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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED March 31, 2007
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-33279
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NTR ACQUISITION CO.
(Exact name of registrant as specified in its charter)
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Delaware 13-4335685
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Mill Plain Road, Suite 320
Danbury, CT 06811
(Address of principal executive office)
(203) 546-3437
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |_|. Accelerated filer |_|. Non-accelerated filer |X|.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |X| No |_|.
The number of outstanding shares of the Registrant's common stock, $0.001 par
value, as of May 11, 2007 was 14,287,675.
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TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 1
Item 3. Quantitative and Qualitative Disclosures About Market Risk 4
Item 4. Controls and Procedures 5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 5
Item 1A. Risk Factors 5
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of the Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits 22
SIGNATURES 23
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Reference is made to our financial statements and accompanying notes
beginning on Page F-1 of this report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with our combined
consolidated financial statements and the notes thereto included elsewhere in
this Form 10-Q.
This Form 10-Q contains forward-looking statements regarding the plans and
objectives of management for future operations. This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from
future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology. These
forward-looking statements are based on assumptions that may be incorrect, and
we cannot assure you that these projections included in these forward-looking
statements will come to pass. Our actual results could differ materially from
those expressed or implied by the forward-looking statements as a result of
various factors.
We have based the forward-looking statements included in this quarterly
report on Form 10-Q on information available to us on the date of this quarterly
report on Form 10-Q, and we assume no obligation to update any such
forward-looking statements. Although we undertake no obligation to revise or
update any forward-looking statements, whether as a result of new information,
future events or otherwise, you are advised to consult any additional
disclosures that we may make directly to you or through reports that we in the
future may file with the SEC, including annual reports on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our financial
statements and the related notes and schedules thereto.
We are a blank check company incorporated in Delaware on June 2, 2006. We
were formed to acquire, through a merger, capital stock exchange, asset
acquisition or other similar business combination, which we refer to as our
"initial business combination," one or more businesses or assets in the energy
industry, with a particular focus on businesses or assets involved in the
refining, distribution and marketing of petroleum products in North America. We
intend to use cash derived from the net proceeds of our initial public offering,
and the exercise by the underwriters of their over-allotment option, together
with any additional financing arrangements that we undertake, to effect an
initial business combination.
On June 20, 2006, we consummated a private placement of our common stock
and warrants to NTR Partners LLC for an aggregate purchase price of $2,525,000.
On December 15, 2006, we reacquired for nominal consideration 1,562,500 of those
shares for retirement as well as all 1,750,000 of the performance warrants for
cancellation. Immediately prior to the issuance and sale of the securities in
our IPO, NTR Partners LLC, our director Mr. Ortale, Sewanee Partners III, L.P.
(affiliated with Mr. Ortale), Hendricks Family LLLP (affiliated with our
director Mrs. Hendricks), Gilliam Enterprises LLC (affiliated with our Chairman
Mr. Gilliam) and our director Mr. Quarles collectively purchased 3,350,000
warrants directly from us at a price of $1.00 per warrant, for an aggregate
purchase price of $3.35 million in a private placement.
On February 5, 2007, we closed our initial public offering of 24,000,000
units with each unit consisting of one share of our common stock and one
warrant, each to purchase one share of our common stock at an exercise price of
1
$7.50 per share, and received gross proceeds of approximately $240.00 million.
On February 22, 2007, we consummated the closing of an additional 557,205 units
which were subject to the over-allotment option, which generated net proceeds of
approximately $5.57 million.
As of March 31, 2007, approximately $241,697,789 was held in trust and we
had approximately $209,210 of unrestricted cash available to us for our
activities in connection with identifying and conducting due diligence of a
suitable business combination, and for general corporate matters.
Our initial business combination must involve one or more target
businesses having a fair market value, individually or collectively, equal to at
least 80% of the balance in the trust account (excluding deferred underwriting
discounts and commissions of $7.37 million). However, we may not use all of the
proceeds held in the trust account in connection with a business combination,
either because the consideration for the business combination is less than the
proceeds in trust or because we finance a portion of the consideration with
capital stock or debt securities that we can issue. In that event, 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 or businesses.
We may issue additional capital stock or debt securities to finance a
business combination. The issuance of additional capital stock, including upon
conversion of any convertible debt securities we may issue, or the incurrence of
debt, could have material consequences on our business and financial condition.
The issuance of additional shares of our capital stock (including upon
conversion of convertible debt securities):
o may significantly reduce the equity interest of our stockholders;
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 may also result in the resignation or removal of one or
more of our current 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 revenues
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 require 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 do so.
Through March 31, 2007, our efforts have been limited to organizational
activities, activities relating to our initial public offering, activities
relating to identifying and evaluating prospective acquisition candidates, and
activities relating to general corporate matters; we have neither engaged in any
operations nor generated any revenues, other than interest income earned on the
proceeds of our private placement and initial public offering. For the three
months ended March 31, 2007, we earned approximately $1,896,921.
As of March 31, 2007, we had approximately $209,210 of unrestricted cash
available to us for our activities in connection with identifying and conducting
due diligence of a suitable business combination, and for general corporate
matters. The following table shows the total funds held in the trust account
through March 31, 2007:
2
Gross proceeds from our initial public offering and private placement of common
stock and warrants placed in trust $ 247,491,330
Deferred underwriters' discounts and compensation (7,367,162)
Total interest earned to date 1,878,867
Less total interest disbursed to us for working capital through March 31, 2007 (305,246)
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Total funds held in trust account through March 31, 2007 $ 241,697,789
===============
For the quarter ended March 31, 2007, we paid or incurred an aggregate of
approximately $436,099 in expenses for the following purposes:
o premiums associated with our directors and officers liability
insurance;
o payment of estimated taxes incurred as a result of interest income
earned on funds currently held in the trust account;
o expenses for due diligence and investigation of prospective target
businesses;
o legal and accounting fees relating to our SEC reporting obligations
and general corporate matters; and
o miscellaneous expenses.
We believe that we will have sufficient funds to allow us to operate
through January 30, 2009, assuming that a business combination is not
consummated during that time. Approximately $6,600,000 of working capital over
this time period will be funded from the interest earned from the funds held in
the trust account. Over this time period, we anticipate incurring expenses for
the following purposes:
o payment of premiums associated with our director's and officer's
insurance;
o payment of estimated taxes incurred as a result of interest income
earned on funds currently held in the trust account;
o due diligence and investigation of prospective target businesses;
o legal and accounting fees relating to our SEC reporting obligations
and general corporate matters;
o structuring and negotiating a business combination, including the
making of a down payment or the payment of exclusivity or similar
fees and expenses; and
o other miscellaneous expenses.
Recent Accounting Pronouncements
Accounting for Uncertainty in Income Taxes -- In June 2006, the FASB
issued SFAS Interpretation No. 48, Accounting for Uncertainty in Income Taxes
("FIN 48"), an interpretation of SFAS No. 109 Accounting for Income Taxes ("SFAS
No. 109"). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with SFAS No.
109. FIN 48 prescribes a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax provision taken or
expected to be taken in a tax return. FIN 48 also provides guidance on the
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The adoption of FIN 48 will be effective for
fiscal periods beginning after December 15, 2006. The Company does not expect
that the adoption of FIN 48 will a have a material effect on the Company's
consolidated financial position or results of operations.
Fair Value Measurements--In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement ("SFAS 157"). SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and is effective for fiscal years
beginning November 15, 2007. The Company is currently evaluating the adoption of
SFAS 157 and its impact on the consolidated financial position and results of
operation.
3
Recent Developments
On March 12, 2007, we withdrew approximately $280,000 of interest earned
on the funds held in the trust account. On March 19, 2007, we withdrew
approximately $25,246 of additional interest earned on the funds held in the
trust account. As of May 4, 2007, after giving effect to our withdrawal of
additional interest earned on the funds held in the trust account, approximately
$242,683,595 was held in trust and we had approximately $30,906 of unrestricted
cash available to us for our activities in connection with identifying and
conducting the due diligence of a suitable business combination, and for general
corporate matters.
Critical Accounting Policies
The preparation of financial statements and related disclosures in
conformity with generally accepted accounting principles in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following as our critical accounting policies:
Cash and cash equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Earnings per common share
Earnings per share is computed by dividing net income applicable to common
stockholders by the weighted average number of common shares outstanding for 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 and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Income taxes
Deferred income taxes are provided for the differences between the bases
of assets and liabilities for financial reporting and income tax purposes. The
Company recorded a deferred income tax asset for the tax effect of temporary
differences, aggregating $64,000. The Company's effective tax rate of 34% is
equal to the Federal Statutory rate of 34%.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
To date, our efforts have been limited to organizational activities,
activities relating to our initial public offering and the identification of a
target business. We have neither engaged in any operations nor generated any
revenues. As the proceeds from our initial public offering held in trust have
been invested in short term investments, our only market risk exposure relates
to fluctuations in interest rates.
As of March 31, 2007, approximately $241,697,789 (excluding approximately
$7,367,162 of deferred underwriting discounts and commissions) was held in trust
for the purposes of consummating a business combination. The proceeds held in
trust (including approximately $7,367,162 of deferred underwriting discounts and
commissions) have been invested in a money market fund that invests principally
in short-term securities issued or guaranteed by the United States. As of March
31, 2007, the effective annualized interest rate payable on our investment was
approximately 5.13%. Assuming no other changes to our holdings as of March 31,
2007, a 1% decrease in the underlying interest rate payable on our investment as
of March 31, 2007 would result in a decrease of approximately $261,554 in the
interest earned on our investment for the following 90-day period, and a
corresponding decrease in our net increase in stockholders' equity resulting
from operations, if any, for that period.
4
We have not engaged in any hedging activities since our inception on June
2, 2006. However, following our initial business combination, we may engage in
short sales and utilize derivative instruments such as options, futures, forward
contracts, interest rate swaps, caps and floors, to hedge against exposure to
fluctuations in the price of crude oil, refined petroleum products and other
energy portfolio positions, as well as foreign currency exchange and interest
rates. Hedging transactions may not be as effective as we intend in reducing our
exposure to these fluctuations and any resulting volatility in our cash flows,
and if we incorrectly assess market trends and risks, may result in a poorer
overall performance than if we had not engaged in any such hedging transactions.
Item 4. Controls and Procedures.
As of March 31, 2007, we, including our chief executive officer and our
principal financial officer, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
our chief executive officer and principal financial officer concluded that our
disclosure controls and procedures were effective in timely alerting management,
including the chief executive officer, of material information about us required
to be included in periodic Securities and Exchange Commission filings.
There have been no changes in our internal control over financial
reporting since December 31, 2006 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently subject to any material legal proceedings, nor, to
our knowledge, is any material legal proceeding threatened against us. From time
to time, we may be a party to certain legal proceedings incidental to the normal
course of our business. While the outcome of these legal proceedings cannot be
predicted with certainty, we do not expect that these proceedings will have a
material effect upon our financial condition or results of operations.
