockholders have agreed to waive their
respective rights to participate in any liquidation
distribution occurring upon our failure to
consummate a business combination, but only with
respect to those shares of common stock acquired by
them prior to this offering. We will pay the costs
of liquidation and dissolution from our remaining
assets outside of the trust account.
Escrow of existing stockholders' shares: On the date of this prospectus, all of our existing
stockholders, including all of our officers and
directors, will place the shares they owned before
this offering into an escrow account maintained by
American Stock Transfer & Trust Company, acting as
escrow agent. Subject to certain limited exceptions,
such as transfers to family members and trusts for
estate planning purposes and upon death, these
shares will not be transferable during the escrow
period and will not be released from escrow until
_________, 2008 [three years from the date of this
prospectus] unless we were to consummate a
transaction after the consummation of the initial
business combination which results in all of the
stockholders of the combined entity having the right
to exchange their shares of common stock for cash,
securities or other property.
Risks
In making your decision on whether or not to invest in our securities, you
should take into account not only the backgrounds of our management team, but
also the special risks we face as a blank check company, as well as the fact
that this offering is not being conducted in compliance with Rule 419
promulgated under the Securities Act of 1933, as amended, and, therefore, you
will not be entitled to protections normally afforded to investors in Rule 419
blank check offerings. Additionally, our existing stockholders' initial equity
investment is below that which is required under the guidelines of the North
American Securities Administrators Association, Inc. You should carefully
consider these and the other risks set forth in the section entitled "Risk
Factors" beginning on page 7 of this prospectus.
5
SUMMARY FINANCIAL DATA
The following table summarizes the relevant financial data for our
business and should be read with our financial statements, which are included in
this prospectus. We have not had any significant operations to date, so only
balance sheet data is presented.
July 11, 2005
--------------------------
Actual As Adjusted
----------- ------------
Balance Sheet Data:
Working capital (deficiency) (72,971) 93,473,615
Total assets 150,000 93,473,615
Total liabilities 126,385 --
Value of common stock which may be redeemed
for cash
($7.25 per share) -- 18,115,938
Stockholders' equity 23,615 75,357,677
The working capital excludes $96,586 of costs related to this offering
which were paid prior to July 11, 2005. These deferred offering costs have been
recorded as a long-term asset and are reclassified against stockholders' equity
in the "As Adjusted" column.
The as-adjusted information gives effect to the sale of the units we are
offering, including the application of the related gross proceeds and the
payment of the estimated remaining costs from such sale.
The working capital and total assets amounts include the $90,625,000 being
held in the trust account, which will be available to us only upon the
consummation of a business combination within the time period described in this
prospectus. If a business combination is not so consummated, we will be
dissolved, and the proceeds held in the trust account will be distributed solely
to our public stockholders.
We will not proceed with a business combination if public stockholders
owning 20% or more of the shares sold in this offering vote against the business
combination and exercise their redemption rights. Accordingly, we may effect a
business combination if public stockholders owning up to approximately 19.99% of
the shares sold in this offering exercise their redemption rights. If this were
to occur, we would be required to redeem for cash up to approximately 19.99% of
the 12,500,000 shares of common stock sold in this offering, or 2,498,750 shares
of common stock, at an initial per-share redemption price of $7.25,
without taking into account interest earned on the trust account. The actual
per-share redemption price will be equal to:
o the amount in the trust account, including all accrued interest, as
of two business days prior to the proposed consummation of the
business combination,
o divided by the number of shares of common stock sold in the
offering.
6
RISK FACTORS
An investment in our securities involves a high degree of risk. You should
consider carefully all of the material risks described below, together with the
other information contained in this prospectus before making a decision to
invest in our units.
Risks associated with our business
We are a development stage company with no operating history and, accordingly,
you will not have any basis on which to evaluate our ability to achieve our
business objective.
We are a recently incorporated development stage company with no operating
results to date. Therefore, our ability to begin operations is dependent upon
obtaining financing through the public offering of our securities. Since we do
not have an operating history, you will have no basis upon which to evaluate our
ability to achieve our business objective, which is to acquire one or more
operating businesses. We have not conducted any discussions and we have no
plans, arrangements or understandings with any prospective acquisition
candidates. We will not generate any revenues until, at the earliest, after the
consummation of a business combination.
If we are forced to liquidate before a business combination, our public
stockholders will receive less than $8.00 per share upon distribution of the
trust account and our warrants will expire worthless.
If we are unable to complete a business combination and are forced to
liquidate our assets, the per-share liquidation price will be less than $8.00
because of the expenses of this offering, our general and administrative
expenses and the anticipated costs of seeking a business combination.
Furthermore, there will be no distribution with respect to our outstanding
warrants and, accordingly, the warrants will expire worthless if we liquidate
before the completion of a business combination. For a more complete discussion
of the effects on our stockholders if we are unable to complete a business
combination, see the section below entitled "Effecting a business
combination--Liquidation if no business combination."
You will not be entitled to protections normally afforded to investors of blank
check companies.
Since the net proceeds of this offering are intended to be used to
complete a business combination with one or more target businesses that have not
been identified, we may be deemed to be a "blank check" company under the United
States securities laws. However, since we will have net tangible assets in
excess of $5,000,000 upon the successful consummation of this offering and will
file a Current Report on Form 8-K with the SEC upon consummation of this
offering, including an audited balance sheet demonstrating this fact, we are
exempt from rules promulgated by the SEC to protect investors of blank check
companies, such as Rule 419. Accordingly, investors will not be afforded the
benefits or protections of those rules. Because we are not subject to Rule 419,
our units will be immediately tradable, and we have a longer period of time to
complete a business combination in certain circumstances. For a more detailed
comparison of our offering to offerings under Rule 419, see the section entitled
"Comparison to offerings of blank check companies" below.
If third parties bring claims against us, the proceeds held in trust could be
reduced and the per-share liquidation price received by stockholders will be
less than $8.00 per share.
Our placing of funds in trust may not protect those funds from third party
claims against us. Although we will seek to have vendors, prospective target
businesses or other entities we hire or do business with execute agreements with
us waiving any right, title, interest or claim of any kind in or to any monies
held in the trust account for the benefit of our public stockholders, there is
no guarantee that they will execute such agreements or, even if they execute
such agreements, that they would be prevented from bringing claims against the
trust account. If any third party refused to execute an agreement waiving such
claims to the monies held in the trust account, we would perform an analysis of
the alternatives available to us and evaluate if such engagement would be in the
best interest of our stockholders. Examples of possible instances where we may
engage a third party that has refused to execute a waiver include the engagement
of a third party consultant whose particular expertise or skills are believed by
management to be significantly superior to those of other consultants that would
agree to execute a waiver or in cases where management is unable to find a
7
provider of required services willing to provide the waiver. In addition, there
is no guarantee that such entities will agree to waive any claims they may have
in the future as a result of, or arising out of, any negotiations, contracts or
agreements with us and will not seek recourse against the trust account for any
reason. Accordingly, the proceeds held in trust could be subject to claims which
could take priority over the claims of our public stockholders and the per-share
liquidation price could be less than $7.25, plus interest, due to claims of such
creditors. If we are unable to complete a business combination and are forced to
liquidate, our officers and directors, severally, in accordance with their
respective beneficial ownership interests in us, will be personally liable under
certain circumstances to ensure that the proceeds in the trust account are not
reduced by the claims of various vendors or other entities that are owed money
by us for services rendered or contracted for or products sold to us. However,
we cannot assure you that they will be able to satisfy those obligations.
Further, they will not be personally liable to pay debts and obligations to
prospective target businesses, if a business combination is not consummated with
such prospective target businesses, or for claims from any entity other than
vendors. Accordingly, the proceeds held in trust could be subject to claims
which could take priority over the claims of our public stockholders and the
per-share liquidation price could be less than approximately $7.25, plus
interest, due to claims of such creditors.
Since we have not currently selected any target business with which to complete
a business combination, investors in this offering are unable to currently
ascertain the merits or risks of the target business' operations.
Since we have not yet identified a prospective target business, investors
in this offering have no current basis to evaluate the possible merits or risks
of the target business' operations. To the extent we complete a business
combination with a financially unstable company or an entity in its development
stage, we may be affected by numerous risks inherent in the business operations
of those entities. Although our management will endeavor to evaluate the risks
inherent in a particular target business, we cannot assure you that we will
properly ascertain or assess all of the significant risk factors. We also cannot
assure you that an investment in our units will not ultimately prove to be less
favorable to investors in this offering than a direct investment, if an
opportunity were available, in a target business. For a more complete discussion
of our selection of a target business, see the section below entitled "Effecting
a business combination--We have not identified a target business."
Because there are numerous companies with business plans similar to ours seeking
to effectuate business combinations, it may be more difficult for us to do so.
Since August 2003, based upon publicly available information,
approximately 20 similarly structured blank check companies have completed
initial public offerings, and approximately 25 others have filed registration
statements for initial public offerings. Of these companies, only one company
has consummated a business combination, while three other companies have
announced they have entered into a definitive agreement for a business
combination, but have not consummated such business combination. Accordingly,
there are approximately 20 blank check companies with more than $650 million in
trust, and there may be at least 25 additional blank check companies with more
than $1.9 billion in trust, that are seeking to carry out a business plan
similar to our business plan. While, like us, some of those companies have
specific industries in which they must complete a business combination, a number
of them may consummate a business combination in any industry they choose. We
may, therefore, be subject to competition from these and other companies seeking
to consummate a business plan similar to ours, which, as a result, would
increase demand for privately-held companies to combine with companies
structured similarly to ours. Further, the fact that only one of such companies
has completed a business combination, and only three of such companies have
entered into a definitive agreement for a business combination, may be an
indication that there are only a limited number of attractive target businesses
available to such entities, or that many privately-held target businesses may
not be inclined to enter into business combinations with publicly held blank
check companies like us. We cannot assure you that we will be able to
successfully compete for an attractive business combination. Additionally,
because of this competition, we cannot assure you that we will be able to
effectuate a business combination within the required time periods. If we are
unable to find a suitable target business within such time periods, we will be
forced to liquidate.
8
We may issue shares of our capital stock or debt securities to complete a
business combination, which would reduce the equity interest of our stockholders
and likely cause a change in control of our ownership.
Our certificate of incorporation authorizes the issuance of up to
89,000,000 shares of common stock, par value $.0001 per share, and 1,000,000
shares of preferred stock, par value $.0001 per share. Immediately after this
offering (assuming no exercise of the underwriter's over-allotment option or the
existing stockholders' options), there will be 59,625,000 authorized but
unissued shares of our common stock available for issuance (after appropriate
reservation for the issuance of shares upon full exercise of our outstanding
warrants and the purchase option granted to Rodman & Renshaw, LLC, the
underwriter) and all of the 1,000,000 shares of preferred stock available for
issuance. Although we have no commitments as of the date of this offering to
issue our securities, we may issue a substantial number of additional shares of
our common stock or preferred stock, or a combination of common and preferred
stock, to complete a business combination. The issuance of additional shares of
our common stock or any number of shares of our preferred stock:
o May significantly reduce the equity interest of investors in this
offering;
o Will likely cause a change in control if a substantial number of our
shares of common stock are issued, which may affect, among other
things, our ability to use our net operating loss carry forwards, if
any, and most likely also result in the resignation or removal of
our present officers and directors; and
o May adversely affect prevailing market prices for our common stock.
Similarly, if we issue debt securities, it could result in:
o Default and foreclosure on our assets if our operating cash flow
after a business combination were insufficient to pay our debt
obligations;
o Acceleration of our obligations to repay the indebtedness even if we
have made all principal and interest payments when due if the debt
security contained covenants that required the maintenance of
certain financial ratios or reserves and any such covenant were
breached without a waiver or renegotiation of that covenant;
o Our immediate payment of all principal and accrued interest, if any,
if the debt security was payable on demand; and
o Our inability to obtain additional financing, if necessary, if the
debt security contained covenants restricting our ability to obtain
additional financing while such security was outstanding.
For a more complete discussion of the possible structure of a business
combination, see the section below entitled "Effecting a business
combination--Selection of a target business and structuring of a business
combination."
Our existing stockholders, including our officers and directors, control a
substantial interest in us and, thus, may influence certain actions requiring a
stockholder vote.
Upon consummation of our offering, our existing stockholders (including
all of our officers and directors) will collectively own 20% of our issued and
outstanding shares of common stock (assuming they do not purchase units in this
offering). None of our existing stockholders, executive officers and directors
has indicated to us that he or it intends to purchase units in the offering. Any
shares of common stock acquired by existing stockholders in the aftermarket will
be considered as part of the holding of the public stockholders and will have
the same rights as other public stockholders, including voting and redemption
rights with respect to a potential business combination. Accordingly, they may
vote on a proposed business combination with respect to shares acquired in the
aftermarket any way they so choose, although it is management's intention to
vote in favor of any business combination that our officers, directors and
advisors present to the stockholders. We cannot assure you that our existing
stockholders will not have considerable influence upon such a vote.
9
Because of management's agreement with Rodman & Renshaw, LLC to make open
market purchases of the warrants during the 45 days after separate trading of
the common stock and warrants begins, our existing stockholders may obtain an
even larger ownership block of our common stock upon exercise of the warrants
which could permit them to effectively influence the outcome of all matters
requiring approval by our stockholders at such time, including the election of
directors and approval of significant corporate transactions, following the
consummation of our initial business combination.
Our board of directors is divided into three classes, each of which will
generally serve for a term of three years with only one class of directors being
elected in each year. It is unlikely that there will be an annual meeting of
stockholders to elect new directors prior to the consummation of a business
combination, in which case all of the current directors will continue in office
at least until the consummation of the business combination. If there is an
annual meeting, as a consequence of our "staggered" board of directors, only a
minority of the board of directors will be considered for election, and our
existing stockholders, because of their ownership position, will have
considerable influence regarding the outcome. Accordingly, our existing
stockholders will continue to exert control at least until the consummation of a
business combination. In addition, our existing stockholders and their
affiliates and relatives are not prohibited from purchasing units in this
offering or shares in the aftermarket. If they do, we cannot assure you that our
existing stockholders will not have considerable influence upon the vote in
connection with a business combination.
Our ability to successfully effect a business combination and to be successful
afterward will be totally dependent upon the efforts of our key personnel, some
of whom may join us following a business combination and whom we would have only
a limited ability to evaluate. It is also possible that one or more of our
current officers and directors will resign upon the consummation of a business
combination.
Our ability to successfully effect a business combination will be totally
dependent upon the efforts of our key personnel. The future role of our key
personnel following a business combination, however, cannot presently be fully
ascertained. Although we expect our executive officers to remain associated with
us following a business combination, we may employ other personnel following the
business combination. Moreover, our current management will only be able to
remain with the combined company after the consummation of a business
combination if they are able to negotiate and agree to mutually acceptable
employment terms as part of any such combination, which terms would be disclosed
to stockholders in any proxy statement relating to such transaction. If we were
to acquire a target business in an all-cash transaction, it would be more likely
that current members of management would remain with the combined company if
they chose to do so. If a business combination were structured as a merger
whereby the stockholders of the target business were to control the combined
company following a business combination, it may be less likely that our current
management would remain with the combined company, unless it had been negotiated
as part of the transaction via the acquisition agreement, an employment
agreement or other arrangement. In making the determination as to whether
current management should remain with us following the business combination,
management will analyze the experience and skill set of the target business'
management and negotiate as part of the business combination that certain
members of current management remain, if it is believed to be in the best
interests of the combined company post-business combination. While we intend to
closely scrutinize any additional individuals we engage after a business
combination, we cannot assure you that our assessment of these individuals will
prove to be correct. These individuals may be unfamiliar with the requirements
of operating a public company, as well as United States securities laws, which
could cause us to have to expend time and resources helping them become familiar
with such laws. This could be expensive and time-consuming and could lead to
various regulatory issues which may adversely affect our operations.
Our officers and directors may allocate their time to other businesses, thereby
causing conflicts of interest in their determination as to how much time to
devote to our affairs. This could have a negative impact on our ability to
consummate a business combination.
Our officers and directors are not required to commit their full time to
our affairs, which may result in a conflict of interest in allocating their time
between our operations and other businesses. We do not intend to have any
full-time employees prior to the consummation of a business combination. Our
executive officers are engaged in several other business endeavors and are not
obligated to contribute any specific number of hours per week to our affairs.
While it is our executive officers' intention to devote substantial business
time to identifying potential target businesses and consummating a business
combination, their other business affairs could require them to devote more
substantial amounts of time to such affairs, thereby limiting their ability to
devote time to our affairs. This could have a negative impact on our ability to
consummate a business combination. For a complete discussion of the potential
conflicts of interest that you should be aware of, see the section below
entitled "Management--Conflicts of Interest." We cannot assure you that these
conflicts will be resolved in our favor.
10
Our officers and directors are now, and may in the future become, affiliated
with entities engaged in business activities similar to those intended to be
conducted by us and, accordingly, may have conflicts of interest in determining
to which entity a particular business opportunity should be presented.
Our officers and directors are, and may in the future become affiliated
with entities, including other "blank check" companies, engaged in business
activities similar to those intended to be conducted by us. Additionally, our
officers and directors may become aware of business opportunities which may be
appropriate for presentation to us as well as the other entities with which they
are or may be affiliated. Further, certain of our officers and directors are
currently involved in other businesses that are similar to the business
activities that we intend to conduct following a business combination. Due to
these existing affiliations, they may have fiduciary obligations to present
potential business opportunities to those entities prior to presenting them to
us which could cause additional conflicts of interest. Accordingly, they may
have conflicts of interest in determining to which entity a particular business
opportunity should be presented. For a complete discussion of our management's
business affiliations and the potential conflicts of interest that you should be
aware of, see the sections below entitled "Management--Directors and Executive
Officers" and "Management--Conflicts of Interest." We cannot assure you that
these conflicts will be resolved in our favor.
All of our officers and directors own shares of our common stock which will not
participate in liquidation distributions and, therefore, our officers and
directors may have a conflict of interest in determining whether or not a
particular target business is appropriate for a business combination.
