National American University Holdings, Inc. - Annual Report: 2007 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
The Fiscal Year Ended December 31, 2007
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the transition period from_______________
to_______________
Commission
file number:
CAMDEN
LEARNING CORPORATION
(Exact
name of registrant as specified in its charter)
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Delaware
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83-0479936
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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|
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incorporation
or organization)
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500
East Pratt Street, Suite 1200
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||
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Baltimore,
MD
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21202
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(Address
of principal executive offices)
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(Zip
Code)
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(410)
878-6800
Registrant’s
telephone number, including area code
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $.0001 par value per share
Warrants
to purchase shares of Common Stock
Units,
each comprising of one share of Common Stock and one
Warrant
(Title
Of
Class)
Name
of
each exchange on which registered
Over
The Counter Bulletin Board
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities
Act. Yes o
No x.
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act. Yes o No x.
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 o.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer x
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Smaller
reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes x No o.
The
aggregate market value of the outstanding common stock, other than shares held
by persons who may be deemed affiliates of the registrant, computed by reference
to the closing sales price for the Registrant’s Common Stock on March 27, 2008,
as reported on the OTC Bulletin Board, was approximately $46,437,360. As of
March 27, 2008, there were 8,188,800 shares of common stock, par value $.0001
per share, of the registrant outstanding.
TABLE
OF CONTENTS
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PART
I
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Item
1.
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Business
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2 | ||
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Item
1A.
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Risk
Factors
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11 | ||
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Item
1B.
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Unresolved
Staff Comments
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27 | ||
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Item
2.
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Properties
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27 | ||
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Item
3.
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Legal
Proceedings
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28 | ||
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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PART
II
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Item
5.
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Market
For Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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28 | ||
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Item
6.
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Selected
Financial Data
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31 | ||
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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31 | ||
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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34 | ||
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Item
8.
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Financial
Statements and Supplementary Data
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34 | ||
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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34 | ||
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Item
9A(T).
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Controls
and Procedures
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34 | ||
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Item
9B.
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Other
Information
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35 | ||
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PART
III
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Item
10.
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Directors
and Executive Officers of the Registrant
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35 | ||
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Item
11.
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Executive
Compensation
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37 | ||
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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37 | ||
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Item
13.
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Certain
Relationships and Related Transactions
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39 | ||
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Item
14.
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Principal
Accountant Fees and Services
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41 | ||
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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42 | ||
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements can be
identified by the use of forward-looking terminology, including the words
“believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,”
“will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in
each case, their negative or other variations or comparable terminology. Such
statements include, but are not limited to, any statements relating to our
ability to consummate any acquisition or other business combination and any
other statements that are not statements of current or historical facts. These
statements are based on management’s current expectations, but actual results
may differ materially due to various factors, including, but not limited to,
our:
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·
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being
a development stage company with no operating
history;
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·
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dependence
on key personnel, some of whom may join us following an initial
transaction;
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·
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personnel
allocating their time to other businesses and potentially having
conflicts
of interest with our business;
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·
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potentially
being unable to obtain additional financing to complete an initial
transaction;
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·
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limited
pool of prospective target
businesses;
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·
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securities’
ownership being concentrated;
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·
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potential
change in control if we acquire one or more target businesses for
stock;
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·
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risk
associated with operating in the media, entertainment or
telecommunications industries;
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·
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delisting
of our securities from the OTC Bulletin Board or our inability to
have our
securities listed on the OTC Bulletin Board following a business
combination;
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·
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financial
performance following an initial transaction;
or
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·
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those
other risks and uncertainties detailed in the Registrant’s filings with
the Securities and Exchange
Commission.