Item 1A. Risk Factors.
Risks Associated With Our Business
We are a development stage company with no operating history and no revenues,
and you have no basis on which to evaluate our ability to achieve our business
objective.
We are a recently incorporated development stage company with no operating
results, and we will not commence operations until we complete an initial
business combination. Because we lack an operating history, you have no basis on
which to evaluate our ability to achieve our business objective of completing an
initial business combination with one or more target businesses. We have no
plans, arrangements or understandings with any prospective target businesses
concerning an initial business combination and may be unable to complete an
initial business combination. We will not generate any revenues from operations
until, at the earliest, after completing an initial business combination. We
cannot assure you as to when, or if, an initial business combination will occur.
If we expend all of the $500,000 in proceeds from our initial public offering
not held in trust and interest income earned of up to $3.25 million on the
balance of the Trust Account that may be released to us to fund our working
capital requirements in seeking an initial business combination, but fail to
complete such an initial combination, we may be forced to liquidate.
We may not be able to consummate an initial business combination within the
required time frame, in which case we would be forced to liquidate.
We must complete an initial business combination with a fair market value
of at least 80% of the amount held in our Trust Account at the time of the
initial business combination (excluding deferred underwriting discounts and
commissions of $7.37 million) by January 30, 2009. If we fail to consummate a
business combination within the required time frame, we will be forced to
liquidate the Trust Account. We may not be able to find suitable target
businesses within the required time frame. In addition, our negotiating position
and our ability to conduct adequate due diligence on any potential target may be
reduced as we approach the deadline for the consummation of an initial business
combination.
5
If we liquidate before concluding an initial business combination, our public
stockholders will receive less than $10.00 per share from the distribution of
Trust Account funds and our warrants will expire worthless.
If we are unable to complete an initial business combination and must
liquidate our assets, the per-share liquidation distribution will be less than
$10.00 because of the expenses associated with our initial public offering, our
general and administrative expenses and the planned costs of seeking an initial
business combination. Furthermore, our outstanding warrants are not entitled to
participate in a liquidation distribution and the warrants will therefore expire
worthless if we liquidate before completing an initial business combination.
An effective registration statement must be in place in order for a warrant
holder to be able to exercise the warrants.
No warrants will be exercisable and we will not be obligated to issue
shares of common stock upon exercise of warrants by a holder unless, at the time
of such exercise, we have a registration statement under the Securities Act in
effect covering the shares of common stock issuable upon exercise of the
warrants. Although we have undertaken in the warrant agreement, and therefore
have a contractual obligation, to use our best efforts to have a registration
statement in effect covering shares of common stock issuable upon exercise of
the warrants from the date the warrants become exercisable and to maintain a
current prospectus relating to that common stock until the warrants expire or
are redeemed, and we intend to comply with our undertaking, we cannot assure you
that we will be able to do so. Holders of warrants may not be able to exercise
their warrants, the market for the warrants may be limited and the warrants may
be deprived of any value if there is no registration statement in effect
covering the shares of common stock issuable upon exercise of the warrants or
the prospectus relating to the common stock issuable upon the exercise of the
warrants is not current. Holders of warrants will not be entitled to a cash
settlement for their warrants if we fail to have a registration statement in
effect or a current prospectus available relating to the common stock issuable
upon exercise of the warrants, and holders' only remedies in such event will be
those available if we are found by a court of law to have breached our
contractual obligation to them by failing to do so.
So long as the founders' warrants are held by any of our founders or their
permitted transferees, those warrants will be exercisable even if, at the time
of exercise, a registration statement relating to the common stock issuable upon
exercise of such warrants is not in effect or a related current prospectus is
not available. As a result, so long as they are held by any of our founders or
their permitted transferees, the restrictions applicable to the exercise of the
founders' warrants will not be the same as those applicable to the exercise of
our public warrants. The holders of the warrants issued in our initial public
offering will not be able to exercise those warrants unless we have a
registration statement covering the shares issuable upon their exercise in
effect and a related current prospectus available.
You will not be entitled to protections normally afforded to investors in blank
check companies.
Since the net proceeds of our initial public offering are intended to be
used to complete a business combination with a target business that has not been
identified, we may be deemed a "blank check" company under the United States
securities laws. However, because upon consummation of our initial public
offering we had net tangible assets in excess of $5,000,000, we are exempt from
SEC rules that are designed to protect investors in blank check companies, such
as Rule 419 under the Securities Act. Among other things, this means we will
have a longer period of time to complete a business combination in some
circumstances than do companies subject to Rule 419. Moreover, offerings subject
to Rule 419 would prohibit the release to us of any interest earned on funds
held in the Trust Account unless and until the funds in the Trust Account were
released to us in connection with our consummation of an initial business
combination.
Under Delaware law, a court could invalidate the requirement that certain
provisions of our second amended and restated certificate of incorporation be
amended only by unanimous consent of our stockholders; amendment of those
provisions could reduce or eliminate the protections they afford to our
stockholders.
Our second amended and restated certificate of incorporation contains
certain requirements and restrictions relating to our initial public offering
that will apply to us until the consummation of our initial business
combination. Specifically, our second amended and restated certificate of
incorporation provides, among other things, that:
o upon the consummation of our initial public offering, $240,124,168
consisting of (i) $234,274,168 of the net proceeds of our initial
public offering, including $7.37 million of deferred underwriting
discounts and commissions and (ii) $5,850,000 of proceeds from the
sale of the founders' securities, was placed into the Trust Account;
6
o prior to the consummation of our initial business combination, we
shall submit the initial business combination to our stockholders
for approval;
o we may consummate our initial business combination if approved by a
majority of the shares of common stock voted by our public
stockholders at a duly held stockholders meeting, and public
stockholders owning less than 20% of the shares sold or currently
issued (excluding founder, officers and directors) in the offering
validly exercise their conversion rights;
o if a proposed initial business combination is approved and
consummated, public stockholders who exercised their conversion
rights and voted against the initial business combination may
convert their shares into cash at the conversion price;
o if our initial business combination is not consummated by January
30, 2009, then our existence will terminate and we will distribute
all amounts in the Trust Account on a pro rata basis to all of our
public stockholders;
o we may not consummate any other business combination, merger,
capital stock exchange, asset acquisition, stock purchase,
reorganization or similar transaction prior to our initial business
combination;
o we may not consummate our initial business combination with a person
or entity affiliated with any of our officers or directors or any of
their respective affiliates nor with any of the underwriters or
selling group members or their respective affiliates;
o prior to our initial business combination, we may not issue stock
that participates in any manner in the proceeds of the Trust
Account, or that votes as a class with the common stock sold in the
initial public offering on a business combination;
o our audit committee monitors compliance on a quarterly basis with
the terms of our initial public offering and, if any noncompliance
is identified, the audit committee is charged with the immediate
responsibility to take all action necessary to rectify such
noncompliance or otherwise cause compliance with the terms of our
initial public offering; and
o the audit committee shall review and approve all payments made to
our officers, directors and our and their affiliates, and any
payments made to members of our audit committee will be reviewed and
approved by our board of directors, with any interested director
abstaining from such review and approval.
Our second amended and restated certificate of incorporation requires that
prior to the consummation of our initial business combination we obtain
unanimous consent of our stockholders to amend these provisions. However, the
validity of unanimous consent provisions under Delaware law has not been
settled. A court could conclude that the unanimous consent requirement
constitutes a practical prohibition on amendment in violation of the
stockholders' statutory rights to amend the corporate charter. In that case,
these provisions could be amended without unanimous consent, and any such
amendment could reduce or eliminate the protection these provisions afford to
our stockholders. However, we view all of the foregoing provisions, including
the requirement that public stockholders owning less than 20% of the shares sold
during our initial public offering exercise their conversion rights in order for
us to consummate our initial business combination, as obligations to our
stockholders, and neither we nor our board of directors will propose any
amendment to these provisions, or support, endorse or recommend any proposal
that stockholders amend any of these provisions at any time prior to the
consummation of our initial business combination.
If third parties bring claims against us, or if we go bankrupt, the proceeds
held in trust could be reduced and the per-share liquidation price received by
you will be less than $9.78 per share.
Our placing of funds in the Trust Account may not protect those funds from
third-party claims against us. Although prior to completion of our initial
business combination, we will seek to have all third parties (including any
vendors or other entities we engage) and any prospective target businesses enter
into valid and enforceable agreements with us waiving any right, title, interest
or claim of any kind in or to any monies held in the Trust Account, there is no
guarantee that they will execute such agreements. However, to the extent we have
engaged with certain third parties, we have asked for and have obtained such
waiver agreements at this time. It is also possible that such waiver agreements
would be held unenforceable and there is no guarantee that the third parties
would not otherwise challenge the agreements and later bring claims against the
Trust Account for monies owed them. In the case of such a challenge, we will be
responsible for the cost associated with defending the validity of the
challenged waiver agreement. In addition, there is no guarantee that such
entities will agree to waive any claims they may have in the future as a result
7
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 that would take priority
over the claims of our public stockholders and, as a result, the per-share
liquidation price could be less than $9.78.
Mr. Gilliam, Mr. Hantke, Mrs. Hendricks, Mr. Ortale and Mr. Rodriguez have
agreed that they will be personally liable on a joint and several basis to the
Company if and to the extent claims by third parties reduce the amounts in the
Trust Account available for payment to our stockholders in the event of a
liquidation and the claims are made by a vendor for services rendered, or
products sold, to us or by a prospective business target. However, the
agreements entered into by each of Mr. Gilliam, Mr. Hantke, Mrs. Hendricks, Mr.
Ortale and Mr. Rodriguez specifically provide for two exceptions to the personal
indemnity each has given: none will have any personal liability (1) as to any
claimed amounts owed to a third party who executed a legally enforceable waiver,
or (2) as to any claims under our indemnity of the underwriters of our initial
public offering against certain liabilities, including liabilities under the
Securities Act. These individuals' personal liability does not extend to claims
of third parties who executed a legally enforceable waiver because we believe
that acceptance by a company's officers and directors of personal liability for
claims against that company is an extraordinary measure and that it would be
unfair to these officers and directors if they remained personally liable
despite having taken such steps as are available to them, such as obtaining
legally enforceable waivers, to prevent such claims from arising against that
company. Based on the information in the director and officer questionnaires
provided to us in connection with our initial public offering as well as
representations as to their accredited investor status (as such term is defined
in Regulation D under the Securities Act), we currently believe that each of Mr.
Gilliam, Mr. Hantke, Mrs. Hendricks, Mr. Ortale and Mr. Rodriguez is of
substantial means and capable of funding his or her indemnity obligations, even
though we have not asked any of them to reserve for such an eventuality. We
cannot assure you, however, that they would be able to satisfy those
obligations.