All of our officers and directors own shares of our common stock that were
issued prior to this offering, but have waived their right to receive
distributions with respect to those shares upon our liquidation upon our failure
to complete a business combination. Additionally, our officers and directors
have collectively agreed with the underwriter that they and certain of their
affiliates or designees will purchase warrants in the open market following this
offering. The shares and warrants owned by our officers and directors and their
affiliates will be worthless if we do not consummate a business combination. The
personal and financial interests of our officers and directors may influence
their motivation in identifying and selecting a target business and completing a
business combination in a timely manner. Consequently, our directors' and
officers' discretion in identifying and selecting a suitable target business may
result in a conflict of interest when determining whether the terms, conditions
and timing of a particular business combination are appropriate and in our
stockholders' best interest.
Our existing stockholders will not receive reimbursement for any out-of-pocket
expenses incurred by them to the extent that such expenses exceed the available
proceeds not deposited in the trust account, unless the business combination is
consummated and, therefore, they may have a conflict of interest in determining
whether or not a particular target business is appropriate for a business
combination and in the public stockholders' best interest.
Our existing stockholders, including all of our officers and directors,
will not receive reimbursement for any out-of-pocket expenses incurred by them
to the extent that such expenses exceed the available proceeds not deposited in
the trust account unless the business combination is consummated. The financial
interest of our officers and directors could influence their motivation in
selecting a target business and, thus, there may be a conflict of interest when
determining whether or not a particular business combination is in the
stockholders' best interest.
Our initial business combination may be with a single target business, which may
cause us to be solely dependent on a single business and a limited number of
services.
11
The net proceeds from this offering will provide us with approximately
$93,450,000, which we may use to complete a business combination. Our initial
business combination must be with a business or businesses with a collective
fair market value of at least 80% of our net assets at the time of such
acquisition. We may not be able to acquire more than one target business because
of various factors, including possible complex accounting issues, which would
include generating pro forma financial statements reflecting the operations of
several target businesses as if they had been combined, and numerous logistical
issues, which could include attempting to coordinate the timing of negotiations,
proxy statement disclosure and closings with multiple target businesses. In
addition, we would also be exposed to the risk that conditions to closings with
respect to the acquisition of one or more of the target businesses would not be
satisfied, bringing the fair market value of the initial business combination
below the required fair market value of 80% of our net assets threshold.
Accordingly, while it is possible that we may attempt to effect our initial
business combination with more than one target business, we may be more inclined
to choose a single target business if deciding between one target business
meeting such 80% threshold and comparable multiple target business candidates
collectively meeting the 80% threshold. Consequently, it is possible that,
unless the purchase price consists substantially of our equity, we will have the
ability to complete only the initial business combination with the proceeds of
this offering. Accordingly, the prospects for our success may be:
o Solely dependent upon the performance of a single business, or
o Dependent upon the development or market acceptance of a single or
limited number of products or services.
In this case, we may not be able to diversify our operations or benefit from the
possible spreading of risks or offsetting of losses, unlike other entities which
may have the resources to complete several business combinations in different
industries or different areas of a single industry.
Because of our limited resources and the significant competition for business
combination opportunities, we may not be able to consummate an attractive
business combination.
We expect to encounter intense competition from other entities having a
business objective similar to ours, including venture capital funds, leveraged
buyout funds and operating businesses competing for acquisitions. Many of these
entities are well established and have extensive experience in identifying and
effecting business combinations directly or through affiliates. Many of these
competitors possess greater technical, human and other resources than we do, and
our financial resources will be relatively limited when contrasted with those of
many of these competitors. While we believe that there are numerous potential
target businesses that we could acquire with the net proceeds of this offering,
our ability to compete in acquiring certain sizable target businesses will be
limited by our available financial resources. This inherent competitive
limitation gives others an advantage in pursuing the acquisition of certain
target businesses. In addition, we may not have enough cash available from funds
outside of the trust account to make deposits or down-payments or fund a
"no-shop" provision in connection with a particular business combination which
may cause us to be at a competitive disadvantage in pursuing the acquisition of
target businesses. Further, the obligation we have to seek stockholder approval
of a business combination may delay the consummation of a transaction, and our
obligation to redeem for cash the shares of common stock held by public
stockholders in certain instances may reduce the resources available for a
business combination. Additionally, our outstanding warrants, and the future
dilution they potentially represent, may not be viewed favorably by certain
target businesses. Any of these obligations may place us at a competitive
disadvantage in successfully negotiating a business combination.
We may be unable to obtain additional financing, if required, to complete a
business combination or to fund the operations and growth of the target
business, which could compel us to restructure the transaction or abandon a
particular business combination.
Although we believe that the net proceeds of this offering will be
sufficient to allow us to consummate a business combination, as we have not yet
identified any prospective target business, we cannot ascertain the capital
requirements for any particular transaction. If the net proceeds of this
offering prove to be insufficient, either because of the size of the business
combination or the depletion of the available net proceeds in search of a target
business, or because we become obligated to redeem for cash a significant number
of shares from dissenting stockholders, we will be required to seek additional
financing. We cannot assure you that such financing would be available on
acceptable terms, if at all. To the extent that additional financing proves to
be unavailable when needed to consummate a particular business combination, we
would be compelled to restructure the transaction or abandon that particular
business combination and seek an alternative target business candidate. In
addition, it is possible that we could use a portion of the funds not in the
12
trust account to make a deposit, down payment or fund a "no-shop" provision with
respect to a particular proposed business combination, although we do not have
any current intention to do so. In the event that we were ultimately required to
forfeit such funds (whether as a result of our breach of the agreement relating
to such payment or otherwise), we may not have a sufficient amount of working
capital available outside of the trust account to conduct due diligence and pay
other expenses related to finding a suitable business combination without
securing additional financing. If we were unable to secure additional financing,
we would most likely fail to consummate a business combination in the allotted
time and would be forced to liquidate. In addition, if we consummate a business
combination, we may require additional financing to fund the operations or
growth of the target business. The failure to secure additional financing could
have a material adverse effect on the continued development or growth of the
target business. None of our officers, directors or stockholders is required to
provide any financing to us in connection with or after a business combination.
Risks associated with the security industry
It is difficult to forecast the timing of revenues in the security industry, and
it is likely that any business we acquire will have significant variation in
revenues from period to period.
It is difficult to forecast the timing of revenues in the security
industry because the development period for a customized system or solution may
be lengthy, customers often need a significant amount of time to evaluate
products before purchasing them and, in the case of governmental customers,
sales are dependent on budgetary and other bureaucratic processes. The period
between initial customer contact and a purchase by a customer varies greatly,
and could be a year or more. During the evaluation period, customers may defer
or scale down proposed orders of products or systems for various reasons,
including: (i) changes in budgets and purchasing priorities; (ii) a reduced need
to upgrade existing systems; (iii) deferrals in anticipation of enhancements or
new products; (iv) introduction of products by competitors; and (v) lower prices
offered by competitors.
The security industry is very competitive, and we may be unable to compete
successfully with respect to product or service offerings, pricing, sales, and
marketing capability, or customer service.
The security industry is very competitive. The greater financial resources
of many of our competitors allow them to have a much broader range of system
solutions than we will be able to offer, to have much greater sales and
marketing presence and channels to market than we will be able to achieve, and
to be able to cross-subsidize various of their offerings so as to allow them to
be much more aggressive in pricing to the market. This could affect us in a
variety of ways, including:
o Our not being able to maintain or improve revenues and gross margins
with a target business's cost structure and, therefore, its
profitability could be materially and adversely affected.
o Our being required to reduce costs, which could be detrimental to
the future development of any business we acquired (for example, a
reduction in research and development expenditures).
Because of the intensely competitive markets in which a company we acquire
will operate, competitors may simply execute their business plans better than we
do. It is likely that the competitors of any business we acquire will have, in
relation to it, longer operating histories, larger customer bases, longer
standing relationships with customers, greater name recognition and
significantly greater financial, technical, marketing, customer service, public
relations, distribution and other resources.
If we are unable to respond to the technological, legal, financial or other
changes in the security industry and changes in our customers' requirements and
preferences, our business, financial condition and results of operations could
be materially adversely affected.
If we are unable, for technological, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions, customer needs or
regulatory requirements, we could lose customers. Changes in customer
requirements and preferences, the introduction of new products and services
embodying new technologies, and the emergence of new industry standards and
practices could render the existing products of the company we acquire obsolete.
Our success will depend, in part, on our ability to:
13
o Enhance products and services;
o Anticipate changing customer requirements by designing, developing,
and launching new products and services that address the
increasingly sophisticated and varied needs of customers;
o Respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis; and
o Respond to changing regulatory requirements in a cost effective and
timely manner.
The development of additional products and services involves significant
technological and business risks and requires substantial expenditures and lead
time. If we fail to introduce products with new technologies in a timely manner,
or adapt our products to these new technologies, our business, financial
condition and results of operations will be adversely affected. We cannot assure
you that, even if we are able to introduce new products or adapt our products to
new technologies, that our products would gain acceptance among our customers.
There may be defects in the products of the business that we acquire that have
yet to be discovered.
The products of any business we acquire will involve technology that
performs critical functions to highly demanding standards. We may introduce a
product to the market, or release new versions of an existing product that
contain undetected defects or errors. We may not discover such defects, errors
or other operational problems until after a product has been released and used
by customers. Significant costs may be incurred to correct undetected defects,
errors or other operational problems in the products, including product
liability claims. In addition, defects or errors in the products may result in
questions regarding the integrity of the products, which could cause adverse
publicity and impair their market acceptance, resulting in lost future sales.
The market in certain segments of the security industry is still not fully
developed, and, if we acquire a business operating in one of those segments, and
if the market for our products does not expand as we expect after acquiring a
business, our growth and/or profits will be adversely affected.
The market in certain segments of the security industry is still emerging.
If we acquire a business in one of these segments, our growth will be dependent
on, among other things, the size and pace at which the markets for our products
and/or services develop. If the market for our products or services decreases,
remains constant or grows slower than we anticipate, we will not be able to
generate the growth and/or profits that stockholders expect.
Intellectual property infringement claims are not uncommon in the security
industry and, after acquiring a business, we may be involved in costly
litigation that adversely affects our profitability.
Any allegation of infringement of intellectual property against us could
be time consuming and expensive to defend or resolve, result in substantial
diversion of management resources, cause product shipment delays, or force us to
enter into royalty or license agreements rather than dispute the merits of such
an allegation. If holders of intellectual property rights initiate legal
proceedings against us, we may be forced into protracted and costly litigation.
We may not be successful in defending such litigation and we may not be able to
procure any required royalty or license agreements on acceptable terms, or at
all.
If a business we acquire does business internationally, we may face labor,
political, currency and other risks.
Any business we acquire may involve the sale of products internationally.
International sales may be impacted by, among other things:
o Regulatory limitations imposed by foreign governments and insurance
industry-sponsored bodies (similar to Underwriter's Laboratories in
the United States),
o Price increases due to fluctuations in currency exchange rates,
14
o Political, military and terrorist risks,
o Disruptions or delays in shipments caused by customs brokers or
government agencies,
o Unexpected changes in regulatory requirements, tariffs, customs,
duties and other trade barriers, and
o Potentially adverse tax consequences resulting from changes in tax
laws.
We cannot assure you that one or more of the factors described above will
not have a material adverse effect on our business, financial condition and
results of operations.
If a business (or businesses) we acquire exports products to foreign countries,
and we are unable to maintain required licenses, our business could be adversely
affected.
We may be required to obtain export licenses to the extent we develop or
manufacture products in certain countries. We may not be successful in obtaining
or maintaining the licenses and other authorizations required to export our
products from applicable governmental authorities. Our failure to receive or
maintain any required export license or authorization could hinder our ability
to sell our products and could materially and adversely affect our business,
financial condition and results of operations.
Government contracts generally contain rights and remedies which could reduce
the value of such contracts, or result in losses for a business we acquire.
Companies involved in the security industry often sell products to
federal, state or local governments, as well as to foreign governments.
Government contracts often contain provisions that give the governments that are
party to those contracts certain rights and remedies not typically found in
private commercial contracts, including provisions enabling the governments to:
(i) terminate or cancel existing contracts for convenience; (ii) in the case of
the U.S. government, suspend the contracting company from doing business with a
foreign government or prevent the company from selling its products in certain
countries; (iii) audit and object to the company's contract-related costs and
expenses, including allocated indirect costs; and (iv) change specific terms and
conditions in the company's contracts, including changes that would reduce the
value of its contracts. In addition, many jurisdictions have laws and
regulations that deem government contracts in those jurisdictions to include
these types of provisions, even if the contract itself does not contain them. If
a government terminates a contract with a target business for convenience, we
may not be able to recover our incurred or committed costs, any settlement
expenses or profit on work completed prior to the termination. If a government
terminates a contract for default, we may not recover those amounts and, in
addition, we may be liable for any costs incurred by a government in procuring
undelivered items and services from another source. Further, an agency within a
government may share information regarding our termination with other government
agencies. As a result, our on-going or prospective relationships with such other
government agencies could be impaired.
If a target business has government contracts, we could be required to comply
with various regulations relating to government contracts, which could prevent
us from operating in the most economically efficient manner.
A target business with which we seek a business combination may be
required to comply with domestic and foreign laws and regulations relating to
the formation, administration and performance of government contracts. These
laws and regulations affect how such an entity does business with government
agencies in various countries and may impose added costs on its business. For
example, in the United States, we could be subject to the Federal Acquisition
Regulations, which comprehensively regulate the formation, administration and
performance of federal government contracts, and to the Truth in Negotiations
Act, which requires certification and disclosure of cost and pricing data in
connection with contract negotiations. We could be subject to similar
regulations in foreign countries as well.
15
If a business we acquire engaged in improper or illegal activities, we may be
subject to certain penalties and administrative actions which could impair our
ability to obtain new contracts.
If a government review or investigation uncovers improper or illegal
activities by a business we acquire, we may be subject to civil and criminal
penalties and administrative sanctions, including termination of contracts,
forfeiture of profits, suspension of payments, fines and suspension or debarment
from doing business with government agencies, any of which could materially and
adversely affect our business, financial condition and results of operations. In
addition, a government may change its procurement practices or adopt new
contracting rules and regulations that could be costly to satisfy or that could
impair our ability to obtain new contracts.
Governments are increasingly regulating the security industry, and such
additional regulations could lead to increased operating costs for any business
we acquire.
As the communications industry continues to evolve, governments may
increasingly regulate products that monitor and record voice, video and data
transmissions over public communications networks. For example, certain products
sold in the United States to law enforcement agencies which interface with a
variety of wireline, wireless and Internet protocol networks, must comply with
the technical standards established by the Federal Communications Commission
pursuant to CALEA, and certain products sold in Europe must comply with the
technical standards established by ETSI. The adoption of new laws or regulations
governing the use of products or changes made to existing laws or regulations
could cause a decline in the use of our products and could result in increased
expenses for the business we acquire, particularly if we are required to modify
or redesign our products to accommodate these new or changing laws or
regulations.
Risks associated with this offering
Our existing stockholders paid an aggregate of $25,000, or approximately $0.008
per share, for their shares and, accordingly, you will experience immediate and
substantial dilution from the purchase of our common stock.
The difference between the public offering price per share of our common
stock and the pro forma net tangible book value per share of our common stock
after this offering constitutes the dilution to you and the other investors in
this offering. The fact that our existing stockholders acquired their shares of
common stock at a nominal price has significantly contributed to this dilution.
Assuming the offering is completed, you and the other new investors will incur
an immediate and substantial dilution of approximately 28.25% or $2.26 per share
(the difference between the pro forma net tangible book value per share of
$5.74, and the initial offering price of $8.00 per unit).
Our outstanding warrants may have an adverse effect on the market price of our
common stock and make it more difficult to effect a business combination.
In connection with this offering, as part of the units, we will be issuing
warrants to purchase 12,500,000 shares of our common stock. We will also issue
an option to purchase 625,000 units to the underwriter which, if exercised,
would result in the issuance of an additional 625,000 warrants. To the extent we
issue shares of common stock to effect a business combination, the potential for
the issuance of substantial numbers of additional shares upon exercise of these
warrants could make us a less attractive acquisition vehicle in the eyes of a
target business as such securities, when exercised, will increase the number of
issued and outstanding shares of our common stock and reduce the value of the
shares issued to complete the business combination. Accordingly, our warrants
and options may make it more difficult to effectuate a business combination or
increase the cost of the target business. Additionally, the sale, or even the
possibility of sale, of the shares underlying the warrants could have an adverse
effect on the market price for our securities or on our ability to obtain future
public financing. If and to the extent these warrants and options are exercised,
you may experience dilution to your holdings.
Our executive officers' obligation to purchase warrants in the open market may
support the market price of the warrants during the 45-day period following
separation of the unit components and, accordingly, the market price of the
warrants may substantially decrease upon the termination of the obligation.
16
Our existing officers have agreed to purchase an aggregate of up to
1,200,000 warrants at market prices not to exceed $1.20 per warrant within the
45-day period commencing on the date separate trading of the warrants commences.
Such warrant purchases made may serve to support the market price of the
warrants during such 45-day period at a price above that which would prevail in
the absence of such purchases by our existing stockholders. The termination of
the support provided by the purchases may materially adversely affect the
trading price of the warrants.
If our existing stockholders exercise their registration rights, it may have an
adverse effect on the market price of our common stock, and the existence of
these rights may make it more difficult to effect a business combination.
Our existing stockholders are entitled to demand that we register the
resale of their shares of common stock at any time after the date on which their
shares are released from escrow, which, except in limited circumstances, will
not be before three years from the date of this prospectus. If our existing
stockholders exercise their registration rights with respect to all of their
shares of common stock, then there would be an additional 3,125,000, shares of
common stock eligible for trading in the public market (3,593,750 shares if the
existing stockholders' options are exercised in full). The presence of this
additional number of shares of common stock eligible for trading in the public
market may have an adverse effect on the market price of our common stock. In
addition, the existence of these rights may make it more difficult to effectuate
a business combination, or increase the cost of the target business, since the
stockholders of the target business may be discouraged from entering into a
business combination with us or request a higher price for their securities as a
result of these registration rights, and the potential future effect their
exercise may have on the trading market for our common stock.
If you are not an institutional investor, you may purchase our securities in
this offering only if you reside within certain states and may engage in resale
transactions only in those states and a limited number of other jurisdictions.