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By
their nature, forward-looking statements involve risks and uncertainties because
they relate to events and depend on circumstances that may or may not occur
in
the future. We caution you that forward-looking statements are not guarantees
of
future performance and that our actual results of operations, financial
condition and liquidity, and developments in the industry in which we operate
may differ materially from those made in or suggested by the forward-looking
statements contained in this Annual Report on Form 10-K. In addition, even
if
our results or operations, financial condition and liquidity, and developments
in the industry in which we operate are consistent with the forward-looking
statements contained in this Annual Report on Form 10-K, those results or
developments may not be indicative of results or developments in subsequent
periods.
These
forward-looking statements are subject to numerous risks, uncertainties and
assumptions about us described in our filings with the Securities and Exchange
Commission. The forward-looking events we discuss in this Annual Report on
Form
10-K speak only as of the date of such statement and might not occur in light
of
these risks, uncertainties and assumptions. Except as required by applicable
law, we undertake no obligation and disclaim any obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Unless
otherwise provided in this Annual Report on Form 10-K., references to “the
Company,” “the Registrant,” “we,” “us” and “our” refer to Camden Learning
Corporation.
-1-
PART
I
Item
1. Business
Introduction
Camden
Learning Corporation (the “Company”, “we”, or “us”) is a blank check company
organized under the laws of the State of Delaware on April 10, 2007. We were
formed to acquire, through a merger, capital stock exchange, asset acquisition
or other similar business combination, one or more domestic or international
assets or an operating business in the education industry. To date, our efforts
have been limited to organizational activities, our initial public offering
and
the search for a suitable business combination. As of the date of this filing,
we have not acquired any business operations nor entered into by definitive
agreement with any target company.
Our
executive offices are located at 500 East Pratt Street, Suite 1200, Baltimore,
MD 21202 and our telephone number at that location is (410) 878-6800.
Recent
Developments
A
registration statement for our initial public offering was declared effective
on
November 29, 2007. On December 5, 2007, the Company sold 6,250,000 units in
our
initial public offering at a price of $8.00 per Unit. Each Unit consists of
one
share of the Company’s common stock, $.0001 par value, and one redeemable common
stock purchase warrant. On December 19, 2007, the Company sold an additional
376,300 Units subject to the underwriters’ over allotment option. Each warrant
entitles the holder to purchase from the Company one share of common stock
at an
exercise price of $5.50 commencing the later of the completion of a Business
Combination or November 29, 2008 (one year from the effective date of the
offering), and expiring November 29, 2011 (four years from the effective date
of
the offering). The Company may redeem the warrants at a price of $.01 per
Warrant upon 30 days notice after the warrants become exercisable, only in
the
event that the last sale price of the common stock is at least $11.50 per share
for any 20 trading days within a 30 trading day period ending on the third
day
prior to the date on which notice of redemption is given. We received gross
proceeds of approximately $53,010,400 (which includes the proceeds of a private
placement of 2,800,000 warrants for $2,800,000 to the Company’s sponsor, Camden
Learning, LLC) from our initial public offering, of which $52,389,984 was placed
in trust.
On
November 29, 2007, our units commenced trading on the OTC Bulletin Board under
the symbol “CAELU”. Holders of our units were able to separately trade the
common stock and warrants included in such units commencing December 21, 2007
and the trading in the units has continued under the symbol CAELU. The common
stock and warrants are quoted on the OTC Bulletin Board under the symbols CAEL
and CAELW, respectively.
Since
the
completion of our initial public offering, we have contacted and continue to
contact those industry professionals who we believe can be of strategic
assistance in sourcing potential deals for us, including investment bankers,
business consultants, accountants and lawyers. Through the relationships of
our
board of directors, officers and directors and senior advisors, we have also
made contact with certain large national and international concerns to determine
if they have any interest in divesting any of their existing interests. We
have
also sought out owners and institutional owners of education companies and
investment bankers or business brokerage companies that are active in the
education industry.
Overview
The
U.S.
education industry has continued to show substantial growth in the past decade,
due to what we believe to be the importance of developing a skilled workforce.