In addition, if we are forced to file a bankruptcy case or an involuntary
bankruptcy case is filed against us that is not dismissed, the proceeds held in
the Trust Account could be subject to applicable bankruptcy law, and may be
included in our bankruptcy estate and subject to the claims of third parties
with priority over the claims of our stockholders. To the extent any bankruptcy
claims deplete the Trust Account, we cannot assure you that we will be able to
return at least $9.78 per share to our public stockholders.
Our stockholders may be held liable for third parties' claims against us to the
extent of distributions received by them following our dissolution.
Our second amended and restated certificate of incorporation provides that
we will continue in existence only until January 30, 2009. If we consummate our
initial business combination prior to that date, we will amend this provision to
permit our continued existence. If we have not completed our initial business
combination by that date, our corporate existence will cease except for the
purposes of winding up our affairs and liquidating pursuant to Section 278 of
the Delaware General Corporation Law. Under the Delaware General Corporation
Law, stockholders may be held liable for claims by third parties against a
corporation to the extent of distributions received by those stockholders in a
dissolution. However, if the corporation complies with certain procedures
intended to ensure that it makes reasonable provision for all claims against it,
the liability of stockholders with respect to any claim against the corporation
is limited to the lesser of such stockholder's pro rata share of the claim or
the amount distributed to the stockholder. In addition, if the corporation
undertakes additional specified procedures, including a 60-day notice period
during which any third-party claims can be brought against the corporation, a
90-day period during which the corporation may reject any claims brought, and an
additional 150-day waiting period before any liquidation distributions are made
to stockholders, any liability of stockholders would be barred after the third
anniversary of the dissolution. While we intend to adopt a plan of dissolution
and distribution making reasonable provision for claims against the company in
compliance with the Delaware General Corporation Law, we do not intend to comply
with these additional procedures, as we instead intend to distribute the balance
in the Trust Account to our public stockholders as promptly as practicable
following termination of our corporate existence. Accordingly, any liability our
stockholders may have could extend beyond the third anniversary of our
dissolution. We cannot assure you that any reserves for claims and liabilities
that we believe to be reasonably adequate when we adopt our plan of dissolution
and distribution will suffice. If such reserves are insufficient, stockholders
who receive liquidation distributions may subsequently be held liable for claims
by creditors of the Company to the extent of such distributions.
8
Since we have not yet acquired any target business, we are unable to currently
ascertain the merits or risks of the target business's operations.
Since we have not yet identified a prospective target business, there is
no current basis for you to evaluate the possible merits or risks of our
resulting target business's operations. To the extent we complete our initial
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, common stock or warrants will
not ultimately prove to be less favorable to stockholders 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, please see
"Business--Effecting A Business Combination--We Have Not Identified A Target
Business" above.
We will depend on the limited funds available outside of the Trust Account and a
portion of the interest earned on the Trust Account balance to fund our search
for a target business or businesses and to complete our initial business
combination.
Of the net proceeds of our initial public offering, $500,000 is available
to us initially outside the Trust Account to fund our working capital
requirements. As of March 31, 2007, there was $209,210 available to us outside
the Trust Account. We will depend on sufficient interest being earned on the
proceeds held in the Trust Account to provide us with the additional working
capital we will need to identify one or more target businesses and to complete
our initial business combination. While we are entitled to have released to us
for such purposes interest income of up to a maximum of $3.25 million, a
substantial decline in interest rates may result in our having insufficient
funds available with which to structure, negotiate or close an initial business
combination. In such event, we could seek to borrow funds or raise additional
investments from our officers and directors or others to operate, although our
officers and directors are under no obligation to advance funds to, or to invest
in, us. If we have insufficient funds available, we may be forced to liquidate.
Because of our limited resources and the significant competition for business
combination opportunities, we may not be able to consummate an attractive
initial business combination.
We encounter intense competition from other entities having a business
objective similar to ours, including venture capital funds, leveraged buyout
funds and operating businesses in the energy or other industries 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, 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. Further:
o our obligation to seek stockholder approval of a business
combination may materially delay the consummation of a transaction;
o our obligation to convert into cash up to 20% of the shares of
common stock held by public stockholders less one share in certain
instances may materially reduce the resources available for a
business combination; and
o 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 cannot assure you that we
will be able to successfully compete for an attractive business combination.
Additionally, because of these factors, 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 the required time
periods, we will be forced to liquidate.
9
We face significant competition from numerous companies with a business plan
similar to ours seeking to effectuate a business combination.
There are numerous other blank check companies like ours that have
recently completed initial public offerings and numerous others that have filed
registration statements with the SEC seeking to go public. On the basis of
publicly available information, we believe that, of these companies, only a
limited number have consummated a business combination. Accordingly, there are a
significant number of blank check companies similar to ours that are seeking to
carry out a business plan similar to our business plan. While, like us, some of
those companies have specific industries that they must complete a business
combination in, 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
will, as a result, increase demand for privately held companies to combine with
companies such as ours. Further, the fact that only a limited number of such
companies have completed 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 by
January 30, 2009. If we are unable to find a suitable target business by that
date, we will be forced to liquidate.
We may be unable to obtain additional financing if necessary to complete our
initial business combination or to fund the operations and growth of a target
business, which could compel us to restructure or abandon a particular business
combination.
We believe that the net proceeds of our initial public offering will be
sufficient to allow us to consummate our initial business combination. However,
because we have no oral or written agreements or letters of intent to engage in
a business combination with any entity, we cannot assure you that we will be
able to complete our initial business combination or that we will have
sufficient capital with which to complete a combination with a particular target
business. We will be required to seek additional financing if the net proceeds
of our initial public offering are not sufficient to facilitate a particular
business combination because:
o of the size of the target business;
o the initial public offering proceeds not in trust and funds
available to us from interest earned on the Trust Account balance
are insufficient to fund our search for and negotiations with a
target business; or
o we must convert into cash a significant number of shares of common
stock owned by public stockholders who elect to exercise their
conversion rights and vote against the proposed business
combination.
In addition, we cannot assure you that such financing will be available on
acceptable terms, if at all. If additional financing is unavailable to
consummate a particular business combination, we would be compelled to
restructure or abandon the combination and seek an alternative target business.
In addition, it is possible that we could use a portion of the funds not
in the Trust Account (including amounts we borrow, if any) 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, and we had
already used up the funds allocated to due diligence and related expenses in
connection with the aborted transaction, we could be left with insufficient
funds to continue searching for, or conduct due diligence with respect to, other
potential target businesses.
Even if we do not need additional financing to consummate a business
combination, we may require additional capital--in the form of debt, equity, or
a combination of both--to operate, grow or complete an upgrade of any potential
refinery we may acquire. There can be no assurance that we will be able to
obtain such additional capital if it is required. If we fail to secure such
financing, this failure could have a material adverse effect on the operations
or growth of the target business. None of our officers or directors or any other
party is required to provide any financing to us in connection with, or
following, our initial business combination.
We may issue capital stock or convertible debt securities to complete our
initial business combination, which would reduce the equity interest of our
stockholders and likely cause a change in control of our ownership.
Our second amended and restated certificate of incorporation authorizes
the issuance of up to 200,000,000 shares of common stock, par value $0.001 per
share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. As
of March 31, 2007, there are 163,192,795 authorized but unissued shares of our
10
common stock available for issuance (after appropriate reservation for the
issuance of shares upon full exercise of our outstanding warrants, including the
founders' warrants), and all of the shares of preferred stock available for
issuance. Although we have no commitments as of March 31, 2007, to issue any
additional securities, we were formed to acquire a business through merger,
capital stock exchange, or a combination of both, including through convertible
debt securities, to complete a business combination. Our issuance of additional
shares of common stock or any preferred stock:
o may significantly reduce the equity interest of our current
stockholders;
o may subordinate the rights of holders of common stock if we issue
preferred stock with rights senior to those afforded to our common
stock;
o will likely cause a change in control if a substantial number of our
shares of common stock are issued, which may among other things
limit our ability to use any net operating loss carry forwards we
have, and may result in the resignation or removal of our officers
and directors; and
o may adversely affect the then-prevailing market price for our common
stock.
If we issue debt securities to acquire or finance a target business, our
liquidity may be adversely affected and the combined business may face
significant interest expense.
We may elect to enter into a business combination that requires us to
issue debt securities as part of the purchase price for a target business. In
addition, the energy industry is capital intensive, traditionally using
substantial amounts of indebtedness to finance acquisitions, capital
expenditures and working capital. If we issue debt securities, such issuances
may result in an increase in interest expense for the post-combination business
and may adversely affect our liquidity in the event of:
o a default and foreclosure on our assets if our operating cash flow
after a business combination were insufficient to pay principal and
interest obligations on our debt;
o an acceleration of our obligations to repay the indebtedness, which
could occur even if we are then current in our debt service
obligations if the debt securities have covenants that require us to
meet certain financial ratios or maintain designated reserves, and
such covenants are breached without waiver or renegotiation;
o a required immediate payment of all principal and accrued interest,
if any, if the debt securities are payable on demand; or
o our inability to obtain any additional financing, if necessary, if
the debt securities contain covenants restricting our ability to
incur indebtedness.
Our founders may influence certain actions requiring a stockholder vote.
Our officers and directors collectively own 19.6% of our issued and
outstanding shares of common stock. Each of our founders has agreed, in
connection with the stockholder vote required to approve our initial business
combination, to vote any initial founders' shares such founder holds in
accordance with a majority of the shares of common stock voted by the public
stockholders, and each has agreed that for additional shares of common stock
acquired during or following our initial public offering, it will vote all such
acquired shares in favor of our initial business combination. Accordingly,
shares of common stock owned by our founders will not have the same voting or
conversion rights as those held by our public stockholders with respect to a
potential business combination, and none of our founders will be eligible to
exercise conversion rights for those shares if our initial business combination
is approved by a majority of our public stockholders who vote in connection with
our initial business combination.
In addition, until we consummate an initial business combination, our
board of directors is and will be 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. We may consummate an initial business combination
before there is an annual meeting of stockholders to elect new directors, in
which case all of the current directors will continue in office at least until
the consummation of our initial business combination. If there is an annual
meeting of stockholders, as a consequence of our "staggered" board of directors,
only a minority of the board of directors will be considered for election and
our founders will have considerable influence on the outcome of that election.
Accordingly, our founders will continue to exert control at least until the
consummation of the initial business combination. None of our founders is
prohibited from purchasing our common stock in the aftermarket. If they do so,
they will have a greater influence on the vote taken in connection with our
initial business combination.
11
Some of our current officers and directors may resign upon consummation of our
initial business combination.
Our ability to effect our initial business combination successfully will
be largely dependent upon the efforts of our officers and directors. However,
while it is possible that some of our officers and directors will remain
associated with us in various capacities following our initial business
combination, some of them may resign and some or all of the management of the
target business may remain in place.
We may have only limited ability to evaluate the management of the target
business.