We have applied to register our securities, or have obtained or will seek
to obtain an exemption from registration, in Colorado, Delaware, the District of
Columbia, Florida, Hawaii, Illinois, Indiana, Maryland, New Jersey, New York,
Rhode Island and Texas. If you are not an "institutional investor," you must be
a resident of these jurisdictions in order to purchase our securities in the
offering. Institutional Investors in every state, except Idaho and Oregon, may
purchase units in this offering pursuant to exemptions provided to such entities
under the Blue Sky laws of various states. The definition of an "institutional
investor" varies from state to state, but generally includes financial
institutions, broker-dealers, banks, insurance companies and other qualified
entities. In order to prevent resale transactions in violation of states'
securities laws, you may engage in resale transactions only in these states and
in a limited number of other jurisdictions in which an applicable exemption is
available or a Blue Sky application has been filed and accepted. This
restriction on resale may limit your ability to resell the securities purchased
in this offering and may impact the price of our securities. For a more complete
discussion of the Blue Sky state securities laws and registrations affecting
this offering, please see the section entitled "State Blue Sky Information"
below.
There is currently no market for our securities, and a market for our securities
may not develop, which could adversely affect the liquidity and price of our
securities.
There is no market for our securities. Therefore, stockholders should be
aware that they cannot benefit from information about prior market history as to
their decisions to invest, which means they are at further risk if they invest.
In addition, the price of the securities, after the offering, can vary due to
general economic conditions and forecasts, our general business condition and
the release of our financial reports.
Furthermore, an active trading market for our securities may never develop or,
if developed, it may not be maintained. Investors may be unable to sell their
securities unless a market can be established or maintained.
17
We intend to have our securities quoted on the OTC Bulletin Board, which will
limit the liquidity and price of our securities more than if our securities were
quoted or listed on the Nasdaq Stock Market or a national exchange.
We expect our securities to be traded in the over-the-counter market. It
is anticipated that they will be quoted on the OTC Bulletin Board, a
NASD-sponsored and operated inter-dealer automated quotation system for equity
securities not included in the Nasdaq Stock Market. Quotation of our securities
on the OTC Bulletin Board will limit the liquidity and price of our securities
more than if our securities were quoted or listed on The Nasdaq Stock Market or
a national exchange. We cannot assure you, however, that such securities will be
approved for quotation or continue to be authorized for quotation by the OTC
Bulletin Board or any other market in the future.
If we are deemed to be an investment company, we may be required to institute
burdensome compliance requirements, and our activities may be restricted, which
may make it difficult for us to complete a business combination.
If we are deemed to be an investment company under the Investment Company
Act of 1940, our activities may be restricted, including:
o Restrictions on the nature of our investments; and
o Restrictions on the issuance of securities,
which may make it difficult for us to complete a business combination.
In addition, we may have imposed upon us burdensome requirements,
including:
o Registration as an investment company;
o Adoption of a specific form of corporate structure; and
o Reporting, record keeping, voting, proxy and disclosure requirements
and other rules and regulations.
We do not believe that our anticipated principal activities will subject us to
the Investment Company Act of 1940. To this end, the proceeds held in trust may
only be invested by the trustee in Treasury Bills issued by the United States
with maturity dates of 180 days or less or in money market funds meeting certain
conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940.
By restricting the investment of the proceeds to these instruments, we intend to
meet the requirements for the exemption provided in Rule 3a-1 promulgated under
the Investment Company Act of 1940. If we were deemed to be subject to the act,
compliance with these additional regulatory burdens would require additional
expense that we have not allotted for.
Because we may be deemed to have no "independent" directors, actions taken and
expenses incurred by our officers and directors on our behalf will generally not
be subject to "independent" review.
Each of our directors owns shares of our common stock and, although no
salary or other compensation will be paid to them for services rendered prior to
or in connection with a business combination, they may receive reimbursement for
out-of-pocket expenses, incurred by them in connection with activities on our
behalf, such as identifying potential target businesses and performing due
diligence on suitable business combinations. There is no limit on the amount of
these out-of-pocket expenses, and there will be no review of the reasonableness
of the expenses by anyone other than our board of directors, which includes
persons who may seek reimbursement, or a court of competent jurisdiction, if
such reimbursement is challenged. To the extent that such expenses exceed the
available proceeds not deposited in the trust account, such out-of-pocket
expenses would not be reimbursed by us unless we consummate a business
combination. Because none of our directors may be deemed "independent," we will
generally not have the benefit of independent directors examining the propriety
of expenses incurred on our behalf and subject to reimbursement. Although we
believe that all actions taken by our directors on our behalf will be in our
best interests, we cannot assure you that this will be the case. If actions are
taken, or expenses are incurred that are not in our best interests, it could
have a material adverse effect on our business and operations, and the price of
our stock held by the public stockholders.
18
Because our existing stockholders' initial equity investment was only $25,000,
our offering may be disallowed by state administrators that follow the North
American Securities Administrators Association, Inc. Statement of Policy on
development stage companies.
Pursuant to the Statement of Policy Regarding Promoter's Equity Investment
promulgated by The North American Securities Administrators Association, Inc.,
an international organization devoted to investor protection, any state
administrator may disallow an offering of a development stage company if the
initial equity investment by a company's promoters does not equal a certain
percentage of the aggregate public offering price. Our existing stockholders'
initial investment of $25,000 is less than the required $2,610,000 minimum
amount pursuant to this policy. Accordingly, a state administrator would have
the discretion to disallow our offering if it wanted to. We cannot assure you
that our offering would not be disallowed pursuant to this policy. Additionally,
the initial equity investment made by the existing stockholders may not
adequately protect investors.
Our directors may not be considered "independent" under the policies of the
North American Securities Administrators Association, Inc.
Under the policies of the North American Securities Administrators
Association, Inc., an international organization devoted to investor protection,
because each of our directors owns shares of our securities and may receive
reimbursement for out-of-pocket expenses incurred by him in connection with
activities on our behalf, such as identifying potential target businesses and
performing due diligence on suitable business combinations, state securities
administrators could take the position that such individuals are not
"independent." If this were the case, they would take the position that we would
not have the benefit of independent directors examining the propriety of
expenses incurred on our behalf and subject to reimbursement. Additionally,
there is no limit on the amount of out-of-pocket expenses that could be
incurred, and there will be no review of the reasonableness of the expenses by
anyone other than our board of directors, which would include persons who may
seek reimbursement, or a court of competent jurisdiction if such reimbursement
is challenged. Although we believe that all actions taken by our directors on
our behalf will be in our best interests, whether or not they are deemed to be
"independent," we cannot assure you that this will actually be the case. If
actions are taken, or expenses are incurred that are actually not in our best
interests, it could have a material adverse effect on our business and
operations, and the price of our stock held by the public stockholders.
Because one or more of our officers resides outside of the United States and,
after the consummation of a business combination, a signficant portion of our
assets may be located outside of the United States, it may be difficult for
investors to enforce their legal rights against such individuals or such assets.
One or more of our directors resides outside of the United States and,
after the consummation of a business combination, a signficant portion of our
assets may be located outside of the United States. As a result, it may not be
possible for investors in the United States to enforce their legal rights, to
effect service of process upon our directors or officers, or to enforce
judgments of United States courts predicated upon civil liabilities and criminal
penalties of our directors and officers under Federal securities laws.
Because we may acquire a company located outside of the United States, we may be
subject to various risks of the foreign jurisdiction in which we ultimately
operate.
If we acquire a company that has sales or operations outside the United
States, we could be exposed to risks that negatively impact our future sales or
profitability following a business combination. Additionally, if the acquired
company is in a developing country or a country that does not have a fully
market-oriented economy, our operations may not develop in the same way, or at
the same rate, as might be expected in the United States, or another country
with an economy similar to the market-oriented economies of member countries
which are members of the Organization for Economic Cooperation and Development,
or the OECD. The OECD is an international organization helping governments
through the economic, social and governance challenges of a globalized economy.
The additional risks we may be exposed to if one or more of the target
businesses we acquire is located outside of the United States include, but are
not limited to:
19
o Tariffs and trade barriers;
o Regulations related to customs and import/export matters;
o Regulations related to product functionality;
o Tax issues, such as tax law changes and variations in tax laws as
compared to the United States;
o Government instability;
o An inadequate banking system;
o Currency fluctuations;
o Foreign exchange controls;
o Restrictions on the repatriation of profits or payment of dividends;
o Crime, strikes, riots, civil disturbances, terrorist attacks, wars;
o Nationalization or expropriation of property;
o Law enforcement authorities and courts that are weak or
inexperienced in commercial matters;
o Rapid inflation;
o Local labor law changes and mandated increases in social welfare
costs; and
o Deterioration of political relations with the United States.
20
USE OF PROCEEDS
We estimate that the net proceeds of this offering will be as set forth in
the following table:
Without
Over-Allotment Over-Allotment
Option Option Exercised
------------ ------------
Gross proceeds $100,000,000 $115,000,000
Offering expenses (1)
Underwriting discount (6% of gross proceeds) 6,000,000 6,900,000
Legal fees and expenses (including blue sky services and
expenses) 275,000 275,000
Miscellaneous expenses 163,674 163,674
Printing and engraving expenses 40,000 40,000
Accounting fees and expenses 25,000 25,000
SEC registration fee 24,776 24,776
NASD registration fee 21,550 21,550
------------ ------------
Net proceeds
Held in trust 90,625,000 104,725,000
Not held in trust 2,825,000 2,825,000
------------ ------------
Total net proceeds $ 93,450,000 $107,550,000
============ ============
Use of net proceeds not held in trust
Legal, accounting and other expenses attendant to the due diligence
investigations, structuring and negotiation of a business
combination and the preparation and filing of the related proxy
statement $ 400,000 14.16%
Payment for office space and administrative and support services
(approximately $10,000 per month for up to two years) 240,000 8.50%
Due diligence of prospective target businesses 500,000 17.70%
Legal and accounting fees relating to SEC reporting obligations 150,000 5.31%
Working capital to cover miscellaneous expenses (including potential
deposits, down payments or funding of a "no-shop" provision with
respect to a particular business combination), D&O insurance and
reserves 1,535,000 54.33%
------------ ------------
Total $ 2,825,000 100.00%
============ ============
(1) A portion of the offering expenses, including the SEC registration fee and
NASD filing fee and approximately $57,500 of legal and accounting fees,
have been paid from the funds we received from our executive officers
described below. These funds will be repaid out of the proceeds of this
offering not being placed in trust upon consummation of this offering.
$90,625,000, or $104,725,000 if the underwriter's over-allotment option is
exercised in full, of net proceeds will be placed in a trust account at JPMorgan
Chase NY Bank maintained by American Stock Transfer & Trust Company, New York,
New York, as trustee. The proceeds held in trust will not be released from the
trust account until the earlier of the completion of a business combination or
our liquidation. The proceeds held in the trust account may be used as
consideration to pay the sellers of a target business with which we ultimately
complete a business combination. Any amounts not paid as consideration to the
sellers of the target business may be used to finance operations of the target
business.
21
We intend to use the excess working capital (approximately $1,535,000) for
director and officer liability insurance premiums (approximately $125,000), with
the balance of $1,410,000 being held in reserve in the event due diligence,
legal, accounting and other expenses of structuring and negotiating business
combinations exceed our estimates, as well as for reimbursement of any
out-of-pocket expenses incurred by our existing stockholders in connection with
activities on our behalf as described below. We expect that due diligence of
prospective target businesses will be performed by some or all of our officers
and directors and may include engaging market research firms and/or third party
consultants. Our officers and directors will not receive any compensation for
their due diligence of prospective target businesses, but will be reimbursed for
any out-of-pocket expenses (such as travel expenses) incurred in connection with
such due diligence activities. We believe that the excess working capital will
be sufficient to cover the foregoing expenses and reimbursement costs.
It is also possible that we could use a portion of such excess working
capital to make a deposit, down payment or fund a "no-shop" provision with
respect to a particular proposed business combination, although we do not have
any current intention to do so. If we did, the amount that would be used as a
down payment or to fund a "no-shop" provision would be determined based on the
terms of the specific business combination and the amount of our available funds
at the time. In the event that we were ultimately required to forfeit such funds
(whether as a result of our breach of the agreement relating to such payment or
otherwise), we may not have a sufficient amount of working capital available
outside of the trust account to conduct due diligence and pay other expenses
related to finding another suitable business combination without securing
additional financing. Thus, if we were unable to secure additional financing, we
would most likely fail to consummate a business combination in the allotted time
and would be forced to liquidate.
To the extent that our capital stock is used in whole or in part as
consideration to effect a business combination, the proceeds held in the trust
account, as well as any other net proceeds not expended, will be used to finance
the operations of the target business.
As of the date of this prospectus, Ron Chaimovski, our Co-Chief Executive
Officer, and Argyle New Ventures, L.P., an entity controlled by Bob Marbut, our
other Co-Chief Executive Officer, have advanced to us a total of $125,000, which
was used to pay a portion of the expenses of this offering referenced in the
line items above for SEC and NASD registration fee, legal fees and expenses.
Such loans will be payable with 4% annual interest on the earlier of June 30,
2006, or the consummation of this offering. The loans will be repaid out of the
proceeds of this offering not being placed in trust.
The net proceeds of this offering held in trust, and such proceeds which
are not held in the trust account and not immediately required for the purposes
set forth above, will be invested only in United States "government securities,"
defined as any Treasury Bills issued by the United States having a maturity of
180 days or less, or in money market funds meeting certain conditions under Rule
2a-7 promulgated under the Investment Company Act of 1940, so that we are not
deemed to be an investment company under the Investment Company Act. The
interest income derived from investment of these net proceeds during this period
will be used to defray our general and administrative expenses, as well as costs
relating to compliance with securities laws and regulations, including
associated professional fees, until a business combination is completed.
We believe that, upon consummation of this offering, we will have
sufficient available funds to operate for at least the next 24 months, assuming
that a business combination is not consummated during that time.
No compensation of any kind (including any finder's and/or consulting
fees) will be paid to any of our existing stockholders, or any of their
affiliates, for services rendered to us, prior to or in connection with, the
consummation of the business combination. However, our existing stockholders
will receive reimbursement for any out-of-pocket expenses incurred by them in
connection with activities on our behalf, such as identifying potential target
businesses and performing due diligence on suitable business combinations. To
the extent that such expenses exceed the available proceeds not deposited in the
trust account, such out-of-pocket expenses would not be reimbursed by us unless
we consummate a business combination. Since the role of present management after
a business combination is uncertain, we have no ability to determine what
remuneration, if any, will be paid to those persons after a business
combination.
22
A public stockholder will be entitled to receive funds from the trust
account (including interest earned on his, her or its portion of the trust
account) only in the event of our liquidation as a result of our failure to
complete a business combination within the allotted time, or if that public
stockholder were to seek to redeem such shares for cash in connection with a
business combination which the public stockholder voted against and which we
actually consummate. In no other circumstances will a public stockholder have
any right or interest of any kind to or in the trust account.
23
DILUTION
The difference between the public offering price per share of common
stock, assuming no value is attributed to the warrants included in the units,
and the pro forma net tangible book value per share of our common stock after
this offering constitutes the dilution to investors in this offering. Net
tangible book value per share is determined by dividing our net tangible book
value, which is our total tangible assets less total liabilities (including the
value of common stock which may be redeemed for cash), by the number of
outstanding shares of our common stock.
At July 11, 2005, our net tangible book value was a deficiency of
$(72,971), or approximately $(.02) per share of common stock. After giving
effect to the sale of 12,500,000 shares of common stock included in the units,
and the deduction of underwriting discounts and estimated expenses of this
offering, our pro forma net tangible book value (as decreased by the value of
2,498,750 shares of common stock which may be redeemed for cash) at July 11,
2005 would have been $75,357,677, or $5.74 per share, representing an immediate
increase in net tangible book value of $5.76 per share to the existing
stockholders and an immediate dilution of $2.26 per share, or 28.25%, to new
investors not exercising their redemption rights. For purposes of presentation,
our pro forma net tangible book value after this offering is approximately
$18,115,938 less than it otherwise would have been because, if we effect a
business combination, the redemption rights to the public stockholders may
result in the redemption for cash of up to approximately 19.99% of the aggregate
number of the shares sold in this offering at a per-share redemption price equal
to the amount in the trust account as of the record date for the determination
of stockholders entitled to vote on the business combination, inclusive of any
interest, divided by the number of shares sold in this offering.
The following table illustrates the dilution to the new investors on a
per-share basis, assuming no value is attributed to the warrants included in the
units:
Public offering price $ 8.00
Net tangible book value before this offering $ (.02)
Increase attributable to new investors 5.76
------
Pro forma net tangible book value
after this offering 5.74
------
Dilution to new investors $ 2.26
======
The following table sets forth information with respect to our existing
stockholders and the new investors:
Shares Purchased Total Consideration
------------------------- ------------------------- Average Price
Number Percentage Amount Percentage Per Share
------------ ------ ------------ ------ ------
Existing stockholders 3,125,000 20.0% $ 25,000 .025% $ .008
New investors 12,500,000 80.0% $100,000,000 99.975% $ 8.00
------------ ------ ------------ ------ ------
15,625,000 100.0% $100,025,000 100.00%
============ ====== ============ ======
The pro forma net tangible book value after the offering is calculated as
follows:
Numerator:
Net tangible book value before the offering $ (72,971)
Proceeds from this offering 93,450,000
Offering costs paid in advance and excluded from tangible book value before this offering 96,586
Less: Proceeds held in trust subject to redemption for cash ($x 19.99%) (18,115,938)
--------------
$75,357,677
==============
Denominator:
Shares of common stock outstanding prior to the offering 3,125,000
Shares of common stock included in the units offered 12,500,000
Less: Shares subject to redemption (9,375,000 x 19.99%) (2,498,750)
--------------
13,126,250
==============
24
CAPITALIZATION
The following table sets forth our capitalization at July 11, 2005 and, as
adjusted to give, effect to the sale of our units and the application of the
estimated net proceeds derived from the sale of our units:
July 11, 2005
Actual As Adjusted
------------- -------------
Common stock, $.0001 par value, -0- and 2,498,750 shares which are subject to
possible redemption, shares at redemption value (1) $ -- $ 18,115,938
------------- -------------
Stockholders' equity:
Preferred stock, $.0001 par value, 1,000,000 shares authorized; none
issued or outstanding $ -- $ --
------------- -------------
Common stock, $.0001 par value, 100,000,000 shares authorized; 3,125,000
shares issued and outstanding; 13,126,250 shares issued and outstanding
(excluding 2,498,750 shares subject to possible redemption), as adjusted 313 1,313
Additional paid-in capital 24,687 81,907,749
Deficit accumulated during the development stage (1,385) (1,385)
------------- -------------
Total stockholders' equity $ 23,615 $ 81,907,677
============= =============
Total capitalization $ 23,615 $ 100,023,615
============= =============
(1) If we consummate a business combination, the redemption rights afforded to
our public stockholders may result in the redemption for cash of up to
approximately 19.99% of the aggregate number of shares sold in this
offering at a per-share redemption price equal to the amount in the trust
account, inclusive of any interest thereon, as of two business days prior
to the proposed consummation of a business combination divided by the
number of shares sold in this offering.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We were formed on June 22, 2005, to serve as a vehicle to effect a merger,
capital stock exchange, asset acquisition or other similar business combination
in the security industry. We intend to utilize cash derived from the proceeds of
this offering, our capital stock, debt, or a combination of cash, capital stock
and debt, in effecting a business combination. The issuance of additional shares
of our capital stock:
o May significantly reduce the equity interest of our stockholders;
o Could cause a change in control if a substantial number of our
shares of common stock are issued, which may affect, among other
things, our ability to use our net operating loss carry forwards, if
any, and may also result in the resignation or removal of one or
more of our present officers and directors; and
o May adversely affect prevailing market prices for our common stock.