A
skilled workforce is increasingly reliant on intellectual capital as the U.S.
economy continues its shift to become focused on services rather than
manufacturing. While post-secondary graduates are approximately 30% of the
U.S.
population, more than 85% have completed their K-12 education according to
the
National Center for Education Statistics report entitled “Digest of Education
Statistics: 2005”. International competition, especially in math and science,
has driven education legislation, requiring minimum performance levels and
allocating funding for supplemental services in underperforming schools. In
addition to state and government spending, the U.S. has the second highest
level
of education funding from private sources in the world at 28%, led only by
Korea, according to the Organisation for Economic Co-Operation and Development’s
report entitled “Education at a Glance 2006”. These factors have contributed to
the overall increase in education spending with total expenditures for education
expected to amount to 7.5% of U.S. gross domestic product in 2003-04, which
is
approximately 0.6 percentage points higher than in 1993-94 according to the
National Center for Education Statistics report entitled “Digest of Education
Statistics: 2005”. Expenditures for public and private education, from
kindergarten through graduate school (excluding postsecondary schools not
awarding associate or higher degrees), are estimated at $827 billion for 2003-04
according to the National Center for Education Statistics report entitled
“Digest of Education Statistics: 2005”. We expect these factors to continue to
drive growth across all sectors of the education industry.
-2-
We
believe this growth has created significant opportunities for companies engaged
in the for-profit education industry serving these students. For-profit, four
year, Title IV degree granting institutions increased from 80 in 1993-1994
to
350 in 2003-04, while not-for-profit, four year, Title IV degree granting
institutions increased from 2,110 in 1993-1994 to 2,180 in 2003-04 according
to
the National Center for Education Statistic’s report entitled “Digest of
Education Statistics: 2005”. We believe the growth rate in the for-profit sector
will continue to outpace non-profit providers. In addition to enrollment in
K-12
and post-secondary education, corporate training and early childcare have shown
recent growth, after slowdowns following 2000-2001.
Although
we may consider a target business in any sector of the education industry,
we
intend to concentrate our search for an acquisition candidate in the following
target sectors:
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·
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Early
Childcare (pre-school programs and/or day care facilities for pre-school
aged children);
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·
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K-12
(kindergarten through twelfth
grade);
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·
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Post-secondary
(a formal instructional program for students who have completed the
requirements
for a high school diploma or its equivalent, including programs whose
purpose
is academic, vocational and continuing professional education);
and
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·
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Corporate
Training.
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We
intend
to leverage the industry experience of our executive officers and directors
by
focusing our efforts on identifying a prospective target business in the
education industry.
Our
Management Team
Our
management team has extensive experience in the education industry, in
investment banking and private equity investments. David L. Warnock, our
President, Chairman and Chief Executive Officer, has over 24 years of investment
experience in the education and business and financial services industries.
Mr.
Warnock serves on the boards of directors of American Public Education, Inc.,
New Horizons Worldwide, Inc., Nobel Learning Communities, Inc., Primo Water
Corporation and Questar Assessment, Inc., formerly Touchstone Applied Science
Associates. Donald W. Hughes, our Chief Financial Officer and Secretary, also
serves on the boards of directors of New Horizons Worldwide, Inc. and Questar
Assessment, Inc. Dr. Therese Crane, our director, was previously President of
Jostens Learning Corporation and its successor, Compass Learning and previously
was Vice President of Information and Education Products at America Online.
Ronald Tomalis, our director, was previously counselor to the US Secretary
of
Education and Acting Assistant Secretary of Elementary and Secondary Education.