We may have only limited ability to evaluate the management of the target
business. Although we intend to closely scrutinize the management of a
prospective target business in connection with evaluating the desirability of
effecting a business combination, we cannot assure you that our assessment of
management will prove to be correct. These individuals may be unfamiliar with
the requirements of operating a public company and the securities laws, which
could increase the time and resources we must expend to assist them in becoming
familiar with the complex disclosure and financial reporting requirements
imposed on U.S. public companies. This could be expensive and time-consuming and
could lead to various regulatory issues that may adversely affect the price of
our stock.
None of our officers or directors has ever been associated with a blank check
company, which could adversely affect our ability to consummate our initial
business combination.
None of our officers or directors has ever been associated with a blank
check company. Accordingly, you may not have sufficient information with which
to evaluate the ability of our management team and our board of directors to
identify, approve and complete our initial business combination. Our
management's lack of experience in operating a blank check company could
adversely affect our ability to consummate a business combination and force us
to liquidate.
We may seek to effect our initial business combination with one or more
privately held companies, which may present certain challenges to us, including
the lack of available information about these companies.
In pursuing our acquisition strategy, we may seek to effect our initial
business combination with one or more privately held companies. By definition,
very little public information exists about these companies, and we could be
required to make our decision on whether to pursue a potential initial business
combination on the basis of limited information.
Our officers and directors are or may in the future become affiliated with
entities engaged in business activities similar to those intended to be
conducted by us, and may have conflicts of interest in allocating their time and
business opportunities.
Although our officers and directors have entered into non-compete
agreements with us, they 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. None of our officers or directors is
obligated to expend a specific number of hours per week or month on our affairs.
Additionally, our officers and directors may become aware of business
opportunities that may be appropriate for us as well as the other entities with
which they are or may be affiliated. Due to these existing or future
affiliations, our officers and directors 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, our
officers or directors may have conflicts of interest in determining to which
entity a particular business opportunity should be presented. For a complete
discussion of our officers and directors' business affiliations and the
potential conflicts of interest that you should be aware of, please see
"Management--Directors and Executive Officers" below. We cannot assure you that
these conflicts will be resolved in our favor.
We may use resources in researching acquisitions that are not consummated, which
could materially and adversely affect subsequent attempts to effect our initial
business combination.
We expect that the investigation of each specific target business and the
negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys, and others. If a
decision is made not to complete a specific business combination, the costs
incurred up to that point for the proposed transaction likely would not be
recoverable. Furthermore, even if an agreement is reached relating to a specific
target business, we may fail to consummate the transaction for any number of
reasons, including reasons beyond our control, such as that 20% or more of our
public stockholders vote against the transaction and opt to convert their stock
into a pro rata share of the Trust Account even if a majority of our
stockholders approve the transaction. Any such event will result in a loss to us
of the related costs incurred, which could materially and adversely affect
subsequent attempts to consummate an initial business combination.
12
Because the shares of common stock owned by our founders will not participate in
liquidation distributions by us, our founders may have a conflict of interest in
deciding if a particular target business is a good candidate for a business
combination.
Each holder of initial founders' shares has waived the right to receive
distributions with respect to the shares they acquired before the initial public
offering upon our liquidation if we fail to complete a business combination.
Those shares of common stock and all of the founders' warrants will be worthless
if we do not consummate our initial business combination. Because our directors
directly or indirectly have an ownership interest in all of the outstanding
founders' securities, their personal and financial interests may influence the
identification and selection of a target business, and may affect how or when we
complete our initial business combination. The exercise of discretion by our
officers and directors in identifying and selecting one or more suitable target
businesses 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 officers' and directors' interests in obtaining reimbursement for any
out-of-pocket expenses incurred by them may lead to a conflict of interest in
determining whether a particular target business is appropriate for a business
combination and in the public stockholders' best interest.
Unless we consummate our initial business combination, 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 amount of available proceeds
not deposited in the Trust Account and the amount of interest income from the
Trust Account up to a maximum of $3.25 million that may be released to us as
working capital. These amounts are based on management's estimates of the funds
needed to finance our operations until January 30, 2009 and consummate our
initial business combination. Those estimates may prove to be inaccurate,
especially if a portion of the available proceeds is used to make a down payment
in connection with our initial business combination or pay exclusivity or
similar fees or if we expend a significant portion in pursuit of an initial
business combination that is not consummated. Our officers and directors may, as
part of any business combination, negotiate the repayment of some or all of any
such expenses. If the target business' owners do not agree to such repayment,
this could cause our management to view such potential business combination
unfavorably, thereby resulting in a conflict of interest. The financial interest
of our officers and directors could influence their motivation in selecting a
target business and therefore there may be a conflict of interest when
determining whether a particular business combination is in the stockholders'
best interest.
We will probably complete only one business combination with the proceeds of our
initial public offering, meaning our operations will depend on a single
business.
Our initial business combination must involve a target business or
businesses with a fair market value of at least 80% of the amount held in our
Trust Account at the time of such business combination (excluding deferred
underwriting discounts and commissions ). We may not be able to acquire more
than one target business because of various factors, including the existence of
complex accounting issues and the requirement that we prepare and file pro forma
financial statements with the SEC that present operating results and the
financial condition of several target businesses as if they had been operated on
a combined basis. Additionally, we may encounter numerous logistical issues if
we pursue multiple target businesses, including the difficulty of coordinating
the timing of negotiations, proxy statement disclosure and closings. We may also
be exposed to the risk that our inability to satisfy conditions to closing with
one or more target businesses would reduce the fair market value of the
remaining target businesses in the combination below the required threshold of
80% of the amount held in our Trust Account (excluding deferred underwriting
discounts and commissions). Due to these added risks, we are more likely to
choose a single target business with which to pursue a business combination than
multiple target businesses. Unless we combine with a target business in a
transaction in which the purchase price consists substantially of common stock
and/or preferred stock, it is likely we will complete only our initial business
combination with the proceeds of our initial public offering. Accordingly, the
prospects for our success may depend solely on the performance of a single
business. If this occurs, our operations will be highly concentrated and we will
be exposed to higher risk than other entities that have the resources to
complete several business combinations, or that operate in, diversified
industries or industry segments.
13
If we do not conduct an adequate due diligence investigation of a target
business with which we combine, we may be required subsequently to take
write-downs or write-offs, restructuring, and impairment or other charges that
could have a significant negative effect on our financial condition, results of
operations and our stock price, which could cause you to lose some or all of
your investment.
In order to meet our disclosure and financial reporting obligations under
the federal securities laws, and in order to develop and seek to execute
strategic plans for how we can increase the profitability of a target business,
realize operating synergies or capitalize on market opportunities, we must
conduct a due diligence investigation of one or more target businesses.
Intensive due diligence is time consuming and expensive due to the operations,
accounting, finance and legal professionals who must be involved in the due
diligence process. Even if we conduct extensive due diligence on a target
business with which we combine, we cannot assure you that this diligence will
uncover all material issues relating to a particular target business, or that
factors outside of the target business and outside of our control will not later
arise. If our diligence fails to identify issues specific to a target business
or the environment in which the target business operates, we may be forced to
write-down or write-off assets, restructure our operations, or incur impairment
or other charges that could result in our reporting losses. Even though these
charges may be non-cash items and not have an immediate impact on our liquidity,
the fact that we report charges of this nature could contribute to negative
market perceptions about us or our common stock. In addition, charges of this
nature may cause us to violate net worth or other covenants to which we may be
subject as a result of assuming pre-existing debt held by a target business or
by virtue of our obtaining post-combination debt financing.
Our outstanding warrants may adversely affect the market price of our common
stock and make it more difficult to effect our initial business combination.
We have issued warrants to purchase 24,557,205 shares of common stock as
part of the units offered in our initial public offering (including the over
allotment) and founders' warrants to purchase 5,850,000 shares of common stock.
If we issue common stock to complete our initial business combination, the
potential issuance of additional shares of common stock on exercise of these
warrants could make us a less attractive acquisition vehicle to some target
businesses. This is because exercise of any warrants will increase the number of
issued and outstanding shares of our common stock and reduce the value of the
shares issued to complete our initial business combination. Our warrants may
make it more difficult to complete our initial business combination or increase
the purchase price sought by one or more target businesses. Additionally, the
sale or possibility of the sale of the shares underlying the warrants could have
an adverse effect on the market price for our common stock or our units, or on
our ability to obtain other financing. If and to the extent these warrants are
exercised, you may experience dilution to your holdings.
The grant of registration rights to the holders of the founders' securities may
make it more difficult to complete our initial business combination, and the
future exercise of such rights may adversely affect the market price of our
common stock.
Each holder of founders' securities is entitled to make a demand that we
register the resale of the initial founders' shares, the founders' warrants and
the shares of common stock issuable upon exercise of the founders' warrants, as
applicable. The registration rights will be exercisable with respect to the
initial founders' shares at any time after the date on which the relevant
securities are no longer subject to transfer restrictions, and with respect to
the warrants and the underlying shares of common stock after the warrants become
exercisable by their terms. We will bear the cost of registering these
securities. If these registration rights are exercised in full, there will be an
additional 6,000,000 shares of common stock and up to 5,850,000 shares of common
stock issuable on exercise of the warrants eligible for trading in the public
market. The registration and availability of such a significant number of
securities for trading in the public market may have an adverse effect on the
market price of our common stock. In addition, the existence of the registration
rights may make our initial business combination more costly or difficult to
conclude. This is because the stockholders of the target business may increase
the equity stake they seek in the combined entity or ask for more cash
consideration to offset the negative impact on the market price of our common
stock that is expected when the founders' securities are registered.
A market for our securities may not develop, which would adversely affect the
liquidity and price of our securities.
The price of our securities may vary significantly due to our reports of
operating losses, one or more potential business combinations, the filing of
periodic reports with the SEC, and general market or economic conditions.
Furthermore, an active trading market for our securities may never develop or,
if developed, it may not be sustained. You may be unable to sell your securities
unless a market can be developed and sustained.
14
If we are deemed to be an investment company, we must meet burdensome compliance
requirements and restrictions on our activities, which may increase the
difficulty of completing a business combination.
If we are deemed to be an investment company under the Investment Company
Act of 1940 (the "Investment Company Act"), the nature of our investments and
the issuance of our securities may be subject to various restrictions. These
restrictions may make it difficult for us to complete our initial business
combination. In addition, we may be subject to burdensome compliance
requirements and may have to:
o register as an investment company;
o adopt a specific form of corporate structure; and
o report, maintain records and adhere to voting, proxy, disclosure and
other requirements.