Similarly, if we issued debt securities, it could result in:
o Default and foreclosure on our assets if our operating revenues,
after a business combination, were insufficient to pay our debt
obligations;
o Acceleration of our obligations to repay the indebtedness even if we
will have made all principal and interest payments when due, if the
debt security contained covenants that required the maintenance of
certain financial ratios or reserves and any such covenant were
breached without a waiver or renegotiation of that covenant;
o Our immediate payment of all principal and accrued interest, if any,
if the debt security were payable on demand; and
o Our inability to obtain additional financing, if necessary, if the
debt security contained covenants restricting our ability to obtain
additional financing while such security was outstanding.
We have neither engaged in any operations nor generated any revenues to
date. Our entire activity since inception has been to prepare for our proposed
fundraising through an offering of our equity securities.
We estimate that the net proceeds from the sale of the units, after
deducting offering expenses of approximately $550,000 and underwriting discounts
of approximately $6,000,000 (or $6,900,000 if the underwriter's over-allotment
option is exercised in full), will be approximately $93,450,000 (or $107,550,000
if the underwriter's over-allotment option is exercised in full). Of this
amount, $90,625,000, or $104,725,000 if the underwriter's over-allotment option
is exercised in full, will be held in trust and the remaining approximately
$2,825,000 will not be held in trust. We will use substantially all of the net
proceeds of this offering to acquire a target business, including identifying
and evaluating prospective acquisition candidates, selecting the target
business, and structuring, negotiating and consummating the business
combination. To the extent that our capital stock is used in whole or in part as
consideration to effect a business combination, the proceeds held in the trust
account as well as any other net proceeds not expended will be used to finance
the operations of the target business. We believe that, upon consummation of
26
this offering, the funds available to us outside of the trust account will be
sufficient to allow us to operate for at least the next 24 months, assuming that
a business combination is not consummated during that time. Over this time
period, we anticipate approximately $400,000 of expenses for legal, accounting
and other expenses attendant to the due diligence investigations, structuring
and negotiating of a business combination and preparation and filing of the
related proxy statement, approximately $240,000 for administrative services and
support payable to unaffiliated third parties (up to $10,000 per month for 24
months), $500,000 of expenses for the due diligence and investigation of a
target business (or businesses), $150,000 of expenses in legal and accounting
fees relating to our SEC reporting obligations and $1,535,000 for general
working capital that will be used for miscellaneous expenses and reserves,
including approximately $125,000 for director and officer liability insurance
premiums. We do not believe we will need to raise additional funds following
this offering in order to meet the expenditures required for operating our
business. However, we may need to raise additional funds through a private
offering of debt or equity securities if such funds are required to consummate a
business combination that is presented to us. We would only consummate such a
fund raising simultaneously with the consummation of a business combination.
As of the date of this prospectus, Mr. Chaimovski, our Co-Chief Executive
Officer, and Argyle New Ventures, L.P., an entity controlled by our other
Co-Chief Executive Officer, have advanced a total of $125,000 to us for payment
of offering expenses on our behalf. Such loans will be payable with 4% annual
interest on the earlier of June 30, 2006 or the consummation of this offering.
The loans will be repaid out of the proceeds of this offering not being placed
in trust.
We have agreed to sell to Rodman & Renshaw LLC, as underwriter, for $100,
an option to purchase up to a total of 625,000 units. We will account for this
purchase option as a cost of raising capital and will include the instrument as
equity in our financial statements.
We have granted to our existing stockholders options, exercisable at
$0.008 per share, to purchase that number of shares which will enable them to
maintain their 20% ownership interest after the offering in the event the
underwriter exercises the over-allotment option. We have elected to follow
Accounting Principles Board Opinion No. 25 in accounting for our stock options.
Under Accounting Principles Board Opinion No. 25, no compensation expense is
recognized when the exercise price of our stock options equals the market price
of the underlying stock on the date of grant. Using a Black-Scholes option
valuation model, the per share weighted-average fair value of the Existing
Stockholders' options would be $6.99, or a total of $3,276,562. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
our Existing Stockholders' options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of our employee stock options.
27
PROPOSED BUSINESS
Introduction
We are a recently organized Delaware corporation incorporated on June 22,
2005 in order to serve as a vehicle for the acquisition of an operating business
through a merger, capital stock exchange, asset acquisition or other similar
business combination. We intend to leverage the industry experience of our
executive officers by focusing our efforts on identifying a prospective target
business (or businesses) in the security industry. We believe that businesses
involved in this industry represent attractive acquisition targets for a number
of reasons, including the increase in global demand for integrated
security-related products and services since September 11th, the development of
new technology which has the potential to expand applications and the trend
towards integrated networked solutions. To date, our efforts have been limited
to organizational activities. We do not have any specific business combination
under consideration, nor have we had any discussions with any target business
regarding a possible business combination.
We may target businesses operating in one or more of the following
segments of the security industry:
o The development, sale or distribution of software solutions for
security systems;
o The development, manufacture, sale or distribution of components to
be used in security systems;
o Consultation on the design of security systems;
o The development, manufacture, construction, assembly, sale or
distribution of security or surveillance systems; and
o The development, manufacture, sale, distribution or assembly of
electronic devices that restrict, deny or grant access to areas
using technology such as biometrics and other coded means.
Management and board expertise
Our management and board have extensive experience in the security
industry and related deal sourcing, negotiating, and structuring of
transactions.
Effecting a business combination
General
We are not presently engaged in, and we will not engage in, any
substantive commercial business for an indefinite period of time following this
offering. We intend to utilize cash derived from the proceeds of this offering,
our capital stock, debt or a combination of these in effecting a business
combination. Although substantially all of the net proceeds of this offering are
intended to be generally applied toward effecting a business combination as
described in this prospectus, the proceeds are not otherwise being designated
for any more specific purposes. Accordingly, prospective investors will invest
in us without an opportunity to evaluate the specific merits or risks of any one
or more business combinations. A business combination may involve the
acquisition of, or merger with, a company which does not need substantial
additional capital but which desires to establish a public trading market for
its shares, while avoiding what it may deem to be adverse consequences of
undertaking a public offering itself. These include time delays, significant
expense, loss of voting control and compliance with various Federal and state
securities laws. In the alternative, we may seek to consummate a business
combination with a target business that may be financially unstable or in its
early stages of development or growth. We may also seek to effect a business
combination with more than one target business, although this may entail the
simultaneous acquisitions of several operating businesses at the same time.
28
We have not identified a target business
To date, we have not selected any target business with which to seek a
business combination. None of our officers, directors, promoters or other
affiliates is currently engaged in discussions on our behalf with
representatives of other companies regarding the possibility of a potential
merger, capital stock exchange, asset acquisition or other similar business
combination with us; nor have we, nor any of our agents or affiliates, been
approached by any candidates (or representative of any candidates) with respect
to a possible acquisition transaction with our company. Additionally, we have
not engaged or retained any agent or other representative to identify or locate
any suitable acquisition candidate. Finally, we note that there has been no
diligence, discussions, negotiations and/or other similar activities undertaken,
directly or indirectly, by us, our affiliates or representatives, or by any
third party, with respect to a business combination transaction with us.
Subject to the limitation that a target business or businesses have a fair
market value of at least 80% of our net assets at the time of the acquisition,
as described below in more detail, we will have virtually unrestricted
flexibility in identifying and selecting a prospective acquisition candidate.
Accordingly, there is no basis for investors in this offering to evaluate the
possible merits or risks of the target business (or businesses) with which we
may ultimately complete a business combination. To the extent we effect a
business combination with a financially unstable company or an entity in its
early stage of development or growth, including entities without established
records of sales or earnings, we may be affected by numerous risks inherent in
the business and operations of financially unstable and early stage or potential
emerging growth companies. Although our management will endeavor to evaluate the
risks inherent in a particular target business, we cannot assure you that we
will properly ascertain or assess all significant risk factors.
Sources of target businesses
We anticipate that target business candidates will be brought to our
attention from various unaffiliated sources, including investment bankers,
venture capital funds, private equity funds, leveraged buyout funds, management
buyout funds and other members of the financial community who are aware that we
are seeking a business combination partner via public relations and marketing
efforts, direct contact by management or other similar efforts, who may present
solicited or unsolicited proposals. Our officers and directors, as well as their
affiliates, may also bring to our attention target business candidates. While
our officers and directors make no commitment as to the amount of time they will
spend trying to identify or investigate potential target businesses, they
believe that the various relationships they have developed over their careers,
together with their direct inquiry, will generate a number of potential target
businesses that will warrant further investigation. While we may pay fees or
compensation to third parties for their efforts in introducing us to potential
target businesses, in no event, however, will we pay any of our existing
officers, directors or stockholders, or any entity with which they are
affiliated any finder's fee or other compensation for services rendered to us
prior to or in connection with the consummation of a business combination. In
addition, none of our officers, directors or existing stockholders will receive
any finder's fees, consulting fees or any similar fees from any person or entity
in connection with any business combination involving us, other than any
compensation or fees that may be received for any services provided following
such business combination.
Selection of a target business and structuring of a business combination
Subject to the requirement that our initial business combination must be
with a target business or businesses with a collective fair market value that is
at least 80% of our net assets at the time of such acquisition, our management
will have virtually unrestricted flexibility in identifying and selecting a
prospective target business in the security industry. We have not conducted any
specific research on the security industry to date, nor have we conducted any
research with respect to identifying the number and characteristics of the
potential acquisition candidates or the likelihood or probability of success of
any proposed business combination. In evaluating a prospective target business,
our management will conduct the necessary business, legal and accounting due
diligence on such target business and will consider, among other factors, the
following:
o Financial condition and results of operation;
o Growth potential;
29
o Experience and skill of management and availability of additional
personnel;
o Existing sales and marketing channels;
o Key customer relationships and goodwill;
o Capital requirements;
o Competitive position;
o Barriers to entry into the security and related industries;
o Stage of development of the products, processes or services;
o Degree of current or potential market acceptance of the products,
processes or services;
o Proprietary features and degree of intellectual property or other
protection of the products, processes or services;
o Regulatory environment of the industry; and
o Costs associated with effecting the business combination.
These criteria are not intended to be exhaustive. Any evaluation relating
to the merits of a particular business combination will be based, to the extent
relevant, on the above factors, as well as other considerations deemed relevant
by our management in effecting a business combination consistent with our
business objective. In evaluating a prospective target business, we will conduct
an extensive due diligence review which will encompass, among other things,
meetings with incumbent management, where applicable, and inspection of
facilities, as well as review of financial and other information which will be
made available to us.
The time and costs required to select and evaluate a target business and
to structure and complete the business combination cannot presently be
ascertained with any degree of certainty. Any costs incurred with respect to the
identification and evaluation of a prospective target business with which a
business combination is not ultimately completed will result in a loss to us and
reduce the amount of capital available to otherwise complete a business
combination. However, we will not pay any finder's or consulting fees to our
existing stockholders, or any of their respective affiliates, for services
rendered to or in connection with a business combination.
Fair market value of target business (or businesses)
The initial target business or businesses that we acquire must have a
collective fair market value equal to at least 80% of our net assets at the time
of such acquisition. The fair market value of such business (or businesses) will
be determined by our board of directors based upon standards generally accepted
by the financial community, such as actual and potential sales, earnings and
cash flow and book value. If our board is not able to independently determine
the fair market value of a target business, we will obtain an opinion from an
unaffiliated, independent investment banking firm which is a member of the
National Association of Securities Dealers, Inc. with respect to the
satisfaction of such criteria. Since any opinion, if obtained, would merely
state that the fair market value meets the 80% of net assets threshold, it is
not anticipated that copies of such opinion would be distributed to our
stockholders, although copies will be provided to stockholders who request it.
We will not be required to obtain an opinion from an investment banking firm as
to the fair market value if our board of directors independently determines that
the target business has sufficient fair market value.
30
Possible lack of business diversification
While we may seek to effect a business combination with more than one
target business, our initial business combination must be with one or more
target businesses which satisfies the minimum valuation standard at the time of
such acquisition, as discussed above. Consequently, it is likely that we will
have the ability to effect only one business combination, although this may
entail simultaneous acquisitions of several entities at the same time. We may
not be able to acquire more than one target business because of various factors,
including possible complex domestic or international accounting issues, which
would include generating pro forma financial statements reflecting the
operations of several target businesses as if they had been combined, and
numerous logistical issues, which could include attempting to coordinate the
timing of negotiations, proxy statement disclosure and other legal issues and
closings with multiple target businesses. In addition, we would also be exposed
to the risks that conditions to closings, with respect to the acquisition of one
or more of the target businesses, would not be satisfied bringing the fair
market value of the initial business combination below the required fair market
value of 80% of net assets threshold. Accordingly, for an indefinite period of
time, the prospects for our future viability may be entirely dependent upon the
future performance of a single business. Unlike other entities which may have
the resources to complete several business combinations of entities operating in
multiple industries, or multiple areas of a single industry, it is probable that
we will not have the resources to diversify our operations or benefit from the
possible spreading of risks or offsetting of losses. By consummating a business
combination with only a single entity, our lack of diversification may:
o Subject us to numerous economic, competitive and regulatory
developments, any or all of which may have a substantial adverse
impact upon the particular industry in which we may operate
subsequent to a business combination; and
o Result in our dependency upon the development or market acceptance
of a single or limited number of products, processes or services.
Additionally, since our business combination may entail the simultaneous
acquisitions of several entities at the same time and may be with different
sellers, we will need to convince such sellers to agree that the purchase of
their entities is contingent upon the simultaneous closings of the other
acquisitions.
Limited ability to evaluate the target business' management
Although we expect certain of our management, particularly Messrs. Marbut
and Chaimovski, to remain associated with us following a business combination,
it is likely that the management of the target business (or businesses) at the
time of the business combination will remain in place, and we may employ other
personnel following the business combination. Although we intend to closely
scrutinize the management of a prospective target business when evaluating the
desirability of effecting a business combination, we cannot assure you that our
assessment of the target business' management will prove to be correct. In
addition, we cannot assure you that the future management will have the
necessary skills, qualifications or abilities to manage a public company.
Furthermore, the future role of our officers and directors, if any, in the
target business cannot presently be stated with any certainty. Moreover, our
current management will only be able to remain with the combined company after
the consummation of a business combination if they are able to negotiate and
agree to mutually acceptable employment terms in connection with any such
combination, which terms would be disclosed to stockholders in any proxy
statement relating to such transaction. While it is possible that one or more of
our directors will remain associated in some capacity with us following a
business combination, it is unlikely that any of them will devote their full
efforts to our affairs subsequent to a business combination. Moreover, we cannot
assure you that our officers and directors will have significant experience or
knowledge relating to the operations of the particular target business (or
businesses).
Following a business combination, we may seek to recruit additional
managers to supplement the incumbent management of the target business (or
businesses). We cannot assure you that we will have the ability to recruit
additional managers, or that additional managers will have the requisite skills,
knowledge or experience necessary to enhance the incumbent management.
Opportunity for stockholder approval of business combination
Prior to the completion of a business combination, we will submit the
transaction to our stockholders for approval, even if the nature of the
acquisition is such that it would not ordinarily require stockholder approval
under applicable state law. In connection with seeking stockholder approval of a
business combination, we will furnish our stockholders with proxy solicitation
materials prepared in accordance with the Securities Exchange Act of 1934,
which, among other matters, will include a description of the operations of the
target business and audited historical financial statements of the target
business (or businesses) based on United States generally accepted accounting
principles.
31
In connection with the vote required for any business combination, all of
our existing stockholders, including all of our officers and directors, have
agreed to vote their respective shares of common stock owned by them immediately
prior to this offering in accordance with the majority of the shares of common
stock voted by the public stockholders. This voting arrangement shall not apply
to shares included in units purchased in this offering or purchased following
this offering in the open market by any of our existing stockholders, officers
and directors; however, our officers and director intend to vote in favor of any
business combination they present to the stockholders. We will proceed with the
business combination only if a majority of the shares of common stock voted by
the public stockholders are voted in favor of the business combination and
public stockholders owning less than 20% of the shares sold in this offering
exercise their redemption rights.
Redemption rights
At the time we seek stockholder approval of any business combination, we
will offer each public stockholder the right to have such stockholder's shares
of common stock redeemed for cash if the stockholder votes against the business
combination and the business combination is approved and completed. The actual
per-share redemption price will be equal to the amount in the trust account,
inclusive of any interest (calculated as of two business days prior to the
consummation of the proposed business combination), divided by the number of
shares sold in this offering. Without taking into any account interest earned on
the trust account, the initial per-share redemption price would be $7.25, or
$0.75 less than the per-unit offering price of $8.00. An eligible stockholder
may request redemption at any time after the mailing to our stockholders of the
proxy statement and prior to the vote taken with respect to a proposed business
combination at a meeting held for that purpose, but the request will not be
granted unless the stockholder votes against the business combination and the
business combination is approved and completed. If a stockholder votes against
the business combination but fails to properly exercise his, her or its
redemption rights, such stockholder will not have his, her or its shares of
common stock redeemed for its pro rata distribution of the trust account. Any
request for redemption, once made, may be withdrawn at any time up to the date
of the meeting. It is anticipated that the funds to be distributed to
stockholders entitled to redeem their shares who elect redemption will be
distributed promptly after completion of a business combination. Public
stockholders who redeem their stock into their share of the trust account still
have the right to exercise the warrants that they received as part of the units.
We will not complete any business combination if public stockholders, owning 20%
or more of the shares sold in this offering, exercise their redemption rights.
Liquidation if no business combination
If we do not complete a business combination within 18 months after the
consummation of this offering, or within 24 months if the extension criteria
described below have been satisfied, we will be dissolved and will distribute to
all of our public stockholders, in proportion to their respective equity
interests, an aggregate sum equal to the amount in the trust account, inclusive
of any interest, plus any remaining net assets. Our existing stockholders have
waived their rights to participate in any liquidation distribution with respect
to shares of common stock owned by them immediately prior to this offering.
There will be no distribution from the trust account with respect to our
warrants, which will expire worthless.
If we are unable to consummate a business combination and expend all of
the net proceeds of this offering, other than the proceeds deposited in the
trust account, and without taking into account interest, if any, earned on the
trust account, the initial per-share liquidation price would be $7.25, or $0.75
less than the per-unit offering price of $8.00. Because the initial per-share
redemption price is lower than the $8.00 per-unit offering price and may be
lower than the market price of the common stock on the date of redemption, there
may be a perceived disincentive on the part of public stockholders to exercise
their redemption rights. The proceeds deposited in the trust account could,
however, become subject to the claims of our creditors, which could be prior to
the claims of our public stockholders. Each member of our board of directors has
agreed, pursuant to agreements with us and Rodman & Renshaw, LLC, that if we
liquidate prior to the consummation of a business combination, they will be
personally liable to pay debts and obligations to vendors that are owed money by
us for services rendered or products sold to us in excess of the net proceeds of
this offering not held in the trust account at that time. It is our intention
that all vendors, prospective target businesses and other entities that we
32
engage will execute agreements with us waiving any right to the monies held in
the trust account. If any third party refused to execute an agreement waiving
such claims, we would perform an analysis of the alternatives available to us
and evaluate if such engagement would be in the best interest of our
stockholders, if such third party refused to waive such claims. Examples of
possible instances where we may engage a third party that had refused to execute
a waiver include the engagement of a third party consultant whose particular
expertise or skills are believed by management to be superior to those of other
consultants that would agree to execute a waiver, or in cases where management
does not believe it would be able to find a provider of required services
willing to provide the waiver. We cannot assure you, however, that they would be
able to satisfy those obligations. Further, they will not be personally liable
to pay debts and obligations to prospective target businesses if a business
combination is not consummated with such prospective target businesses, or for
claims from any other entity other than vendors. Accordingly, we cannot assure
you that the actual per-share liquidation price will not be less than $7.25,
plus interest, due to claims of creditors.
If we enter into either a letter of intent, an agreement in principle or a
definitive agreement to complete a business combination prior to the expiration
of 18 months after the consummation of this offering, but are unable to complete
the business combination within the 18-month period, then we will have an
additional six months in which to complete the business combination contemplated
by the letter of intent, agreement in principle or definitive agreement. If we
are unable to do so by the expiration of the 24-month period from the
consummation of this offering, we will then liquidate. Upon notice from us, the
trustee of the trust account will commence liquidating the investments
constituting the trust account and will turn over the proceeds to our transfer
agent for distribution to our public stockholders. We anticipate that our
instruction to the trustee would be given promptly after the expiration of the
applicable 18-month or 24-month period.
Our public stockholders shall be entitled to receive funds from the trust
account only in the event of our liquidation or if the stockholders seek to
redeem their respective shares for cash upon a business combination which the
stockholder voted against and which is actually completed by us. In no other
circumstances shall a stockholder have any right or interest of any kind to or
in the trust account.
Competition
In identifying, evaluating and selecting a target business, we may
encounter intense competition from other entities having a business objective
similar to ours. Many of these entities are well established and have extensive
experience identifying and effecting business combinations directly or through
affiliates. Many of these competitors possess greater technical, human and other
resources than we do and our financial resources will be relatively limited when
contrasted with those of many of these competitors. While we believe there are
numerous potential target businesses that we could acquire with the net proceeds
of this offering, our ability to compete in acquiring certain sizable target
businesses will be limited by our available financial resources. This inherent
competitive limitation gives others an advantage in pursuing the acquisition of
a target business. Further:
o Our obligation to seek stockholder approval of a business
combination and to obtain the necessary financial information to be
included in the proxy statement to be sent to stockholders in
connection with such business combination may delay or prevent the
completion of a transaction;
o Our obligation to redeem for cash shares of common stock held by our
public stockholders in certain instances may reduce the resources
available to us for a business combination;
o Our outstanding warrants, and the future dilution they potentially
represent, may not be viewed favorably by certain target businesses;
and
o The requirement to acquire one or more operating businesses that
have a fair market value equal to at least 80% of our net assets at
the time of the acquisition could require us to acquire several
companies or closely related operating businesses at the same time,
all of which sales would be contingent on the closings of the other
sales, which could make it more difficult to consummate the business
combination.
33
Any of these factors may place us at a competitive disadvantage in successfully
negotiating a business combination. Our management believes, however, that to
the extent that a target business (or businesses) is a privately held entity,
our status as a well-financed public entity may give us a competitive advantage
over entities having a similar business objective as ours in acquiring a target
business with significant growth potential on favorable terms.
If we succeed in effecting a business combination, there will be, in all
likelihood, intense competition from competitors of the target business. We
cannot assure you that, subsequent to a business combination, we will have the
resources or ability to compete effectively.
Facilities
We intend to maintain our executive offices at 200 Concord Plaza, Suite
700, San Antonio, Texas pursuant to a lease to be entered into upon completion
of this offering. We expect to pay the landlord approximately $6,000 per month
for this office space. In addition, we maintain a P.O. Box at P.O. Box 6305, San
Antonio, Texas 78209. Two unaffiliated third parties have agreed to provide us
with certain administrative, technology and secretarial services, for
approximately $4,000 per month, pursuant to a letter agreement between us and
each of the persons providing services to us. We consider our current office
space adequate for our current operations.
Employees
We have two officers, both of whom are also members of our board of
directors. These individuals are not obligated to contribute any specific number
of hours per week and intend to devote only as much time as they deem necessary
to our affairs. The amount of time they will devote in any time period will vary
based on the availability of suitable target businesses to investigate, although
we expect each of them to devote an average of approximately 10 hours per week
to our business. We do not intend to have any full time employees prior to the
consummation of a business combination.
Periodic Reporting and Financial Information
We have registered our units, common stock and warrants under the
Securities Exchange Act of 1934, as amended, and have reporting obligations,
including the requirement that we file annual and quarterly reports with the
SEC. In accordance with the requirements of the Securities Exchange Act of 1934,
our annual reports will contain financial statements audited and reported on by
our independent accountants.
We will not acquire a target business if audited financial statements
based on United States generally accepted accounting principles cannot be
obtained for such target business. Additionally, our management will provide
stockholders with the foregoing financial information as part of the proxy
solicitation materials sent to stockholders to assist them in assessing each
specific target business we seek to acquire. Our management believes that the
requirement of having available financial information for the target business
may limit the pool of potential target businesses available for acquisition.
We will be required to comply with the internal control requirements of
the Sarbanes-Oxley Act for the fiscal year ending December 31, 2006. A target
business may not be in compliance with the provisions of the Sarbanes-Oxley Act
regarding adequacy of their internal controls. The development of the internal
controls of any such entity to achieve compliance with the Sarbanes-Oxley Act
may increase the time and costs necessary to complete any such acquisition.
Legal Proceedings
To the knowledge of management, there is no litigation currently pending
or contemplated against us or any of our officers or directors in their capacity
as such.
34
Comparison to offerings of blank check companies
The following table compares and contrasts the terms of our offering and
the terms of an offering of blank check companies under Rule 419 promulgated by
the SEC assuming that the gross proceeds, underwriting discounts and
underwriting expenses for the Rule 419 offering are the same as this offering
and that the underwriter will not exercise its over-allotment option. None of
the terms of a Rule 419 offering will apply to this offering.
Terms of our offering Terms under a Rule 419 offering
Escrow of offering proceeds $90,625,000 of the net offering $_____________ of the offering
proceeds will be deposited into a proceeds would be required to be
trust account at JPMorgan Chase NY deposited into either an escrow
Bank maintained by American Stock account with an insured depositary
Transfer & Trust Company. institution or in a separate bank
account established by a broker-dealer
in which the broker-dealer acts as
trustee for persons having the beneficial
interests in the account.
Investment of net proceeds The $90,625,000 of net offering Proceeds could be invested only in
proceeds held in trust will only be specified securities such as a money
invested in U.S. "government market fund meeting conditions of
securities," defined as any Treasury the Investment Company Act of 1940
Bill issued by the United States or in securities that are direct
having a maturity of 180 days or obligations of, or obligations
less or in money market funds guaranteed as to principal or
meeting certain conditions under interest by, the United States.
Rule 2a-7 promulgated under the
Investment Company Act of 1940.
Limitation on fair value or net The initial target business or We would be restricted from
businesses that we acquire must have acquiring a target business unless
a fair market value equal to at the fair value of such business or
least 80% of our net assets at the net assets to be acquired represent
time of such acquisition. at least 80% of the maximum offering
proceeds.
Trading of securities issued The units may commence trading on or No trading of the units or the
assets of target business promptly after the date of this underlying common stock and warrants
prospectus. The common stock and would be permitted until the
warrants comprising the units will completion of a business
begin to trade separately within 20 combination. During this period, the
days following the earlier to occur securities would be held in the
of expiration of the underwriter's escrow or trust account.
over-allotment option or its
exercise in full, provided we have
filed with the SEC a Current Report
on Form 8-K, which includes an
audited balance sheet reflecting our
receipt of the proceeds of this
offering, including any proceeds we
receive from the exercise of the
over-allotment option, if such
option is exercised prior to the
filing of the Form 8-K.
35
Exercise of the warrants The warrants cannot be exercised The warrants could be exercised
until the later of the completion of prior to the completion of a
a business combination or one year business combination, but securities
from the date of this prospectus received and cash paid in connection
and, accordingly, will only be with the exercise would be deposited
exercised after the trust account in the escrow or trust account.
has been terminated and distributed.
Election to remain an investor We will give our stockholders the A prospectus containing information
opportunity to vote on the business required by the SEC would be filed
combination. In connection with as part of a post-effective
seeking stockholder approval, we amendment to the original
will send each stockholder a proxy registration statement filed in
statement containing information connection with the offering and
required by the SEC. A stockholder would be sent to each investor. Each
following the procedures described investor would be given the
in this prospectus is given the opportunity to notify the company,
right to convert his, her, or its in writing, within a period of no
shares into his or her pro rata less than 20 business days and no
share of the trust account. However, more than 45 business days from the
a stockholder who does not follow effective date of the post-effective
these procedures, or a stockholder amendment, to decide whether he or
who does not take any action, would she elects to remain a stockholder
not be entitled to the return of any of the company or require the return
funds. of his or her investment. If the company
has not received the notification by
the end of the 45th business day, funds
and interest or dividends, if any, held
in the trust or escrow account would automatically
be returned to the stockholder. Unless a
sufficient number of investors elect to remain
investors, all of the deposited funds in
the escrow account must be returned to
all investors and none of the securities
will be issued.
Business combination deadline A business combination must occur If an acquisition has not been
within 18 months after the consummated within 18 months after
consummation of this offering, or the effective date of the initial
within 24 months after the registration statement, funds held
consummation of this offering if a in the trust or escrow account would
letter of intent or definitive be returned to investors.
agreement relating to a prospective
business combination were entered
into prior to the end of the
18-month period.
Release of funds The proceeds held in the trust The proceeds held in the escrow
account will not be released until account would not be released until
the earlier of the completion of a the earlier of the completion of a
business combination or our business combination or the failure
liquidation upon our failure to to effect a business combination
effect a business combination within within the allotted time.
the allotted time.
36
MANAGEMENT
Directors and Executive Officers
Our current directors and executive officers are as follows:
Name Age Position
- ----------------------------------- --- ----------------------------------------------------------
Bob Marbut 70 Chairman of the Board and Co-Chief Executive Officer
Ron Chaimovski 46 Vice Chairman of the Board and Co-Chief Executive Officer
John J. Smith 57 Director
Bob Marbut has been our Chairman of the Board and Co-Chief Executive
Officer since our inception. From November 2004 to the present, Mr. Marbut has
been the Executive Chairman of Electronics Line 3000 Ltd., an electronic
intrusion security company, and from July 2002 to the present, he has been the
Chairman and Chief Executive Officer of SecTecGLOBAL, Inc., a sales and
marketing subsidiary of Electronics Line 3000 Ltd. From October 2001 to the
present, Mr. Marbut has served as a Manager of Argyle Global Opportunities, LP,
an investment partnership which owns a 43% interest in Electronics Line 3000
Ltd. From January 2001 to January 2003, Mr. Marbut served as the Chairman of
Hearst-Argyle Television, Inc., a non-network owned television group and, from
August 1997 to January 2001, served as its Chairman and Co-Chief Executive
Officer. From January 1995 to August 1997, Mr. Marbut was the co-founder,
Chairman and controlling partner of Argyle Television, Inc., which became a
Nasdaq traded company and was merged with Hearst Broadcasting in August 1997 to
form Hearst-Argyle Television, Inc. From 1993 to 1995, Mr. Marbut founded and
was the Chief Executive Officer of Argyle Television, a private television group
that was sold in 1995. From August 1970 through 1990, Mr. Marbut served as the
President and Chief Executive Officer of Harte-Hanks Communications, Inc., and
concurrently as its Chief Operating Officer from April 1973 to September 1984,
and as Vice-Chairman in 1991. During the period that Mr. Marbut was CEO,
Harte-Hanks developed from a family-owned newspaper company to a Fortune 500
company listed on the New York Stock Exchange that Mr. Marbut took private in
1984 in a management buyout that he led. In addition to the board of directors
of Electronics Line 3000 Ltd., Mr. Marbut currently serves on the boards of
directors of Hearst-Argyle Television, Tupperware Corporation and Valero Energy
Corporation. He has a Masters of Business Administration degree with Distinction
from Harvard University and was a registered engineer in the State of
California.
Ron Chaimovski has been our Vice Chairman of the Board and Co-Chief
Executive Officer since our inception. Mr. Chaimovski has served as the Vice
Chairman of Electronics Line 3000 Ltd. since May 2005 and as a partner in Argyle
Global Opportunities, LP since January 2001. From October 1998 to August 2001
Mr. Chaimovski served as the Israeli Economic Minister to North America. From
1991 to 1998, Mr. Chaimovski was a partner in an Israeli law firm. Mr.
Chaimovski was the co-founder of Transplan Enterprises Group, an investment
group, and served as its Co-Chairman from 1993 to 1998. Mr. Chaimovski served in
the Israeli Navy from 1977 to 1983 in various command roles, including those of
combat officer and flotilla commander. Mr. Chaimovski is a member of the Israeli
Bar. Mr. Chaimovski received an LLB from Tel Aviv University and an LLM from the
University of London.
John J. Smith has been one of our directors since our inception. He has
been the Director of Security for the Bank of New York since February 2000. At
the Bank of New York, Mr. Smith directs and supervises a worldwide security
program that encompasses the investigation and prevention of fraud-related
activities, as well as the physical protection of corporate assets, employees,
customers and executives. Mr. Smith retired from the United States Secret
Service in January 2000 after 24 years of service. He held a variety of
positions in field offices and headquarters, culminating with his appointment as
the Special Agent in Charge of the New York Field Office, the Service's largest
and busiest office. During his career, Mr. Smith was assigned to the Vice
Presidential Protective Division, the Presidential Protective Division and as
the Special Assistant to the Treasury Secretary. He served as the security
coordinator for several high profile protective venues, to include: the U.S.
delegation attending the Olympic Games in Barcelona, Spain, 1992; the
Presidential Inaugural activities of 1993; the dedication of the Holocaust
Museum, Washington, DC, 1994; and the visit of Pope John Paul II to New York,
1995. In 1996, he supervised the protective detail assigned to Presidential
Candidate Robert Dole. Mr. Smith holds bachelors and masters degrees in Criminal
Justice from West Chester University in West Chester, Pennsylvania.
37
Our board of directors is divided into three classes with only one class
of directors being elected in each year and each class serving a three-year
term. The term of office of the first class of directors, consisting of John J.
Smith, will expire at our first annual meeting of stockholders. The term of
office of the second class of directors, consisting of Bob Marbut, will expire
at the second annual meeting, provided, however, that if another director is
elected to the board of directors, Mr. Marbut will become a member of the third
class of directors. The term of office of the third class of directors,
consisting of Ron Chaimovski, will expire at the third annual meeting.
These individuals will play a key role in identifying, evaluating, and
selecting target businesses, and structuring, negotiating and consummating our
business combination. None of these individuals has been a principal of or
affiliated with a public company or blank check company that executed a business
plan similar to our business plan and none of these individuals is currently
affiliated with such an entity. However, we believe that the skills and
experience of these individuals, their collective access to acquisition
opportunities and ideas, their contacts, and their transaction expertise should
enable them to successfully identify and effect a business combination although
we cannot assure you that they will, in fact, be able to do so.