We do not believe that our planned principal activities will subject us to
the Investment Company Act. In this regard, our agreement with the Trustee
states that proceeds in the Trust Account will be invested only in "government
securities" and one or more money market funds, selected by us, which invest
principally in either short-term securities issued or guaranteed by the United
States having a rating in the highest investment category granted thereby by a
recognized credit rating agency at the time of acquisition or tax exempt
municipal bonds issued by governmental entities located within the United
States. This investment restriction is intended to facilitate our not being
considered an investment company under the Investment Company Act. If we are
deemed to be subject to the Investment Company Act, compliance with these
additional regulatory burdens would increase our operating expenses and could
make our initial business combination more difficult to complete.
The loss of key officers could adversely affect us.
We are dependent upon a relatively small group of key officers and, in
particular, upon our chief executive officer, our principal financial officer
and our chief operating officer. We believe that our success depends on the
continued service of our key officers, at least until we have consummated our
initial business combination. We cannot assure you that such individuals will
remain with us for the immediate or foreseeable future. We do not have
employment agreements with any of our current officers. The unexpected loss of
the services of one or more of these officers could have a detrimental effect on
us.
The American Stock Exchange may delist our securities, which could limit
investors' ability to transact in our securities and subject us to additional
trading restrictions.
Our securities are listed on the American Stock Exchange. We cannot assure
you that our securities will continue to be listed on the American Stock
Exchange. Additionally, it is likely that the American Stock Exchange would
require us to file a new initial listing application and meet its initial
listing requirements, as opposed to its more lenient continued listing
requirements, at the time of our initial business combination. We cannot assure
you that we will be able to meet those initial listing requirements at that
time. If the American Stock Exchange delists our securities from trading, we
could face significant consequences, including:
o a limited availability for market quotations for our securities;
o reduced liquidity with respect to our securities;
o a determination that our common stock is a "penny stock," which will
require brokers trading in our common stock to adhere to more
stringent rules and possibly result in a reduced level of trading
activity in the secondary trading market for our common stock;
o limited amount of news and analyst coverage for our company; and
o a decreased ability to issue additional securities or obtain
additional financing in the future.
In addition, we would no longer be subject to American Stock Exchange
rules, including rules requiring us to have a certain number of independent
directors and to meet other corporate governance standards.
The determination of the offering price of our units was arbitrary.
Prior to the initial public offering, there was no public market for any
of our securities. Accordingly, the public offering price of the units, the
terms of the warrants, the aggregate proceeds we raised and the amount placed in
15
the Trust Account were the results of a negotiation between the underwriters and
us. In addition, management's assessment of the financial requirements necessary
to complete our initial business combination may prove to be inaccurate, in
which case we may not have sufficient funds to consummate our initial business
combination and we would be forced to either find additional financing or
liquidate, or we may have too great an amount in the Trust Account to identify a
prospect having a fair market value of at least 80% of the amount held in our
Trust Account.
If we acquire a target business with operations located outside the Unites
States, we may encounter risks specific to other countries in which such target
business operates.
If we acquire a company that has operations outside the United States, we
will be exposed to risks that could negatively impact our future results of
operations following our initial business combination. The additional risks we
may be exposed to in these cases include, but are not limited to:
o tariffs and trade barriers;
o regulations related to customs and import/export matters;
o tax issues, such as tax law changes and variations in tax laws as
compared to the United States;
o cultural and language differences;
o foreign exchange controls;
o crime, strikes, riots, civil disturbances, terrorist attacks and
wars;
o deterioration of political relations with the United States; and
o new or more extensive environmental regulation.
Risks associated with our acquisition of a target
business in the energy industry
The energy industry is highly competitive.
There is intense competition in the energy industry, including in the
petroleum refining, distribution, marketing and related industries. Fully
integrated companies engaged on a national and international basis compete in
many segments of the energy industry, on scales that may be much larger than
ours. Large oil companies, because of the diversity and integration of their
operations, larger capitalization and greater resources, may be better able to
withstand volatile market conditions, compete on the basis of price, and more
readily obtain crude oil and feedstocks in times of shortage and to bear the
economic risks inherent in all phases of the energy industry.
The price volatility of crude oil, other feedstocks and refined products depends
upon many factors that are beyond our control and could adversely affect our
profitability.
If we consummate a business combination with a target company in the
business of refining crude oil, we anticipate that our earnings, profitability
and cash flows will depend on the margin above fixed and variable expenses
(including the cost of refinery feedstocks, such as crude oil) at which we are
able to sell refined products. Refining margins historically have been volatile,
and are likely to continue to be volatile, as a result of a variety of factors,
including fluctuations in the prices of crude oil. Prices of crude oil, other
feedstocks and refined products depend on numerous factors beyond our control,
including:
o changes in global and local economic conditions;
o demand for fuel products, especially in the United States, China and
India;
o U.S. government regulations;
o worldwide political conditions, particularly in significant
oil-producing regions such as the Middle East, West Africa and
Venezuela;
o terrorist attacks;
o utilization rates of U.S. refineries;
o the level of foreign and domestic production of crude oil and
refined products;
o development and marketing of alternative and competing fuels; and
o local factors, including market conditions, weather conditions and
the level of operations of other refineries and pipelines in our
markets.
16
A large, rapid increase in crude oil prices could adversely affect our
operating margins if the increased cost of raw materials could not be passed to
our customers on a timely basis, and would adversely affect our sales volumes if
consumption of refined products, particularly transportation fuels, were to
decline as a result of such price increases. The prices which we may obtain for
refined products are also affected by regional factors, such as local market
conditions and the operations of competing refiners of petroleum products, as
well as seasonal factors influencing demand for such products.
If our expectations about trends in the prices of crude oil relative to refined
products are inaccurate, our ability to implement our business plan profitably
could be negatively affected.
The price differential between crude oil and refined products, which is
referred to as the crack spread, has been widening above historical levels since
2000, partly due to relatively high demand for refined products and limited
refining capacity. We will evaluate opportunities in the energy industry, and in
particular in the refining and marketing sectors, based in part on our
expectations regarding trends in the price of crude oil relative to the price of
refined products. Should our expectations about these trends be inaccurate, our
ability to implement our business plan could be negatively affected.
If the price differential between heavy, sour crude oil and light, sweet crude
oil returns to historical levels, our ability to implement our business plan
could be negatively affected.
Heavy, sour crude oils generally provide more profitable refining margins
than light, sweet crude oils. Since 2000, the price differential between light,
sweet crude oil and heavy, sour crude oil has been widening from historical
levels due to the relatively high demand for light crude oil and an increased
supply of heavy crude oil. We believe that this widening is part of a
fundamental shift in both the light/heavy and sweet/sour differentials, and that
these differentials are likely to remain above levels seen prior to 2000 because
of increased global production of heavier, higher-sulfur crude oil combined with
the fact that the industry does not have adequate refining capacity capable of
processing these heavier, higher-sulfur crude oils. Our business plan is based
on our expectation that the light/heavy and sweet/sour differentials will
continue to exceed historical levels. However, should actual price trends differ
and light/heavy and sweet/sour differentials revert to levels observed prior to
2000, our ability to implement our business plan could be negatively affected.
Significant declines in the price of crude oil may disrupt the supply of heavy,
sour crude oil and cause a narrowing of the price differentials between heavy,
sour crude oil and light, sweet crude oil.
Heavy, sour crude oil is generally costlier to extract and process than
light, sweet crude oil. Significant declines in the overall price of crude oil
could disrupt the supply of certain heavy, sour crude oils should the price
declines be large enough that continuing to produce those heavy, sour crude oils
becomes unprofitable. In addition, any resulting scarcity of supply of certain
types of heavy, sour crudes could cause light/heavy and sweet/sour differentials
to narrow. If we effect a business combination with a target whose operations
are dependent on access to heavy, sour crudes, such a disruption could
negatively affect our business.
If adequate infrastructure does not exist or is not built to provide us access
to heavy, sour crude oil, our ability to implement our business plan could be
negatively affected.
If we consummate a business combination with a target company in the oil
refining or a related industry, the profitability of any business we acquire may
be dependent upon the availability of existing or future infrastructure
providing uninterrupted access to supplies of heavy, sour crude oil. This could
include, but is not limited to, existing and proposed pipelines for the
conveyance of heavy crude oils between producing areas in Canada and refineries
in the United States. Furthermore, if infrastructure were proposed that would
provide our facilities with access to heavy, sour crude oil, we might choose to
upgrade or expand our facilities in order to process or otherwise use this heavy
crude oil. If a subsequent delay or a failure to build the proposed
infrastructure then prevented us from obtaining adequate supplies of heavy crude
oil, our ability to implement our business plan could be negatively affected.
17
We may be subject to interruptions of supply as a result of relying on pipelines
for transportation of crude oil and refined products.
If we consummate our initial business combination with a target business
in the refining industry, our business may rely heavily on pipelines to receive
and transport crude oil and refined products. We could experience an
interruption of supply or delivery, or an increased cost of receiving and
transporting crude oil and refined products if operation of these pipelines is
disrupted because of accidents, natural disasters, governmental regulation,
terrorism, other third-party action or other events beyond our control. Our
prolonged inability to use any of the pipelines that transport crude oil or
refined products could have a material adverse effect on our business, financial
condition and results of operations. Furthermore, the nature of our business or
our business plan may require that we upgrade or supplement inbound pipelines,
which could require us to make substantial additional capital expenditures.
Our profitability may be limited if we cannot obtain necessary permits and
authorizations to modify our purchased assets.
If we consummate our initial business combination with a target company in
the business of refining crude oil, our profitability may be linked to our
ability to upgrade the refinery to process a heavier, higher-sulfur content
crude oil or to yield lighter, higher-margin products. Our profitability also
may be dependent on our ability to expand the capacity of the refinery. If we
are unable to obtain the necessary permits and authorizations to effect an
upgrade or expansion, or if the costs of making changes to or obtaining these
permits or authorizations exceed our estimates, our profitability could be
negatively affected.
The profitability of the target business we acquire may be limited if we cannot
secure an engineering, procurement and construction ("EPC") contractor to
perform upgrades or expansions.
The profitability of the target business we acquire may be linked to our
ability to upgrade and expand its business. In order to implement an upgrade or
expansion, we expect to hire an EPC contractor. Due to a recent surge in
construction projects across the energy industry, we may experience difficulties
in securing an EPC contractor in a timely fashion to execute our proposed
projects. If we are unable to contract an EPC contractor to effect an upgrade or
expansion in a timely fashion, our profitability could be negatively affected.
Our profitability may be limited if we experience cost overruns on any
construction project or capital improvements we undertake in connection with our
acquired business.
Our business plan is based on capturing the cost advantage of heavy, sour
crude oil relative to light, sweet crude oil as a raw material to manufacture
refined products. Complex refineries that are able to process heavy, sour crude
oils use additional processing equipment that requires a substantial capital
investment. The Company believes that the capital investments to upgrade a small
refinery may range between approximately $100 million and approximately $300
million, although the cost to upgrade any particular refinery may be outside of
this range depending on various factors, including the refinery's size, current
configuration, available infrastructure, geographic location, the technology
being used, construction costs and availability of qualified construction
personnel, and there can be no assurance that the cost of any upgrade we may
undertake would actually fall within this range. Those investments will be
profitable only if the higher capital cost of this processing equipment is more
than offset by the increased margins between the price at which a refinery will
be able to purchase raw materials and the price at which it will be able to sell
its refined products. If we underestimate the capital investments that will be
required to add the necessary processing equipment to permit our acquired
business to benefit from the light/heavy, sweet/sour price differentials, or
otherwise experience cost overruns on any construction project we undertake in
connection with our acquired business, our profitability would be negatively
affected.