Executive Compensation
No executive officer has received any cash compensation for services
rendered, and no compensation of any kind, including finder's and consulting
fees, will be paid to any of our existing stockholders, including our officers
and directors, or any of their respective affiliates, for services rendered
prior to or in connection with a business combination. However, these
individuals will be reimbursed for any out-of-pocket expenses incurred in
connection with activities on our behalf such as identifying potential target
businesses and performing due diligence on suitable business combinations. Such
individuals may be paid consulting, management or other fees from target
businesses as a result of the business combination, with any and all amounts
being fully disclosed to stockholders, to the extent then known, in the proxy
solicitation materials furnished to the stockholders. There is no limit on the
amount of these out-of-pocket expenses, and there will be no review of the
reasonableness of the expenses by anyone other than our board of directors,
which includes persons who may seek reimbursement, or a court of competent
jurisdiction if such reimbursement is challenged. Because none of our directors
may be deemed to be "independent," we will generally not have the benefit of
independent directors examining the propriety of expenses incurred on our behalf
and subject to reimbursement.
Conflicts of Interest
Potential investors should be aware of the following potential conflicts
of interest:
o None of our officers and directors is required to commit his full
time to our affairs and, accordingly, they will have conflicts of
interest in allocating management time among various business
activities.
o In the course of their other business activities, our officers and
directors may become aware of investment and business opportunities
which may be appropriate for presentation to our company as well as
the other entities with which they are affiliated. They may have
conflicts of interest in determining to which entity a particular
business opportunity should be presented. For a complete description
of our management's other affiliations, see the previous section
entitled "Directors and Executive Officers."
o Our officers and directors may in the future become affiliated with
entities, including other blank check companies, engaged in business
activities similar to those intended to be conducted by our company.
o Since our directors beneficially own shares of our common stock
which will be released from escrow only in certain limited
situations, our board may have a conflict of interest in determining
whether a particular target business is appropriate to effect a
business combination. The personal and financial interests of our
directors and officers may influence their motivation in identifying
and selecting a target business, completing a business combination
timely and securing the release of their stock.
38
o Our officers and directors who purchase common stock in the open
market will be treated in all respects as public stockholders with
respect to those shares. As a result, they will be afforded the same
voting and redemption rights that the public stockholders are
afforded.
In general, officers and directors of a corporation incorporated under the
laws of the State of Delaware are required to present business opportunities to
a corporation if:
o The corporation could financially undertake the opportunity;
o The opportunity is within the corporation's line of business; and
o It would not be fair to the corporation and its stockholders for the
opportunity not to be brought to the attention of the corporation.
Accordingly, as a result of multiple business affiliations, our officers
and directors may have similar legal obligations relating to presenting business
opportunities meeting the above-listed criteria to multiple entities. In
addition, conflicts of interest may arise when our board evaluates a particular
business opportunity with respect to the above-listed criteria. We cannot assure
you that any of the above mentioned conflicts will be resolved in our favor.
In order to minimize potential conflicts of interest which may arise from
multiple corporate affiliations, each of our officers and directors has agreed
in principle, until the earlier of a business combination, our liquidation or
such time as he ceases to be an officer or director, to present to the company
for its consideration, prior to presentation to any other entity, any business
opportunity which may reasonably be required to be presented to us under
Delaware law, subject to any pre-existing fiduciary obligations he might have.
Each of our directors has, or may come to have, to a certain degree, other
fiduciary obligations. Messrs. Marbut and Chaimovski are officers and principal
stockholders of Electronics Line 3000 Ltd., a public company traded in Germany
in the intrusion segment of the security industry. To the extent that they
identify business opportunities that may be suitable for any of these other
companies, they will honor those fiduciary obligations. Accordingly, they may
not present opportunities to us that otherwise may be attractive to us, unless
these other companies and any successors to such entities has declined to accept
such opportunities.
In connection with the vote required for any business combination, all of
our existing stockholders, including all of our officers and directors, have
agreed to vote their respective shares of common stock which were owned prior to
this offering in accordance with the vote of the public stockholders owning a
majority of the shares of our common stock sold in this offering. Any securities
acquired by existing stockholders in the aftermarket will be considered to be
part of the holding of public stockholders and will have the same rights as
other public stockholders, including voting and redemption rights with respect
to a potential business combination. Accordingly, they may vote on a proposed
business combination with respect to shares acquired in the aftermarket any way
they so choose. In addition, they have agreed to waive their respective rights
to participate in any liquidation distribution occurring upon our failure to
consummate a business combination, but only with respect to those shares of
common stock acquired by them prior to this offering.
To further minimize potential conflicts of interest, we have agreed not to
consummate a business combination with an entity which is affiliated with any of
our existing stockholders, unless we obtain an opinion from an independent
investment banking firm that the business combination is fair to our
stockholders from a financial point of view. Such opinion will be included in
each case in our proxy soliciting materials furnished to our stockholders, and
we expect that such independent banking firm will be a consenting expert.
39
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of July 11, 2005, and as adjusted to reflect
the sale of our common stock included in the units offered by this prospectus
(assuming no purchase of units in this offering), by:
o Each person known by us to be the beneficial owner of more than 5%
of our outstanding shares of common stock;
o Each of our officers and directors; and
o All our officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially owned by them.
Approximate Percentage of
Amount and Outstanding Common Stock
Nature of ------------------------
Beneficial
Name and Address of Beneficial Owner (1) Ownership Before Offering After Offering
- ----------------------------------------------- ------------ ------------ ------------
Argyle Joint Ventures (2) 989,583 31.67% 6.33%
Bob Marbut (2)(3) 989,583 31.67% 6.33%
Ron Chaimovski (2) 989,583 31.67% 6.33%
John J. Smith 156,251 5.00% 1.00%
All directors and executive officers as a group
(three individuals) 3,125,000(4) 100.00% 20.00%
- --------------------------------------------------------------------------------
* less than one (1%) percent.
(1) The business address of each of the individuals and entities is 200
Concord Plaza, Suite 700, San Antonio, Texas 78216.
(2) Messrs. Marbut and Chaimovski have voting and dispositive power over
the shares held by Argyle Joint Ventures
(3) Represents shares held by Argyle New Ventures, L.P., a Texas limited
partnership, the general partner of which is an entity owned by Mr.
Marbut.
(4) The existing stockholders have been granted an option to purchase up
to 468,750 shares of common stock, at $.0008 per share, which option
is exercisable only if the underwriter exercises its over-allotment
option and then only to the extent necessary to maintain such
stockholders' 20% ownership after the offering.
None of our existing stockholders, officers and directors has indicated to
us that he or it intends to purchase units in the offering. However, Messrs.
Marbut and Chaimovski, or their designee, have agreed to make open market
purchases of up to an aggregate of 1,200,000 warrants within 45 days after
separate trading of the warrants begins so long as the price of such warrants
does not exceed $1.20. Assuming these securities are not purchased, immediately
after this offering, our existing stockholders, which include all of our
officers and directors, collectively, will beneficially own 20% of the then
issued and outstanding shares of our common stock. Because of this ownership
block, these stockholders may be able to effectively influence the outcome of
all matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions other than approval
of a business combination.
40
In addition, if we take advantage of increasing the size of the offering
pursuant to Rule 462(b) under the Securities Act, we may effect a stock dividend
in such amount to maintain the existing stockholders' collective ownership at
20% of our issued and outstanding shares of common stock upon consummation of
the offering.
All of the shares of our common stock outstanding prior to the date of
this prospectus will be placed in escrow with American Stock Transfer & Trust
Company, as escrow agent, until the earliest of:
o Three years following the date of this prospectus;
o Our liquidation; or
o The consummation of a liquidation, merger, stock exchange or other
similar transaction which results in all of our stockholders having
the right to exchange their shares of common stock for cash,
securities or other property subsequent to our consummating a
business combination with a target business.
During the escrow period, the holders of these shares will not be able to
sell or transfer their securities except to their spouses and children or trusts
established for their benefit or otherwise as provided in the stock escrow
agreement, but will retain all other rights as our stockholders, including,
without limitation, the right to vote their shares of common stock and the right
to receive cash dividends, if declared. If dividends are declared and payable in
shares of common stock, such dividends will also be placed in escrow. If we are
unable to effect a business combination and liquidate, none of our existing
stockholders will receive any portion of the liquidation proceeds with respect
to common stock owned by them prior to the date of this prospectus.
Bob Marbut and Ron Chaimovski have agreed with Rodman & Renshaw, LLC, that
after this offering is completed and within the first 45 days after separate
trading of the warrants has commenced, they or certain of their affiliates or
designees will collectively purchase up to 1,200,000 warrants in the public
marketplace at prices not to exceed $1.20 per warrant. They have further agreed
that any warrants purchased by them, or their respective affiliates or
designees, will not be sold or transferred until the completion of a business
combination. The warrants will trade separately on the 20th day after the
earlier to occur of expiration of the underwriter's over-allotment option or its
exercise in full, provided that in no event may any of the common stock and
warrants be traded separately until we have filed a Current Report on Form 8-K,
which includes an audited balance sheet reflecting our receipt of the proceeds
of this offering, including any proceeds we receive from the exercise of the
over-allotment option if such option is exercised prior to our filing of the
Form 8-K.
Messrs. Marbut and Chaimovski are deemed to be our "promoters," as this
term is defined under the Federal securities laws.
41
CERTAIN TRANSACTIONS
On June 23, 2005, we issued an aggregate of 3,125,000 shares of our common
stock to the individuals and entities set forth below for $25,000 in cash, at a
purchase price of $0.008 per share, as follows:
Name Number of Shares Relationship to Us
- ------------------------- ---------------- ---------------------------------------------------------
Argyle Joint Ventures 989,583 The general partner is an entity controlled by Bob Marbut
and Ron Chaimovski, our Co-Chief Executive Officers
Bob Marbut 989,583 These shares are owned by Argyle New Ventures, L.P.,
whose general partner is owned by Mr. Marbut, our
Chairman and Co-Chief Executive Officer
Ron Chaimovski 989,583 Vice Chairman and Co-Chief Executive Officer
John J. Smith 156,251 Director
On July 6, 2005, we issued the aforementioned stockholders options to
purchase such additional number of shares as would be necessary to maintain
their percentage ownership in us after the offering in the event the underwriter
exercises the over-allotment option. Such options are exercisable at $0.008 per
share only if and only to the extent that the over-allotment option is
exercised.
In addition, if we take advantage of increasing the size of the offering
pursuant to Rule 462(b) under the Securities Act, we may effect a stock dividend
in such amount to maintain the existing stockholders' collective ownership at
20% of our issued and outstanding shares of common stock upon consummation of
the offering.
The holders of the majority of these shares will be entitled to make up to
two demands that we register these shares pursuant to an agreement to be signed
prior to or on the date of this prospectus. The holders of the majority of these
shares may elect to exercise these registration rights at any time after the
date on which these shares of common stock are released from escrow, which,
except in limited circumstances, is not before three years from the date of this
prospectus. In addition, these stockholders have certain "piggy-back"
registration rights on registration statements filed subsequent to the date on
which these shares of common stock are released from escrow. We will bear the
expenses incurred in connection with the filing of any such registration
statements.
On June 23 and July 6, 2005, Mr. Chaimovski and Argyle New Ventures, L.P.,
an entity controlled by Mr. Marbut, advanced a total of $125,000 to us to cover
expenses related to this offering. Such loans will be payable with 4% annual
interest on the earlier of June 30, 2006 or the consummation of this offering.
We intend to repay these loans from the proceeds of this offering not being
placed in trust.
We will reimburse our officers and directors for any reasonable
out-of-pocket business expenses incurred by them in connection with certain
activities on our behalf such as identifying and investigating possible target
businesses and business combinations. There is no limit on the amount of
accountable out-of-pocket expenses reimbursable by us, which will be reviewed
only by our board or a court of competent jurisdiction if such reimbursement is
challenged.
Other than reimbursable out-of-pocket expenses payable to our officers and
directors, no compensation or fees of any kind, including finders and consulting
fees, will be paid to any of our existing stockholders, officers or directors
who owned our common stock prior to this offering, or to any of their respective
affiliates for services rendered to us prior to or with respect to the business
combination.
All ongoing and future transactions between us and any of our officers and
directors or their respective affiliates, including loans by our officers and
directors, will be on terms believed by us to be no less favorable than are
available from unaffiliated third parties, and such transactions or loans,
including any forgiveness of loans, will require prior approval in each instance
by a majority of our uninterested "independent" directors (to the extent we have
any) or the members of our board who do not have an interest in the transaction,
in either case who had access, at our expense, to our attorneys or independent
legal counsel. Moreover, it is our intention to obtain estimates from
unaffiliated third parties for similar goods or services to ascertain whether or
not such transactions with affiliates are on terms that are no less favorable to
us than are otherwise available from such unaffiliated third parties. If a
transaction with an affiliated third party were found to be on terms less
favorable to us than with an unaffiliated third party, we would not engage in
such transaction.
42
DESCRIPTION OF SECURITIES
General
We are authorized to issue 89,000,000 shares of common stock, par value
$.0001, and 1,000,000 shares of preferred stock, par value $.0001. As of the
date of this prospectus, 3,125,000 shares of common stock are outstanding, held
by four holders of record. No shares of preferred stock are currently
outstanding. An additional 468,750 shares are subject to outstanding options,
which are exercisable only if the underwriter exercises the over-allotment
option.
Units
Each unit consists of one share of common stock and one warrant. Each
warrant entitles the holder to purchase one share of common stock. The common
stock and warrants will begin to trade separately on the 20th trading day after
the earlier to occur of the expiration of the underwriter's over-allotment
option or its exercise in full, provided that in no event may the common stock
and warrants be traded separately until we have filed with the SEC a Current
Report on Form 8-K which includes an audited balance sheet reflecting our
receipt of the gross proceeds of this offering. We will file a Current Report on
Form 8-K which includes this audited balance sheet upon the consummation of this
offering. The audited balance sheet will reflect the proceeds that we receive
from the exercise of the over-allotment option, if the over-allotment option is
exercised prior to the filing of the Form 8-K.
Common stock
Our stockholders are entitled to one vote for each share held of record on
all matters to be voted on by stockholders. In connection with the vote required
for any business combination, all of our existing stockholders, including all of
our officers and directors, have agreed to vote their respective shares of
common stock owned by them immediately prior to this offering in accordance with
the public stockholders. This voting arrangement shall not apply to shares
included in units purchased in this offering or purchased following this
offering in the open market by any of our existing stockholders, officers and
directors. Additionally, our existing stockholders, officers and directors will
vote all of their shares in any manner they determine, in their sole discretion,
with respect to any other items that come before a vote of our stockholders.
We will proceed with the business combination only if a majority of the
shares of common stock voted by the public stockholders are voted in favor of
the business combination and public stockholders owning less than 20% of the
shares sold in this offering exercise their redemption rights discussed below.
Our board of directors is divided into three classes, each of which will
generally serve for a term of three years with only one class of directors being
elected in each year. There is no cumulative voting with respect to the election
of directors, with the result that the holders of more than 50% of the shares
voted for the election of directors can elect all of the directors.
If we are forced to liquidate prior to a business combination, our public
stockholders are entitled to share ratably in the trust account, inclusive of
any interest, and any net assets remaining available for distribution to them
after payment of liabilities. Our existing stockholders have agreed to waive
their rights to share in any distribution with respect to common stock owned by
them prior to the offering if we are forced to liquidate.
Our stockholders have no redemption, preemptive or other subscription
rights, and there are no sinking fund or redemption provisions applicable to the
common stock, except that public stockholders have the right to have their
shares of common stock redeemed for cash equal to their pro rata share of the
trust account if they vote against the business combination and the business
combination is approved and completed. Public stockholders who redeem their
stock into their share of the trust account still have the right to exercise the
unsold warrants that they received as part of the units.
43
Preferred stock
Our certificate of incorporation authorizes the issuance of 1,000,000
shares of blank check preferred stock with such designation, rights and
preferences as may be determined from time to time by our board of directors. No
shares of preferred stock are being issued or registered in this offering.
Accordingly, our board of directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of common stock, although the underwriting agreement prohibits us, prior
to a business combination, from issuing preferred stock which participates in
any manner in the proceeds of the trust account, or which votes as a class with
the common stock on a business combination. We may issue some or all of the
preferred stock to effect a business combination. In addition, the preferred
stock could be utilized as a method of discouraging, delaying or preventing a
change in control of us. Although we do not currently intend to issue any shares
of preferred stock, we cannot assure you that we will not do so in the future.
Warrants
No warrants are currently outstanding. Each warrant entitles the
registered holder to purchase one share of our common stock at a price of $6.00
per share, subject to adjustment as discussed below, at any time commencing on
the later of:
o The completion of a business combination; or
o One year from the date of this prospectus.
The warrants will expire five years from the date of this prospectus at
5:00 p.m., New York City time.
The warrants will trade separately on the 20th trading day after the
earlier to occur of expiration of the underwriter's over-allotment option or its
exercise in full. In no event may the common stock and warrants be traded
separately until we have filed a Current Report on Form 8-K, which includes an
audited balance sheet reflecting our receipt of the proceeds of this offering,
including any proceeds we receive from the exercise of the over-allotment option
if such option is exercised prior to our filing of the Form 8-K.
We may call the warrants for redemption (including any warrants issued
upon exercise of our unit purchase option),
o In whole and not in part,
o At a price of $.01 per warrant at any time after the warrants become
exercisable,
o Upon not less than 30 days' prior written notice of redemption to
each warrant holder, and
o If, and only if, the reported last sale price of the common stock
equals or exceeds $11.50 per share, for any 20 trading days within a
30 trading day period ending on the third business day prior to the
notice of redemption to warrant holders.
We have established these criteria to provide warrant holders with a
reasonable premium to the initial warrant exercise price, as well as a
reasonable cushion against a negative market reaction, if any, to our redemption
call. If the foregoing conditions are satisfied and we call the warrants for
redemption, each warrant holder shall then be entitled to exercise his, her or
its warrant prior to the date scheduled for redemption either by payment of the
exercise price in cash or on a "cashless basis;" however, there can be no
assurance that the price of the common stock will exceed the call trigger price
or the warrant exercise price after the redemption call is made. Exercises on a
44
cashless basis enable the holder to convert the value in the warrant (the fair
market value of the common stock minus the exercise price of the warrant) into
shares of common stock. We will establish the "value" to be converted into
shares of our common stock upon exercise of the warrants on a cashless basis and
provide such information in the notice of redemption. The "value" will be
determined using the average reported last sale price of the common stock for
the 10 trading days ending on the third business day prior to the notice of
redemption to warrant holders.