If we consummate our initial business combination with a target business in the
refining industry, we may experience difficulties in marketing some of our
products.
Our ability to market the products of a target business we acquire may
depend on:
o obtaining the financing necessary to develop our feedstock, such as
crude oil, to the point where production is suitable for sale;
o the proximity, capacity and cost of pipelines and other facilities
for the transportation of crude oil and refined products;
o the quantity and quality of the refined products produced; and
o the availability of viable purchasers willing to buy our refined
products.
18
If we experienced a catastrophic loss and our insurance was not adequate to
cover such loss, it could have a material adverse affect on our operations.
If we consummate our initial business combination and acquire ownership
and operation of refineries or related storage and other facilities, our
business could be affected by a number of risks, including mechanical failure,
personal injury, loss or damage, business interruption due to political
conditions in foreign countries, hostilities, labor strikes, adverse weather
conditions and catastrophic disasters, including environmental accidents. All of
these risks could result in liability, loss of revenues, increased costs and
loss of reputation. We intend to maintain insurance, consistent with industry
standards, against these risks on business assets we may acquire upon completion
of our initial business combination. However, we cannot assure you that we will
be able to adequately insure against all risks, that any particular claim will
be paid out of our insurance, or that we will be able to procure adequate
insurance coverage at commercially reasonable rates in the future. Our insurers
will also require us to pay certain deductible amounts, before they will pay
claims, and insurance policies will contain limitations and exclusions, which,
although we believe will be standard for the refining industry, may nevertheless
increase our costs and lower our profitability.
Additionally, any changes to environmental and other regulations or
changes in the insurance market may also result in increased costs for, or
decreased availability of, insurance we would currently anticipate purchasing
against the risks of environmental damage, pollution and other claims for
damages that may be asserted against us.
Our inability to obtain insurance sufficient to cover potential claims or the
failure of insurers to pay any significant claims, could have a material adverse
effect on our profitability and operations.
The dangers inherent in the refining and marketing of petroleum products
could cause disruptions and could expose us to potentially significant losses,
costs or liabilities.
Businesses involved in the refining, distribution and marketing of
petroleum products and related activities are subject to significant hazards and
risks inherent in refining operations and in transporting and storing crude oil,
intermediate products and refined products. These hazards and risks include, but
are not limited to, the following:
o natural disasters, fires, or explosions;
o spills and pipeline ruptures;
o third-party interference;
o disruptions of electricity deliveries; and
o mechanical failure of equipment at our refinery or third-party
facilities.
Any of the foregoing could result in production and distribution
difficulties and disruptions, environmental pollution, personal injury or
wrongful death claims and other damage to our property and the property of
others. There is also risk of mechanical failure and equipment shutdowns both in
the ordinary course of operations and following unforeseen events.
We may have environmental liabilities as a result of our ownership or operation
of contaminated properties or relating to exposure to hazardous or toxic
materials.
We could be subject to claims and may incur costs arising out of human
exposure to hazardous or toxic substances relating to our operations, our
properties, our buildings or to the sale, distribution or disposal of any
products containing any hazardous or toxic substances and produced in connection
with our business.
Properties or facilities owned, leased or operated in conjunction with the
energy industry may be contaminated due to energy or other historical industrial
uses at or near the property. Regulators may impose clean-up obligations if
contamination is identified on a property, and third parties or regulators may
make claims against owners or operators of properties for personal injuries,
property damage or natural resource damage associated with releases of hazardous
or toxic substances. Even if the business we purchase did not cause the
contamination or release, certain environmental laws hold current and previous
owners or operators of real property liable for the costs of cleaning up
contamination regardless of whether they knew of or were responsible for the
contamination. These environmental laws also may impose liability on any person
who arranges for the disposal or treatment of hazardous substances, regardless
of whether the affected site is or was ever owned or operated by such person.
19
Finally, it is possible that a target business we purchase may have
historical liabilities relating to previous operations or the previous ownership
of real property or facilities. While we may be able to structure a transaction
to leave those types of liabilities with the seller, it may not be possible to
do so as a legal or practical matter. As a result, we may ultimately have
liability for environmental matters that do not relate to businesses we operate.
We will be subject to significant environmental, safety and other governmental
regulations and may incur significant costs to comply with these regulations.
The oil refining, distribution and marketing industry and related
activities are subject to extensive and increasingly stringent environmental
protection, safety and other related federal, state and local laws, rules,
regulations and treaties. We cannot assure you that we will be able to comply
with all laws, rules, regulations and treaties following a business combination.
If we are unable to adhere to these requirements, or if we are unable to obtain
or maintain compliance with our environmental permits we could be subject to
civil or criminal penalties and fines and to material restrictions on our
business and operations. The costs of complying with these requirements and any
adverse operational impact of compliance could have a material adverse effect on
our profitability and operations. Certain segments of the energy industry are
also subject to the payment of royalties, and the level of taxation of the
energy industry tends to be high compared with that of other commercial
activities.
Hazards inherent in refining operations will require continual oversight and
control.
If we consummate our initial business combination, we may be engaged in
transporting and refining potentially toxic materials in the course of our
business. There is a risk of leaks or spills of crude oil, petroleum products
and other potentially hazardous materials at operating sites and during
transportation. If operational risks materialized, it could result in loss of
life, damage to the environment or loss of production. We will attempt to
conduct our activities in such a manner that there is no or minimal damage to
the environment. However, these risks will require continual oversight and
control.
Conservation measures and technological advances could reduce demand for crude
oil and refined products.
Fuel conservation measures, alternative fuel requirements, increasing
consumer demand for alternatives to oil and gas, technological advances in fuel
economy and energy generation devices could reduce demand for crude oil and
refined petroleum products. We cannot predict when or whether there will be any
change in demand for these products, and any major changes may have a material
adverse effect on our business, financial condition, results of operations and
cash flows. In addition, we may be adversely affected to the extent we are
unable to address any perceived trade-off between the increasing demand for
global access to energy and the protection or improvement of the natural
environment.
If the increasing demand for alternative fuels lowers the demand for
transportation fuels, our profitability could be negatively affected.
Rising crude oil and refined products prices are increasing the economic
feasibility and demand for alternative fuels like ethanol and bio-diesel. New
technologies are being developed to further increase the feasibility and enhance
the performance of these fuels. Additionally, energy security concerns,
agricultural interests, environmental activists, and others are increasing the
visibility of alternative fuels as a substitute for transportation fuels. Should
these trends continue and the demand for alternative fuels continue to rise,
consequently lowering the demand for petroleum-based transportation fuels, our
profitability could be negatively affected.
Foreign currency fluctuations could adversely affect our business and financial
results.
Crude oil prices are generally set in U.S. dollars while sales of refined
products may be in a variety of currencies. If we consummate a business
combination with a target business with operations outside of the United States,
our business will be subject to risks of fluctuations in foreign currency
exchange rates. In certain markets, we may also experience difficulty in
converting local currencies to U.S. dollars, or the market for conversion of
local currency into other currencies may deteriorate or cease to exist.
In addition, a target business with which we combine may do business and
generate sales within other countries. Foreign currency fluctuations may affect
the costs that we incur in such international operations. It is also possible
that some or all of our operating expenses may be incurred in non-U.S. dollar
currencies. The appreciation of non-U.S. dollar currencies in those countries
where we have operations against the U.S. dollar would increase our costs and
could harm our results of operations and financial condition.
20
Following our initial business combination, we may engage in hedging
transactions in an attempt to mitigate exposure to price fluctuations in oil and
other petroleum products; these attempts may not be successful.
Following our initial business combination, we may engage in short sales
and utilize derivative instruments such as options, futures, forward contracts,
interest rate swaps, caps and floors, to hedge against exposure to fluctuations
in the price of crude oil, refined petroleum products and other energy portfolio
positions, as well as foreign currency exchange and interest rates. Hedging
transactions may not be as effective as we intend in reducing our exposure to
these fluctuations and any resulting volatility in our cash flows, and if we
incorrectly assess market trends and risks, may result in a poorer overall
performance than if we had not engaged in any such hedging transactions.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On June 20, 2006, NTR Partners LLC purchased 7,812,500 shares of our
common stock and 4.25 million warrants to purchase shares of our common stock
(comprising 2.5 million initial founders; warrants and 1.75 million performance
warrants) for a purchase price of $2,525,000. On December 15, 2006, we
reacquired for nominal consideration 1,562,500 of those shares for retirement as
well as all 1,750,000 of the performance warrants for cancellation. This sale
was deemed to be exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) of the Securities Act as a transaction by an issuer not
involving a public offering. In the transaction, the purchaser represented its
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the instruments representing the securities issued in the
transaction.
Immediately prior to the issuance and sale of the securities in our
initial public offering, NTR Partners LLC, our director Mr. Ortale, Sewanee
Partners III, L.P. (affiliated with Mr. Ortale), Hendricks Family LLLP
(affiliated with our director Mrs. Hendricks), Gilliam Enterprises LLC
(affiliated with our Chairman Mr. Gilliam) and our director Mr. Quarles
collectively purchased 3,350,000 warrants directly from us at a price of $1.00
per warrant, for an aggregate purchase price of $3.35 million in a private
placement. This sale of warrants was also deemed to be exempt from registration
under the Securities Act of 1933 in reliance on Section 4(2) of the Securities
Act as a transaction by an issuer not involving a public offering. In the
transaction, each of the aforementioned purchasers represented its intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the instruments representing the securities issued in the transaction.
On February 5, 2007, we closed our initial public offering of 24,000,000
units with each unit consisting of one share of our common stock and one
warrant, each to purchase one share of our common stock at an exercise price of
$7.50 per share. On February 22, 2007, we consummated the closing of an
additional 557,205 units which were subject to the over-allotment option. The
units from the initial public offering (including the over-allotment option)
were sold at an offering price of $10.00 per unit, generating total gross
proceeds of $245.57 million (excluding the proceeds from the offering of $3.35
million founders' warrants received upon consummation of our initial public
offering). Citigroup Global Markets Inc. acted as lead managing underwriter for
the initial public offering. The securities sold in the offering were registered
under the Securities Act of 1933 on registration statement Form S-1 (No.