The warrants will be issued in registered form under a warrant agreement
between American Stock Transfer & Trust Company, as warrant agent, and us. You
should review a copy of the warrant agreement, which has been filed as an
exhibit to the registration statement of which this prospectus is a part, for a
complete description of the terms and conditions applicable to the warrants.
The exercise price and number of shares of common stock issuable on
exercise of the warrants may be adjusted in certain circumstances, including in
the event of a stock dividend, or our recapitalization, reorganization, merger
or consolidation. However, the warrants will not be adjusted for issuances of
common stock at a price below their respective exercise prices.
The warrants may be exercised upon surrender of the warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price, by
certified check payable to us, for the number of warrants being exercised. The
warrant holders do not have the rights or privileges of holders of common stock
and any voting rights until they exercise their warrants and receive shares of
common stock. After the issuance of shares of common stock upon exercise of the
warrants, each holder will be entitled to one vote for each share held of record
on all matters to be voted on by stockholders.
No warrants will be exercisable unless, at the time of exercise, a
prospectus relating to common stock issuable upon exercise of the warrants is
current and the common stock has been registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the holder of the
warrants. Under the terms of the warrant agreement, we have agreed to meet these
conditions and use our best efforts to maintain a current prospectus relating to
common stock issuable upon exercise of the warrants until the expiration of the
warrants. However, we cannot assure you that we will be able to do so. The
warrants may be deprived of any value and the market for the warrants may be
limited, if the prospectus relating to the common stock issuable upon the
exercise of the warrants is not current or if the common stock is not qualified
or exempt from qualification in the jurisdictions in which the holders of the
warrants reside.
No fractional shares will be issued upon exercise of the warrants. If,
upon exercise of the warrants, a holder would be entitled to receive a
fractional interest in a share, we will, upon exercise, round up to the nearest
whole number the number of shares of common stock to be issued to the warrant
holder.
Purchase Option
We have agreed to sell to the underwriter an option to purchase up to a
total of 625,000 units at a per-unit price of $8.80. The units issuable upon
exercise of this option are identical to those offered by this prospectus. For a
more complete description of the purchase option, including the dates when it is
exercisable, see the section below entitled "Underwriting--Purchase Option."
Dividends
We have not paid any dividends on our common stock to date and do not
intend to pay dividends prior to the completion of a business combination. The
payment of dividends in the future will be contingent upon our revenues and
earnings, if any, capital requirements and general financial condition
subsequent to completion of a business combination. The payment of any dividends
subsequent to a business combination will be within the discretion of our then
board of directors. It is the present intention of our board of directors to
retain all earnings, if any, for use in our business operations and,
accordingly, our board does not anticipate declaring any dividends in the
foreseeable future.
45
Our Transfer Agent and Warrant Agent
The transfer agent for our securities and warrant agent for our warrants
is American Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York
10038.
Shares Eligible for Future Sale
Immediately after this offering, we will have 15,625,000 shares of common
stock outstanding, or 17,970,750 shares if the underwriter's over-allotment
option is exercised in full. Of these shares, the 12,500,000 shares sold in this
offering, or 14,375,000 shares if the over-allotment option is exercised, will
be freely tradable without restriction or further registration under the
Securities Act, except for any shares purchased by one of our affiliates within
the meaning of Rule 144 under the Securities Act. All of the remaining 3,125,000
shares (3,593,750 shares if the existing stockholders' options are exercised in
full) are restricted securities under Rule 144, in that they were issued in
private transactions not involving a public offering. None of those shares will
be eligible for sale under Rule 144 prior to June 23, 2006. Notwithstanding
this, all of those shares have been placed in escrow and will not be
transferable for a period of three years from the date of this prospectus,
subject to certain limited exceptions, such as transfers to family members and
trusts for estate planning purposes and upon death, while in each case remaining
subject to the escrow agreement, and will only be released prior to that date if
we are forced to liquidate, in which case the shares would be destroyed, or if
we were to consummate a transaction after the consummation of a business
combination which results in all of the stockholders of the combined entity
having the right to exchange their shares of common stock for cash, securities
or other property.
Rule 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares of our common stock for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of either of the following:
o 1% of the number of shares of common stock then outstanding, which
will equal 156,250 shares immediately after this offering (or
179,750 shares, if the underwriter's exercise their over-allotment
option); and
o The average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a notice on Form 144
with respect to the sale.
Sales under Rule 144 also require compliance with the manner of sale
provisions and notice requirements and upon the availability of current public
information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at the time of or at any time during the three months preceding a
sale, and who has beneficially owned the restricted shares proposed to be sold
for at least two years, including the holding period of any prior owner other
than an affiliate, is entitled to sell his, her or its shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
SEC Position on Rule 144 Sales
The Securities and Exchange Commission has taken the position that
promoters or affiliates of a blank check company and their transferees, both
before and after a business combination, would act as an "underwriter" under the
Securities Act when reselling the securities of a blank check company.
Accordingly, Rule 144 may not be available for the resale of those securities
despite technical compliance with the requirements of Rule 144, in which event
the resale transactions would need to be made through a registered offering.
46
Registration Rights
The holders of our 3,125,000 issued and outstanding shares of common stock
on the date of this prospectus will be entitled to registration rights pursuant
to an agreement to be signed prior to or on the effective date of this offering.
The holders of the majority of these shares are entitled to make up to two
demands that we register these shares. The holders of the majority of these
shares can elect to exercise these registration rights at any time after the
date on which these shares of common stock are released from escrow. In
addition, these stockholders have certain "piggy-back" registration rights on
registration statements filed subsequent to the date on which these shares of
common stock are released from escrow. We will bear the expenses incurred in
connection with the filing of any such registration statements.
47
UNDERWRITING
In accordance with the terms and conditions contained in the underwriting
agreement, we have agreed to sell to Rodman & Renshaw, LLC, on a firm commitment
basis, 12,500,000 units. A copy of the underwriting agreement has been filed as
an exhibit to the registration statement of which this prospectus forms a part.
State Blue Sky Information
We will offer and sell the units to retail customers only in Colorado,
Delaware, the District of Columbia, Florida, Hawaii, Illinois, Indiana,
Maryland, New Jersey, New York, Rhode Island and Texas. In New York, we have
relied on our exemption from the state registration requirements for
transactions between an issuer and an underwriter involving a firm-commitment
underwritten offering. In the other states, we have relied on an exemption or we
have applied to have the units registered for sale and will not sell the units
in these states until such registration is effective (including in Colorado,
pursuant to 11-51-302(6) of the Colorado Revised Statutes).
If you are not an institutional investor, you may purchase our securities
in this offering only in the jurisdictions described directly above.
Institutional investors in every state except in Idaho and Oregon may purchase
the units in this offering pursuant to exemptions provided to such entities
under the Blue Sky laws of various states. The definition of an "institutional
investor" varies from state to state but generally includes financial
institutions, broker-dealers, banks, insurance companies and other qualified
entities.
Under the National Securities Markets Improvement Act of 1996, the resale
by stockholders of the units, from and after the effective date, and the common
stock and warrants comprising the units, once they become separately
transferable are exempt from state registration requirements because we will
file periodic and annual reports under the Securities Exchange Act of 1934.
However, states are permitted to require notice filings and collect fees with
regard to these transactions and a state may suspend the offer and sale of
securities within such state if any such required filing is not made or fee is
not paid. As of the date of this prospectus, the following states do not
presently require any notice filings or fee payments and permit the resale by
stockholders of the units, and the common stock and warrants comprising the
units, once they become separately transferable:
o Alabama, Alaska, Arizona, Arkansas, California, Colorado,
Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana,
Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Minnesota,
Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New
York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Dakota,
Utah, Virginia, Washington, West Virginia, Wisconsin and Wyoming.
Additionally, the following states permit the resale of the units, and
the common stock and warrants comprising the units, once they become separately
transferable, if the proper notice filings have been made and fees paid:
o The District of Columbia, Illinois, Maryland, Michigan, Montana, New
Hampshire, North Dakota, Ohio, Oregon, Rhode Island, South Carolina,
Tennessee, Texas and Vermont.
As of the date of this prospectus, we have not determined in which, if
any, of these states we will submit the required filings or pay the required
fee. Additionally, if any of these states that has not yet adopted a statute,
rule or regulation relating to the National Securities Markets Improvement Act
adopts such a statute, rule or regulation in the future requiring a filing or
fee or if any state amends its existing statutes with respect to its
requirements, we would need to comply with those new requirements in order for
the securities to continue to be eligible for resale in those jurisdictions.
We believe that the units, from and after the effective date, and the
common stock and warrants comprising the units, once they become separately
transferable, will be eligible for sale on a secondary market basis in each of
the following states, without any notice filings or fee payments, based upon the
availability of another applicable exemption from the state's registration
requirements:
48
o Immediately in the District of Columbia, Illinois and Maryland; and
o Commencing 90 days after the date of this prospectus in Rhode
Island.
Pricing of Securities
We have been advised by the underwriter that it proposes to offer the
units to the public at the initial offering price set forth on the cover page of
this prospectus. The underwriter may allow some dealers concessions not in
excess of $ per unit and the dealers may reallow a concession not in excess of $
per unit to other dealers.
Prior to this offering, there has been no public market for any of our
securities. The public offering price of the units and the terms of the warrants
were negotiated between us and the underwriter. Factors considered in
determining the prices and terms of the units, including the common stock and
warrants underlying the units, include:
o The history and prospects of companies whose principal business is
the acquisition of other companies;
o Prior offerings of those companies;
o Our prospects for acquiring an operating business at attractive
values;
o Our capital structure;
o An assessment of our management and their experience in identifying
operating companies;
o General conditions of the securities markets at the time of the
offering; and
o Other factors as were deemed relevant.
However, although these factors were considered, the determination of our
offering price is more arbitrary than the pricing of securities for an operating
company in a particular industry since the underwriter is unable to compare our
financial results and prospects with those of public companies operating in the
same industry.
Over-Allotment Option
We have also granted to the underwriter an option, exercisable during the
45-day period commencing on the date of this prospectus, to purchase from us at
the offering price, less underwriting discounts, up to an aggregate of 1,875,000
additional units for the sole purpose of covering over-allotments, if any. The
over- allotment option will only be used to cover the net syndicate short
position resulting from the initial distribution. The underwriter may exercise
that option if the underwriter sells more units than the total number set forth
above.
49
Commissions and Discounts
The following table shows the public offering price, underwriting discount
to be paid by us to the underwriter and the proceeds, before expenses, to us.
This information assumes either no exercise or full exercise by the underwriter
of its over-allotment option.
Per unit Without option With option
--------- ------------ ------------
Public offering price $ 8.00 $100,000,000 $115,000,000
Discount $ 0.48 $ 6,000,000 $ 6,900,000
Proceeds before expenses(2) $ 7.52 $ 94,000,000 $108,100,000
(1) The offering expenses are estimated to be approximately $550,000.
Warrant Solicitation Fee
We have engaged Rodman & Renshaw, LLC, the underwriter, on a
non-exclusive basis, as our agent for the solicitation of the exercise of the
warrants. To the extent not inconsistent with the guidelines of the NASD and the
rules and regulations of the SEC, we have agreed to pay the underwriter for bona
fide services rendered a commission equal to 5% of the exercise price for each
warrant exercised more than one year after the date of this prospectus for cash
or, if a warrant is exercised by cashless exercise, either .05 shares of common
stock for each share issued or 5% of the value of each share issued (the method
of payment to be at our discretion), in either case only if the exercise had
been solicited by the underwriter. In addition to soliciting, either orally or
in writing, the exercise of the warrants, the underwriter's services may also
include disseminating information, either orally or in writing, to warrant
holders about us or the market for our securities, and assisting in the
processing of the exercise of the warrants. No compensation will be paid to the
underwriter upon the exercise of the warrants if:
o The market price of the underlying shares of common stock is lower
than the exercise price;
o The holder of the warrants has not confirmed in writing that the
underwriter solicited the exercise;
o The warrants are held in a discretionary account;
o The warrants are exercised in an unsolicited transaction; or
o The arrangement to pay the commission is not disclosed in the
prospectus provided to warrant holders at the time of exercise.
Purchase Option
We have agreed to sell to the underwriter, for $100, an option to purchase
up to a total of 625,000 units. The units issuable upon exercise of this option
are identical to those offered by this prospectus. This option is exercisable at
$8.80 per unit, commencing on the later of the consummation of a business
combination and one year from the date of this prospectus, and expiring five
years from the date of this prospectus. The option and the 625,000 units, the
625,000 shares of common stock and the 625,000 warrants underlying such units,
and the 625,000 shares of common stock underlying such warrants, have been
deemed to be compensation by the NASD and are therefore subject to a 180-day
lock-up pursuant to Rule 2710(g)(1) of the NASD Conduct Rules. Additionally, the
option may not be sold, transferred, assigned, pledged or hypothecated for a
one-year period (including the foregoing 180-day period) following the date of
this prospectus. However, the option may be transferred to any underwriter and
selected dealer participating in the offering and their bona fide officers or
partners. Although the purchase option and its underlying securities have been
registered under the registration statement of which this prospectus forms a
part, the option grants to holders demand and "piggy back" rights for periods of
five and seven years, respectively, from the date of this prospectus with
respect to the registration under the Securities Act of the securities directly
and indirectly issuable upon exercise of the option. We will bear all fees and
expenses attendant to registering the securities, other than underwriting
commissions which will be paid for by the holders themselves. The exercise price
and number of units issuable upon exercise of the option may be adjusted in
certain circumstances, including in the event of a stock dividend, or our
recapitalization, reorganization, merger or consolidation. However, the option
will not be adjusted for issuances of common stock at a price below its exercise
price.
50
Regulatory Restrictions on Purchase of Securities
Rules of the SEC may limit the ability of the underwriter to bid for or
purchase our securities before the distribution of the securities is completed.
However, the underwriter may engage in the following activities in accordance
with the rules:
o Stabilizing Transactions. The underwriter may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of our
securities, so long as stabilizing bids do not exceed the maximum
price specified in Regulation M of the SEC, which generally
requires, among other things, that no stabilizing bid shall be
initiated at or increased to a price higher than the lower of the
offering price or the highest independent bid for the security on
the principal trading market for the security.
o Over-Allotments. The underwriter may create a short position in our
securities by selling more of our securities than are set forth on
the cover page of this prospectus. If the underwriter creates a
short position during the offering, the underwriter may elect to
reduce any short position by exercising all or part of the
over-allotment option.
Stabilization and syndicate covering transactions may cause the price of
the securities to be higher than they would be in the absence of these
transactions. The imposition of a penalty bid might also have an effect on the
prices of the securities if it discourages resales of the securities.
Neither we nor the underwriter makes any representation or prediction as
to the effect that the transactions described above may have on the prices of
the securities. These transactions may occur on the OTC Bulletin Board, in the
over-the-counter market or on any trading market. If any of these transactions
are commenced, they may be discontinued without notice at any time.
Other Terms
We have granted the underwriter the right to have its designee present at
all meetings of our board of directors for the earlier of two years from the
date of this prospectus or the date a business combination is consummated. The
designee will be entitled to the same notices and communications sent by us to
our directors and to attend directors' meetings, but will not have voting
rights. The underwriter has not named a designee as of the date of this
prospectus.
Although we are not under any contractual obligation to engage the
underwriter to provide any services for us after this offering, and have no
present intent to do so, the underwriter may, among other things, introduce us
to potential target businesses or assist us in raising additional capital, as
needs may arise in the future. If the underwriter provides services to us after
this offering, we may pay the underwriter fair and reasonable fees that would be
determined at that time in an arm's length negotiations.
Indemnification
We have agreed to indemnify the underwriter against some liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments the underwriter may be required to make in this respect.
51
LEGAL MATTERS
The validity of the securities offered in this prospectus are being passed
upon for us by Loeb & Loeb LLP, New York, New York. Morse Zelnick Rose & Lander,
LLP, New York, New York, is acting as counsel for the underwriter in this
offering.
EXPERTS
The financial statements included in this prospectus and in the
registration statement have been audited by Goldstein Golub Kessler LLP,
independent registered public accounting firm, to the extent and for the period
set forth in their report appearing elsewhere in this prospectus and in the
registration statement. The financial statements and the report of Goldstein
Golub Kessler LLP are included in reliance upon their report given upon the
authority of Goldstein Golub Kessler LLP as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, which
includes exhibits, schedules and amendments, under the Securities Act, with
respect to this offering of our securities. Although this prospectus, which
forms a part of the registration statement, contains all material information
included in the registration statement, 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 us,
our securities and this offering. The registration statement and its exhibits,
as well as our other reports filed with the SEC, can be inspected and copied at
the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549-1004. The public may obtain information about the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains a web site at http://www.sec.gov which contains the Form S-1 and other
reports, proxy and information statements and information regarding issuers that
file electronically with the SEC.
52
ARGYLE SECURITY ACQUISITION CORPORATION
(a corporation in the development stage)
FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
JULY 11, 2005
F-1
ARGYLE SECURITY ACQUISITION CORPORATION
(a corporation in the development stage)
CONTENTS
Report of Independent Registered Public Accounting Firm F-3
Financial Statements
Balance Sheet F-4
Statement of Operations F-5
Statement of Stockholders' Equity F-6
Statement of Cash Flows F-7
Notes to Financial Statements F-8-F-10
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Argyle Security Acquisition Corporation
We have audited the accompanying balance sheet of Argyle Security
Acquisition Corporation (a corporation in the development stage) as of July 11,
2005, and the related statement of operations, stockholders' equity, and cash
flows for the period from June 22, 2005 (inception) to July 11, 2005. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Argyle Security Acquisition
Corporation as of July 11, 2005, and the results of its operations and its cash
flows for the period from June 22, 2005 (inception) to July 11, 2005, in
conformity with United States generally accepted accounting principles.