333-135394). The Securities and Exchange Commission declared the registration
statements effective on January 29, 2007. After deducting the underwriting
discounts and commissions and the offering expenses, the total net proceeds to
us from the offering were $240,624,168, of which $240,124,168 was deposited into
the Trust Account and the remaining proceeds of $500,000 became available to be
used to provide for business, legal and accounting due diligence on prospective
business combinations and continuing general and administrative expenses.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of the Security Holders.
21
On February 1, 2007, in connection with our initial public offering,
by unanimous written consent, our stockholders approved the adoption of an
amendment to the Second Amended and Restated Certificate of Incorporation, which
was adopted on February 1, 2007.
Item 5. Other Information.
Not applicable.
22
Item 6. Exhibits.
Exhibit
No. Description
1.1+ Form of Underwriting Agreement
3.1+ Form of Second Amended and Restated Certificate of Incorporation
3.2+ Form of Amended and Restated Bylaws
4.1+ Specimen Unit Certificate
4.2+ Specimen Common Stock Certificate
4.3+ Form of Second Amended and Restated Warrant Agreement between
the Registrant and American Stock Transfer & Trust Company
4.4+ Amended Form of Founders' Warrant Certificate
4.7+ Amended Form of Warrant Certificate for Public Warrants
10.1+ Amended Form of Letter Agreement between the Registrant and
founding shareholders other than directors and officers
10.3+ Amended Form of Letter Agreement between the Registrant and each
director and officer
10.4+ Initial Founders' Securities Purchase Agreement, dated as of
June 20, 2006, between the Registrant and NTR Partners LLC
10.5+ Form of Registration Rights Agreement among the Registrant, NTR
Partners LLC and the persons named therein
10.6+ Form of Indemnity Agreement between the Registrant and each of
its directors and executive officers
10.7+ Form of Investment Management Trust Agreement by and between the
Registrant and American Stock Transfer & Trust Company
10.8+ Form of Additional Founders' Warrant Purchase Agreement
31.1 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a)
31.2 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a)
32.1 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. Section 1350
32.2 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. Section 1350
- ----------
+ Incorporated by reference to the corresponding exhibit to the Registrant's
Registration Statement on Form S-1 (File No. 333-135394).
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused the report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NTR Acquisition Co.
Dated: May 14, 2007 By: /s/ MARIO E. RODRIGUEZ
---------------------------------------------
Mario E. Rodriguez
Chief Executive Officer
Dated: May 14, 2007 By: /s/ WILLIAM E. HANTKE
---------------------------------------------
William E. Hantke
Principal Financial Officer
24
NTR ACQUISITION CO.
(A Corporation in the Development Stage)
Balance Sheets
March 31, December 31,
Assets 2007 2006
------------ ------------
(Unaudited) (Audited)
Cash and cash equivalents $ 209,210 $ 2,423,747
Cash and cash equivalents held in trust 142,870,189 --
Marketable securities held in trust 98,827,600 --
Other assets 188,740 1,737
------------ ------------
Total current assets 242,095,739 2,425,484
Deferred tax asset 72,647 --
Deferred offering costs -- 815,343
Other assets 6,756 4,240
------------ ------------
Total assets $242,175,142 $ 3,245,067
============ ============
Liabilities and Stockholders' Equity
Accrued expenses $ 542,245 $ 1,002,336
Accrued federal and state taxes 527,927 29,067
Notes payable to initial founders 9,356 49,534
Deferred underwriting discount 7,367,162 --
------------ ------------
Total current liabilities 8,446,690 1,080,937
------------ ------------
Common stock, subject to possible redemption; 4,911,439 shares
at $9.78 per share 48,033,873 --
Deferred interest attributable to common stock subject to possible
redemption (net of taxes of $146,364) 229,410 --
------------ ------------
Total commitments and contingencies 48,263,283 --
------------ ------------
Common stock, $0.001 par value. Authorized 200,000,000 shares;
issued and outstanding 30,557,205 and 6,250,000 shares at
March 31, 2007 and December 31, 2006, respectively 30,557 6,250
Additional paid-in capital 185,013,630 2,523,748
Earnings (deficit) accumulated during the development stage 420,982 (365,868)
------------ ------------
185,465,169 2,164,130
------------ ------------
Total liabilities and stockholders' equity $242,175,142 $ 3,245,067
============ ============
See notes to financial statements.
F-1
NTR ACQUISITION CO.
(A Corporation in the Development Stage)
Statements of Operations (Unaudited)
June 2, 2006
(Date of
January 1, inception)
2007 through through
March 31, March 31,
2007 2007
------------ ------------
Operating expenses:
Professional services $ 125,805 $ 467,275
Rent and facilities 10,775 29,205
Formation and operating 167,519 215,440
------------ ------------
304,099 711,920
------------ ------------
Loss from operations before other
income and income tax expense (304,099) (711,920)
------------ ------------
Other income and (expense):
Interest income 1,896,921 1,967,940
State taxes other than income (153,750) (182,816)
------------ ------------
Other income 1,743,171 1,785,124
------------ ------------
Income before income tax expense 1,439,072 1,073,204
Income tax expense:
Current 495,459 495,459
Deferred (72,647) (72,647)
------------ ------------
Income tax expense 422,812 422,812
------------ ------------
Net income 1,016,260 650,392
Deferred Interest, net of taxes, attributable to common
stock subject to possible redemption (229,410) (229,410)
------------ ------------
Net income attributable to common stock $ 786,850 $ 420,982
============ ============
Earnings per share:
Basic $ 0.04 $ 0.04
Diluted 0.03 0.03
Weighted average shares outstanding:
Basic 20,985,265 11,655,377
Diluted 24,558,266 13,442,861
See notes to financial statements.
F-2
NTR ACQUISITION CO.
(A Corporation in the Development Stage)
Statements of Changes in Stockholders' Equity (Unaudited)
Earnings
(Deficit)
Accumulated
Common stock Additional During the
------------------------------- Paid-In Development
Shares Values Capital Stage Total
------------- ------------- ------------- ------------- -------------
Balance at June 2, 2006
(inception) -- $ -- $ -- $ -- $ --
Issuance of common shares to
initial founders 7,812,500 7,813 2,267,085 -- 2,274,898
Issuance of 4,250,000 warrants
to initial founders -- -- 250,101 -- 250,101
Cash contribution made by
initial founders -- -- 5,000 -- 5,000
Common stock repurchased and
performance warrants from
initial founders for $1.00 (1,562,500) (1,563) 1,562 -- (1)
Net loss -- -- -- (365,868) (365,868)
------------- ------------- ------------- ------------- -------------
Balances at December 31, 2006 6,250,000 6,250 2,523,748 (365,868) 2,164,130
Common stock repurchased
for $ 1.00 (250,000) (250) 249 -- (1)
Sale of 24,557,205 units, net
of underwriter's discount
and offering costs 24,557,205 24,557 227,173,506 -- 227,198,063
Net proceeds subject to
possible redemption of
4,911,439 shares -- -- (48,033,873) -- (48,033,873)
Proceeds from sale of warrants
to founders -- -- 3,350,000 -- 3,350,000
Net income attributable to common stock -- -- -- 786,850 786,850
------------- ------------- ------------- ------------- -------------
Balances at March 31, 2007 30,557,205 $ 30,557 $ 185,013,630 $ 420,982 $ 185,465,169
============= ============= ============= ============= =============
See notes to financial statements.
F-3
NTR ACQUISITION CO.
(A Corporation in the Development Stage)
Statements of Cash Flows (Unaudited)
June 2, 2006
(Date of
January 1, inception)
2007 through through
March 31, March 31,
2007 2007
------------- -------------
Cash flows from operating activities:
Net income $ 786,850 $ 420,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred tax asset (72,647) (72,647)
Deferred interest attributable to common stock
subject to possible redemption 229,410 229,410
Changes in assets and liabilities:
Other assets (189,519) (195,496)
Accrued federal and state taxes 498,860 527,927
Accrued expenses (707,844) (452,354)
Notes payable to initial founders (40,178) 9,356
------------- -------------
Net cash provided by operating activities 504,932 467,178
------------- -------------
Cash flows from investing activities:
Cash held in trust account (142,870,189) (142,870,189)
Purchase of marketable securities held in trust (98,827,600) (98,827,600)
------------- -------------
Net cash used in investing activities (241,697,789) (241,697,789)
------------- -------------
Cash flows from financing activities:
Proceeds from sale of common stock to initial founders -- 2,279,898
Proceeds from sale of warrants to initial founders 3,350,000 3,600,101
Repurchase of common stock and performance warrants -- (2)
Proceeds from initial public offering, net of underwriter's
discount and offering costs 235,628,320 235,559,824
------------- -------------
Net cash provided by financing
activities 238,978,320 241,439,821
------------- -------------
Net increase (decrease) in cash (2,214,537) 209,210
Cash and cash equivalents, beginning of period 2,423,747 --
------------- -------------
Cash and cash equivalents, end of period $ 209,210 $ 209,210
============= =============
Noncash financing activities:
Accrual of deferred offering costs $ 255,105 $ 1,001,953
Accrual of deferred underwriter fee 7,367,162 7,367,162
Supplementary Disclosures
Taxes Paid $ 150,348 $ 150,348
See notes to financial statements.
F-4
NTR ACQUISITION CO.
(A Corporation in the Development Stage)
Notes to Financial Statements (Unaudited)
(1) Organization and Nature of Business Operations
NTR Acquisition Co. ("the Company") was organized under the laws of the State of
Delaware on June 2, 2006. The Company was formed to acquire, through merger,
capital stock exchange, asset acquisition or other similar business combination,
one or more businesses or assets in the energy industry, with a particular focus
on businesses or assets involved in the refining, distribution and marketing of
petroleum products in North America. The Company has selected December 31st as
its fiscal year end.
The Company has neither engaged in any operations nor generated any revenue to
date. The activity from June 2, 2006 (inception) to March 31, 2007 relates to
the Company's formation and its initial public offering described below and in
Note 4. The Company is considered to be in the development stage and is subject
to the risks associated with activities of development stage companies.
The registration statement for the Company's initial public offering
("Offering") was declared effective by the Securities and Exchange Commission on
January 29, 2007. The Company closed the Offering on February 5, 2007 selling
24,000,000 units ("Units) at a price of $10.00. Also, on February 20, 2007, the
underwriters for the Company's initial public offering exercised a portion of
their over-allotment option and subsequently purchased on February 22, 2007 an
additional 557,205 units at $10.00 per unit. Each unit consists of one share of
the Company's common stock, $0.001 par value and one warrant ("Warrant"). The
Company received net proceeds of approximately $227,575,000 from the initial
public offering after payment of related offering costs. A portion of net
proceeds from the Offering ($227,575,000) was placed in a trust account ("Trust
Account") along with the initial capital from the initial founders and the
deferred underwriting discount. The amount held in the Trust Account totaled
$241,697,789 as of March 31, 2007 and will be invested in marketable securities
until the earlier of (i) consummation of a business combination or (ii)
distribution of the Trust Account as described below, except for $3.25 million
of interest (net of taxes payable) that will be released to the Company to pay
business, legal and accounting due diligence on potential acquisitions and for
continuing general and administrative expenses.