/s/ Goldstein Golub Kessler LLP
- -------------------------------
New York, New York
July 12, 2005
F-3
ARGYLE SECURITY ACQUISITION CORPORATION
(a corporation in the development stage)
BALANCE SHEET
July 11, 2005
------------
ASSETS
Current asset, cash $ 53,414
Other assets, deferred offering costs 96,586
------------
Total assets $ 150,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expenses $ 1,385
Notes payable, stockholders 125,000
------------
Total current liabilities 126,385
============
Commitments and contingencies
Stockholders' equity
Preferred stock, $.0001 par value, authorized 1,000,000 shares; none issued --
Common stock, $.0001 par value, authorized 89,000,000 shares; issued and outstanding
3,125,000 shares 313
Paid-in capital in excess of par 24,687
Deficit accumulated during the development stage (1,385)
------------
Total stockholders' equity $ 23,615
------------
Total liabilities and stockholders' equity $ 150,000
============
See accompanying notes to financial statements.
F-4
ARGYLE SECURITY ACQUISITION CORPORATION
(a corporation in the development stage)
STATEMENT OF OPERATIONS
For the period from
June 22, 2005
(inception) to
July 11, 2005
-------------
Formation and operating costs $ 1,385
-------------
Net loss $ 1,385
-------------
Weighted average shares outstanding (basic and diluted) 3,125,000
-------------
Net loss per share (basic and diluted) $ (0.00)
=============
See accompanying notes to financial statements.
F-5
ARGYLE SECURITY ACQUISITION CORPORATION INTERNATIONAL
(a corporation in the development stage)
STATEMENT OF STOCKHOLDERS' EQUITY
For the period from June 22, 2005 (inception) to July 11, 2005
--------------------------------------------------------------------------
Common Stock Deficit Accumulated
-------------------------- Paid-in Capital During the Stockholders'
Shares Amount in Excess of Par Development Stage Equity
----------- ----------- ----------- --------------- -----------
Common shares issued,
June 23, 2005 at $.01 3,125,000 $ 313 $ 24,687 $ 25,000
Net loss $ (1,385) $ (1,385)
--------- ----------- ----------- --------------- -----------
Balances, at
July 11, 2005 3,125,000 $ 313 $ 24,687 $ (1,385) $ 23,615
========= =========== =========== =============== ============
See accompanying notes to financial statements.
F-6
ARGYLE SECURITY ACQUISITION CORPORATION
(a corporation in the development stage)
STATEMENT OF CASH FLOWS
For the period from
June 22, 2005
(inception) to
July 11, 2005
---------------
Cash flows from operating activities
Net loss (1,385)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Changes in:
Accrued expenses 1,385
---------------
Net cash provided by operating activities 0
---------------
Cash flows from financing activities
Proceeds from notes payable, stockholders 125,000
Proceeds from sale of common stock 25,000
Payments made for deferred offering costs (96,586)
---------------
Net cash provided by financing activities 53,414
---------------
Net increase in cash 53,414
---------------
Cash, beginning of period 0
---------------
Cash, end of period 53,414
===============
See accompanying notes to financial statements.
F-7
ARGYLE SECURITY ACQUISITION CORPORATION
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
1. Organization, proposed business operations and summary of significant
accounting policies
Nature of Operations
Argyle Security Acquisition Corporation (the "Company") was incorporated
in Delaware on June 22, 2005 as a blank check company formed to acquire, through
merger, capital stock exchange, asset acquisition or other similar business
combination, one or more businesses in the security industry.
At July 11, 2005, the Company had not yet commenced any operations. All
activity through July 11, 2005 relates to the Company's formation and the
proposed public offering described below. The Company has selected December 31
as its fiscal year-end.
The Company's ability to commence operations is contingent upon obtaining
adequate financial resources through a proposed public offering ("Proposed
Offering") which is discussed in Note 2. The Company's management has broad
discretion with respect to the specific application of the net proceeds of this
Proposed Offering, although substantially all of the net proceeds of this
Proposed Offering are intended to be generally applied toward consummating a
business combination with an operating company. As used herein, a "target
business" shall include an operating business in the security industry and a
"business combination" shall mean the acquisition by the Company of one or more
of such a target businesses.
Upon the closing of the Proposed Offering, $90,625,000, or 90.6%, of the
proceeds of this offering ($7.25 per unit) will be placed in a trust account at
JP Morgan Chase NY Bank maintained by American Stock Transfer & Trust Company
and invested until the earlier of (i) the consummation of the Company's first
business combination or (ii) the liquidation of the Company. The remaining
proceeds may be used to pay for business, legal and accounting due diligence on
prospective acquisitions and continuing general and administrative expenses.
The Company, after signing a definitive agreement for the acquisition of a
target business, will submit such transaction for stockholder approval. In the
event that stockholders owning 20% or more of the outstanding stock excluding
for this purpose, those persons who were stockholders prior to the Proposed
Offering, vote against the business combination, the business combination will
not be consummated. All of the Company's stockholders prior to the Proposed
Offering, including all of the officers and directors of the Company ("Existing
Stockholders"), have agreed to vote their 3,125,000 founding shares of common
stock in accordance with the vote of the majority in interest of all other
stockholders of the Company ("Public Stockholders") with respect to any business
combination. After consummation of the Company's first business combination, all
of these voting safeguards will no longer be applicable.
With respect to the first business combination which is approved and
consummated, any Public Stockholder who voted against the business combination
may demand that the Company redeem his, her or its shares. The per share
redemption price will equal the amount in the Trust Account as of the record
date for determination of stockholders entitled to vote on the business
combination divided by the number of shares of common stock held by Public
Stockholders at the consummation of the Proposed Offering. Accordingly, Public
Stockholders holding 19.99% of the aggregate number of shares owned by all
Public Stockholders may seek redemption of their shares in the event of a
business combination. Such Public Stockholders are entitled to receive their per
share interest in the Trust Account computed without regard to the shares held
by Existing Stockholders.
The Company's Certificate of Incorporation provides for mandatory
liquidation of the Company, without stockholder approval, in the event that the
Company does not consummate a business combination within 18 months from the
date of the consummation of the Proposed Offering, or 24 months from the
consummation of the Proposed Offering if certain extension criteria have been
satisfied. In the event of liquidation, it is likely that the per share value of
the residual assets remaining available for distribution (including Trust
Account assets) will be less than the initial public offering price per share in
the Proposed Offering (assuming no value is attributed to the Warrants contained
in the Units (as defined below) to be offered in the Proposed Offering discussed
in Note 2.)
F-8
Income Taxes
The Company recorded a deferred income tax asset of approximately $471 for
the tax effect of net operating loss carryforwards and temporary differences,
aggregating $1,385. In recognition of the uncertainty regarding the ultimate
amount of income tax benefits to be derived, the Company has recorded a full
valuation allowance at July 11, 2005
The effective tax rate differs from the statutory rate of 34% due to the
increase in the valuation allowance.
Recently issued accounting pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004), "Share based payment" ("SFAS 123(R)"). SFAS 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. The new standard allows for two transition alternatives, either the
modified-prospective method or the modified-retrospective method. The Company
has not completed its evaluation of SFAS 123(R) and therefore has not selected a
transition method or determined the impact that adopting SFAS 123(R) will have
on its results of operations. On April 14, 2005, the Securities and Exchange
Commission announced that the effective date of SFAS 123R will be suspended
until January 1, 2006, for calendar year companies. The Company anticipates
adopting the prospective method of SFAS 123R in the first quarter of fiscal 2006
but it has not yet determined the financial statement impact of adopting SFAS
123R.
Management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the accompanying financial statements.
Loss Per Common Share
Loss per share is computed by dividing net loss by the weighted-average
number of shares of common stock outstanding during the period.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of expenses during the reporting period. Actual results could differ
from those estimates.
2. Proposed Public Offering
The Proposed Offering calls for the Company to offer for public sale up to
12,500,000 units ("Units") at a maximum price of $8.00 per Unit. Each unit
consists of one share of the Company's common stock, $.0001 par value, and one
Redeemable Common Stock Purchase Warrant ("Warrant"). Each Warrant will entitle
the holder to purchase from the Company one share of common stock at an exercise
price of $6.00 commencing the later of the completion of a business combination
with a target business or one year from the effective date of the Proposed
Offering and expiring five years from the date of the prospectus. An additional
1,875,000 units may be issued on exercise of a 45-day option granted to the
underwriter to cover any over-allotments. The Warrants will be redeemable at a
price of $.01 per Warrant upon 30 days notice after the Warrants become
exercisable, only in the event that the last sale price of the common stock is
at least $11.50 per share for any 20 trading days within a 30 trading day period
ending on the third day prior to the date on which notice of redemption is
given.
3. Deferred Offering Costs
Deferred offering costs consist principally of accounting fees, legal fees
and other fees incurred through the balance sheet date that are related to the
Proposed Offering and that will be charged to capital upon the receipt of the
capital raised.
4. Notes Payable, Stockholders
The Company issued unsecured promissory notes to certain stockholders of
the Company totaling $125,000 on June 23 and July 6, 2005. The Notes bear
interest at the rate of 4% per annum and are payable on the earlier of June 30,
2006 or the consummation of the Proposed Offering. Due to the short-term nature
of the Notes, the fair value of the Notes approximate their carrying value.
F-9
5. Commitments and contingencies
The Company has granted to its Existing Stockholders options, exercisable
at $0.008 per share, to purchase that number of shares which will enable them to
maintain their 20% ownership interest after the offering in the event the
underwriter exercises the over-allotment option.
We have elected to follow Accounting Principles Board Opinion No. 25 in
accounting for our stock options. Under Accounting Principles Board Opinion No.
25, no compensation expense is recognized when the exercise price of our stock
options equals the market price of the underlying stock on the date of grant.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for:
weighted-average volatility factor of 0.10; no expected dividend payments;
weighted-average risk-free interest rates in effect of 5.0%; and a
weighted-average expected life of 0.13 years. Based upon the above methodology,
the per share weighted-average fair value of the Existing Stockholders' options
would be $6.99, or a total of $3,276,562.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because our Existing Stockholders' options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of our employee stock options.
Certain stockholders have agreed that after this offering is completed and
within the first 45 days after separate trading of the warrants has commenced,
they or certain of their affiliates or designees will collectively purchase up
to 1,200,000 warrants in the public marketplace at prices not to exceed $1.20
per warrant. They have further agreed that any warrants purchased by them, or
their affiliates or designees will not be sold or transferred until the
completion of a business combination.
The Company has agreed to sell to the underwriter, for $100, an option to
purchase up to a total of 625,000 units. The units issuable upon exercise of
this option are identical to those offered by this prospectus. This option is
exercisable at $8.80 per unit commencing on the later of the consummation of a
business combination and one year from the date of this prospectus and expiring
five years from the date of this prospectus. The option and the 625,000 units,
the 625,000 shares of common stock and the 625,000 warrants underlying such
units, and the 625,000 shares of common stock underlying such warrants, have
been deemed compensation by the National Association of Securities Dealers
("NASD") and are therefore subject to a 180-day lock-up pursuant to Rule
2710(g)(1) of the NASD Conduct Rules. Additionally, the option may not be sold,
transferred, assigned, pledged or hypothecated for a one-year period (including
the foregoing 180-day period) following the date of this prospectus. However,
the option may be transferred to any underwriter and selected dealer
participating in the offering and their bona fide officers or partners.
The Company has engaged the underwriter, on a non-exclusive basis, as
its agent for the solicitation of the exercise of the warrants. To the extent
not inconsistent with the guidelines of the NASD and the rules and regulations
of the Securities and Exchange Commission, the Company has agreed to pay the
underwriter for bona fide services rendered a commission equal to 5% of the
exercise price for each warrant exercised more than one year after the date of
this prospectus if the exercise was solicited by the underwriter. In addition to
soliciting, either orally or in writing, the exercise of the warrants, the
underwriter's services may also include disseminating information, either orally
or in writing, to warrant holders about the Company or the market for the
Company's securities, and assisting in the processing of the exercise of the
warrants. No compensation will be paid to the underwriter upon the exercise of
the warrants if:
o The market price of the underlying shares of common stock is
lower than the exercise price;
o The holder of the warrants has not confirmed in writing that the
underwriter solicited the exercise;
o The warrants are held in a discretionary account;
o The warrants are exercised in an unsolicited transaction; or
o The arrangement to pay the commission is not disclosed in the
prospectus provided to warrant holders at the time of exercise.
6. Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock
with such designations, voting and other rights and preferences, as may be
determined from time to time by the Board of Directors.
F-10
================================================================================
Until , 2005, all dealers that effect transactions in these securities,
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.
No dealer, salesperson or any other person is authorized to give any
information or make any representations in connection with this offering other
than those contained in this prospectus and, if given or made, the information
or representations must not be relied upon as having been authorized by us. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any security other than the securities offered by this prospectus, or an
offer to sell or a solicitation of an offer to buy any securities by anyone in
any jurisdiction in which the offer or solicitation is not authorized or is
unlawful.
$100,000,000
Argyle Security Acquisition Corporation
12,500,000 Units
PROSPECTUS
Rodman & Renshaw, LLC
, 2005
================================================================================
F-11
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses payable by us in connection with the offering
described in this registration statement (other than the underwriting discount
and commissions and the underwriter's non-accountable expense allowance) will be
as follows:
Initial Trustees' fee $ 1,000(1)
SEC Registration Fee 24,776
NASD filing fee 21,550
Accounting fees and expenses 25,000
Printing and engraving expenses 40,000
Legal fees and expenses 250,000
Blue sky services and expenses 25,000
Miscellaneous 162,674(2)
----------
Total $ 550,000
(1) In addition to the initial acceptance fee that is charged by
American Stock Transfer & Trust Company, as trustee, the registrant
will be required to pay to American Stock Transfer & Trust Company
annual fees of $3,000 for acting as trustee, $4,800 for acting as
transfer agent of the registrant's common stock, $2,400 for acting
as warrant agent for the registrant's warrants and $1,800 for acting
as escrow agent.
(2) This amount represents additional expenses that may be incurred by
the Company in connection with the offering over and above those
specifically listed above, including director and officer liability
insurance premiums, as well as distribution and mailing costs.
Item 14. Indemnification of Directors and Officers.
Our amended and restated certificate of incorporation provides that all
directors, officers, employees and agents of the registrant shall be entitled to
be indemnified by us to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation shall have 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) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, 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, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
II-1
(b) A corporation shall have 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 by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against 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 and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
II-2
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees)."
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC 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 of expenses incurred or paid by a director, officer or controlling
person in a successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to the 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.
Paragraph B of Article Eighth of our amended and restated certificate of
incorporation provides:
"The Corporation, to the full extent permitted by Section 145 of the GCL,
as amended from time to time, shall indemnify all persons whom it may indemnify
pursuant thereto. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit or proceeding for which such officer or director may be entitled to
indemnification hereunder shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized hereby."
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, we have agreed to indemnify the Underwriter, and the
Underwriter, has agreed to indemnify us against certain civil liabilities that
may be incurred in connection with this offering, including certain liabilities
under the Securities Act.
Item 15. Recent Sales of Unregistered Securities.
(a) During the past three years, we sold the following shares of common
stock without registration under the Securities Act:
Stockholders Number of Shares
- ------------------------------------------- ----------------
Argyle Joint Ventures 989,583
Argyle New Ventures, L.P. 989,583
Ron Chaimovski 989,583
John J. Smith 156,251
II-3
Such shares were issued on June 23, 2005 in connection with our
organization pursuant to the exemption from registration contained in Section
4(2) of the Securities Act as they were sold to sophisticated, wealthy
individuals. The shares issued to the individuals and entities above were sold
for an aggregate offering price of $25,000 or $0.008 per share. No underwriting
discounts or commissions were paid with respect to such sales.
On July 6, 2005, the aforementioned stockholders were issued warrants to
purchase such additional number of shares as would maintain their respective
percentage ownership in the event the underwriter's over-allotment option is
exercised. The exercise price of these warrants is $0.008 per share.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this Registration
Statement:
Exhibit No. Description
- ----------- ----------------------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
3.1 Certificate of Incorporation
3.2 By-laws
4.1 Specimen Unit Certificate*
4.2 Specimen Common Stock Certificate*
4.3 Specimen Warrant Certificate*
4.4 Form of Warrant Agreement between American Stock Transfer & Trust Company and the Registrant
4.5 Form of Unit Purchase Option to be granted to the underwriter*
5.1 Opinion of Loeb & Loeb LLP*
10.1 Form of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and Argyle Joint Ventures.
10.2 Form of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and Argyle New Ventures L.P.
10.3 Form of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and John J. Smith
10.4 Form of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and Ron Chaimovski
10.5 Form of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and Bob Marbut
10.6 Form of Investment Management Trust Agreement between American Stock Transfer & Trust Company and the
Registrant
10.7 Form of Stock Escrow Agreement between the Registrant, American Stock Transfer & Trust Company and the
existing stockholders
10.8 Promissory Note dated June 23, 2005 issued to Argyle New Ventures, L.P.
10.9 Promissory Note dated July 6, 2005 issued to Ron Chaimovski
10.10 Form of Registration Rights Agreement among the Registrant and the existing stockholders
10.11 Form of Warrant Purchase Agreement between the existing stockholders and Rodman & Renshaw, LLC
23.1 Consent of Goldstein Golub Kessler LLP
23.2 Consent of Loeb & Loeb LLP (included in Exhibit 5.1)*
24 Power of Attorney
* To be filed by amendment
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-4
ii. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
iii. To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(c) 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 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 or
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 Act and will
be governed by the final adjudication of such issue.
(d) 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.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in New York, New York
on July 12, 2005.
Argyle Security Acquisition Corporation
By: /s/ Bob Marbut
-----------------------------------------
Bob Marbut
Chairman and Co-Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bob Marbut his true and lawful attorney-in-fact,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities to sign any and all amendments
including post-effective amendments to this registration statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute, each acting alone,
may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.
Signature Title Date
-------------- ---------------------------------------------- ---------------
/s/ Bob Marbut Chairman and Co-Chief Executive Officer
- ------------------ (principal financial and accounting officer) July 12, 2005
Bob Marbut
/s/ Ron Chaimovski Vice Chairman and Co-Chief Executive Officer
- ------------------ (principal executive officer) July 12, 2005
Ron Chaimovski
/s/ John J. Smith Director
- ------------------ July 12, 2005
John J. Smith
II-6