A total of approximately $234,775,000, including $227,575,000 of the net
proceeds of the Offering, the sale of the initial founders' securities and the
deferred underwriting discounts and commissions has been placed in a trust
account at Morgan Stanley & Co. Inc., with the American Stock Transfer & Trust
Company as trustee. Except for a portion of the interest income to be released
to the Company, the proceeds held in trust will not be released from the trust
account until the earlier of the completion of the Company's initial business
combination or the liquidation of NTR Acquisition Co. Under the terms of the
investment management trust agreement, up to $3.25 million of interest (net of
taxes payable) may be released to the Company, subject to availability.
The initial target business or businesses with which the Company combines must
have a collective fair market value equal to at least 80% of the balance in the
trust account (excluding deferred underwriting discounts and commissions of
$7.37 million) at the time of the initial business combination.
An initial business combination will be consummated only if a majority of the
shares of common stock voted by the public stockholders are voted in favor of
the initial business combination and public stockholders owning less than 20% of
the shares sold in the Offering exercise their conversion rights. Public
stockholders voting against the initial business combination will be entitled to
convert their shares of common stock into a pro rata share of the aggregate
amount then on deposit in the trust account (before payment of the deferred
underwriting discounts and commissions and including interest earning on their
pro rata portion of the trust account, net of income taxes payable on such
interest and net of interest income of up to $3.25 million on the trust account
balance previously released to the Company to fund working capital requirements)
if the initial business combination is approved and completed. If the initial
business combination is not approved or completed for any reason, then public
stockholders voting against the initial business combination who exercised their
conversion rights would not be entitled to convert their shares of common stock
into a pro rata share of the aggregate amount then on deposit in the trust
account.
If the Company is unable to complete a business combination by January 30, 2009,
it will automatically dissolve and as promptly as practicable thereafter adopt a
plan of dissolution and distribution. Upon its receipt of notice from counsel
that the Company has been dissolved, the trustee will commence liquidating the
investments constituting the trust account and distribute the proceeds to the
public stockholders. The Company's initial founders have waived their right to
participate in any liquidation distribution with respect to any initial
F-5
NTR ACQUISITION CO.
(A Corporation in the Development Stage)
Notes to Financial Statements (Unaudited)
founders' shares. There will be no distribution from the trust account with
respect to any of the warrants which will expire worthless if the Company is
liquidated.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The following (a) balance sheet as of December 31, 2006, which has
been derived from audited financial statements, and (b) the
unaudited interim condensed financial statements, and notes thereto
(the "statements"), of NTR Acquisition Co. have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. As permitted under those rules, certain footnotes or
other financial information that are normally required by United
States generally accepted accounting principles can be condensed or
omitted. Therefore, these statements should be read in conjunction
with the audited consolidated financial statements, and notes
thereto, which are included in (a) our Annual Report on Form 10-K
for the year ended December 31, 2006 and (b) the Current Report on
Form 8-K filed on February 26, 2007. In the opinion of management,
the statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of our
financial condition and operating results as of and for the periods
presented. Revenue, expenses, assets and liabilities can vary during
each quarter of the year. Therefore, the results and trends in these
statements may not be representative of those for the full year.
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 (including the
disclosure of contingent 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.
(b) Cash Equivalents and Concentrations
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased, to be cash
equivalents. Such cash and cash equivalents, at times, may exceed
federally insured limits. The Company maintains its accounts with
financial institutions with high credit ratings.
(c) Marketable Securities Held in Trust
Investment securities consist of U.S. Treasury securities. The
Company classifies its debt securities as held to maturity. Held to
maturity securities are those securities in which the company has
the ability and intent to hold the security until maturity. Held to
maturity debt securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts.
A decline in the market value of held-to-maturity securities below
cost that is deemed to be other- than-temporary results is an
impairment to reduce the carrying costs amount of fair value. The
impairment is charged to earnings and a new cost basis for the
security is established. To determine whether an impairment is other
than temporary, the Company considers whether it has the ability and
intent to hold the investment until a market price recovery and
considers whether evidence indicating the cost of the investment is
recoverable outweighs evidence to the contrary. Evidence considered
in this assessment includes the reasons for the impairment, the
severity and the duration of the impairment, changes in value
subsequent to year-end, forecasted, performance of the investee, and
the general market condition in the geographic area or industry the
investee operates in.
Premiums and discounts are amortized or accreted over the life of
the related held-to-maturity security as an adjustment to yield
using the effective-interest method. Such amortization and accretion
is included in "Interest Income" line item in the consolidated
statements of operations. Interest Income is recognized when earned.
(d) Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes, and interpretation of FASB Statement No.109"("FIN
48"), which provides criteria for the recognition, measurement,
presentation and disclosure of uncertain tax positions. A tax
benefit from an uncertain position may be recognized only if it is
F-6
NTR ACQUISITION CO.
(A Corporation in the Development Stage)
Notes to Financial Statements (Unaudited)
"more likely than not" that the position is sustainable based on its
technical merits. The provisions of FIN 48 are effective for fiscal
years beginning after December 15, 2006. We do not expect FIN 48
will have a material effect on our financial condition or results of
operations.
Management does not believe that any other recently issued, but not
effective, accounting standards, if currently adopted, would have a
material effect on the Company's financial statements.
(f) Earnings Per Common Share
Basic earnings per share is computed using the weighted average
number of common shares outstanding. Diluted earnings per share
gives effect to the potential dilution of earnings which could occur
if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance
of common stock that then shared in earnings, if dilutive.
(3) Marketable Securities
The carrying amount, gross unrealized holding gains, gross unrealized holding
losses, and fair value of held-to-maturity debt securities by major security
type and class of security at March 31, 2007 were as follows:
Gross
unrealized
Gross unrealized holding
Carrying amount holding gains (losses) Fair value
--------------- ------------- -------- ----------
At March 31, 2007
Held to maturity:
U.S. Treasury securities $98,799,504 $28,096 $0 $98,827,600
=========== ======= == ===========
These debt securities classified as held-to-maturity mature within one-year.
(4) Initial Public Offering
On February 5, 2007, the Company sold to the public 24,000,000 units ("Units")
at a price of $10.00. Also, on February 20, 2007, the underwriters for the
Company's initial public offering exercised a portion of their over-allotment
option and subsequently purchased on February 22, 2007 an additional 557,205
units at $10.00 per unit. Each unit consists of one share of the Company's
common stock, $0.001 par value and one warrant ("Warrant").
Each Warrant entitles the holder to purchase from the Company one share of
common stock at a price of $7.50 on the later of (a) the completion of the
initial business combination or (b) thirteen months from the closing of the
initial public offering, in each case, provided that the Company has a
registration statement in effect covering the shares of common stock issuable
upon exercise of the Warrants. The Warrants expire January 30, 2011 unless
earlier redeemed.
Pursuant to the Warrant Agreement ("Warrant Agreement"), the Company is only
required to use its best efforts to effect the registration of the shares of
common stock under the Warrants. The Company will not be obligated to deliver
securities, and there are no contractual penalties for failure to deliver
securities, if a registration statement is not effective at the time of the
exercise. Also, in the event that a registration statement is not effective at
the time of exercise, the holder of such Warrant shall not be entitled to
exercise such Warrant and in no event (whether in the case of a registration
statement not being effective or otherwise) will the Company be required to net
cash settle the warrant exercise. Consequently, the Warrants may expire
unexercised and unredeemed.
(5) Private Placement
On February 5, 2007, a group of the Company's initial founders purchased an
additional $3,350,000 warrants ($3.35 million in the aggregate) in a private
placement. These warrants are identical to the Warrants contained in the Units
F-7
NTR ACQUISITION CO.
(A Corporation in the Development Stage)
Notes to Financial Statements (Unaudited)
except that they are not redeemable while held by any of the founders or their
permitted transferees. The warrants issued in connection with the private
placement are subject to certain transfer restrictions.
(6) Formation of the Company
On June 20, 2006, NTR Partners LLC purchased 7,812,500 initial founders' shares
of common stock, 2,500,000 initial founders' warrants, and 1,750,000 performance
warrants for a purchase price of $2,525,000 in a private placement in connection
with the formation of NTR Acquisition Co.
These initial founders' shares of common stock are identical to the shares
included in the Units issued in connection with the Initial Public Offering,
except that each holder of the initial founders' shares has agreed (i) in
connection with the stockholder vote required to approve an initial business
combination, to vote the initial founders' shares in accordance with a majority
of the shares of common stock voted by the public stockholders, and (i) to waive
its the right to participate in any liquidation distribution with respect to the
initial founders' shares if we fail to consummate a business combination.
Each holder of initial founders' shares has also agreed that it will not to sell
or transfer the initial founders' shares for a period of one year from the date
the Company completes its initial business combination, other than to permitted
transferees who agree to be subject to these transfer restrictions to waive
their rights to participate in a liquidation if we do not consummate our initial
business combination and to vote with the majority of public stockholders who
vote in connection with our initial business combination.
The initial founders' warrants are identical to those issued in the Company's
Initial Public Offering, except that the initial founders' warrants will be
non-redeemable so long as they are held by NTR Partners LLC or any of our
founders or their permitted transferees.
Each of the Company's founders has agreed that it will not to sell or transfer
any founders' warrants such founder holds until after the Company completes its
initial business combination, other than to permitted transferees who agree to
be subject to these transfer restrictions. In addition, commencing on the date
on which they become exercisable, the initial founders' warrants and the shares
of common stock issuable upon exercise of the warrants will be entitled to
registration rights under a registration rights agreement dated January 30,
2007.
On December 15, 2006 and January 30, 2007, the Company acquired from its initial
stockholder an aggregate of 1,812,500 outstanding common shares for retirement
and all 1,750,000 outstanding performance warrants for cancellation for
aggregate nominal consideration of $2.00. These transactions were effected to
ensure that the shares included in the Units sold in the initial public offering
represented approximately 80% of the Company's outstanding share capital.
(7) Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per
common share from continuing operations:
June 2, 2006 -
January 1, 2007 - (Date of Inception)
Through Through
March 31, 2007 March 31, 2007
-------------------- --------------------
Net income to common stockholders $ 786,850 $ 420,982
==================== ====================
Basic earnings per common share:
Weighted average common shares outstanding 20,985,265 11,655,377
==================== ====================
Net income per common share - basic $ 0.04 $ 0.04
==================== ====================
Diluted earnings per common share:
Weighted average common shares outstanding 20,985,265 11,655,377
Effect of dilutive securities:
Warrants 3,573,001 1,787,484
-------------------- --------------------
Weighted average dilutive common shares outstanding 24,558,266 13,442,861
==================== ====================
Net income per common share - diluted $ 0.03 $ 0.03
==================== ====================
F-8