William Jews is a former governor of the Federal Reserve Bank and was the
President and Chief Executive Officer of CareFirst Inc./CareFirst Blue Cross
Blue Shield from 1993 through 2006, an organization with more than $5 billion
in
annual revenues. Mr. Jews has previously been a director of MBNA, MuniMae Inc.,
Nations Bank, Ecolab, Inc. and Crown Central Petroleum, and currently serves
on
the boards of directors of The Ryland Group, a national home builder and
mortgage provider, Choice Hotels International, a worldwide lodging franchisor
and Fortress International Group, Inc., the parent company of Total Site
Solutions, which supplies industry and government with secure data centers
and
other facilities designed to survive terrorist attacks, natural disasters and
blackouts. In the course of their careers, management completed numerous
strategic transactions and acquisitions and developed extensive contacts and
relationships in the education industry.
-3-
Effecting
a Business Combination
General
We
are
not presently engaged in any substantive commercial business. We intend to
utilize cash derived from the proceeds of the initial public offering, our
capital stock, debt or a combination of these in effecting a business
combination. A business combination may involve the acquisition of, or merger
with, a company that does not need substantial additional capital but desires
to
establish a public trading market for its shares, while avoiding what it may
deem to be adverse consequences of undertaking a public offering itself. These
include time delays, significant expense, loss of voting control and compliance
with various Federal and state securities laws. In the alternative, we may
seek
to consummate a business combination with a company that may be financially
unstable or in its early stages of development or growth. While we may seek
to
effect business combinations with more than one target business, we will
probably have the ability, as a result of our limited resources, to initially
effect only a single business combination.
We
have not entered into any definitive agreement with a target
business
To
date,
although we continue to search for a potential candidate for a business
combination, we have not entered into any definitive agreements with any target
business for a business combination.
Subject
to the limitations that a target business or businesses have a collective fair
market value of at least 80% of our net assets at the time of the acquisition,
as described below in more detail, we have virtually unrestricted flexibility
in
identifying and selecting a prospective business combination candidate. We
have
not established any other specific attributes or criteria (financial or
otherwise) for prospective target businesses. We do not intend to specifically
target financially unstable, early stage or un-established companies; however,
to the extent we effect a business combination with a financially unstable
company or an entity in its early stage of development or growth, including
entities without established records of sales or earnings, we may be affected
by
numerous risks inherent in the business and operations of financially unstable
and early stage or potential emerging growth companies. Although our management
will endeavor to evaluate the risks inherent in a particular target business,
we
cannot assure you that we will properly ascertain or assess all significant
risk
factors.
Sources
of target businesses
Target
business candidates have been brought to our attention from various unaffiliated
sources, including education industry executives, investment bankers, venture
capital funds, private equity funds, leveraged buyout funds, management buyout
funds and other members of the financial community, who present solicited or
unsolicited proposals. Our officers and directors as well as their affiliates
may also bring to our attention target business candidates. Each member of
our
management team has been involved in the education industry, investment banking
and private equity investments for a majority of, if not their entire,
professional careers. In connection therewith, members of our management, as
they have done in the past, frequently review newspaper articles and trade
publications, and attend conferences and trade shows, which relate to the
education industry. We may engage the services of professional firms or other
individuals that specialize in business acquisitions on any formal basis, in
which event we may pay a finder’s fee or other compensation. The terms of any
such arrangements will be negotiated with such persons on an arm’s length basis
and disclosed to our stockholders in the proxy materials we provide in
connection with any proposed business combination. In no event, however, will
we
pay any of our existing officers, directors or stockholders or any entity with
which they are affiliated any finder’s fee or other compensation prior to or in
connection with the consummation of a business combination.
Selection
of a target business and structuring of a business
combination
Subject
to the requirement that our initial business combination must be with a target
business or businesses with a collective fair market value that is at least
80%
of the amount in our trust account (less the deferred underwriting discount
and
commissions and taxes payable) at the time of such transaction, our management
has virtually unrestricted flexibility in identifying and selecting a
prospective target business in the education industry. We have not established
any other specific attributes (financial or otherwise) for prospective target
businesses. In evaluating a prospective target business, our management will
consider, among other factors, the following:
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·
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growth
potential;
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·
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financial
condition and results of operation;
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·
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capital
requirements;
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·
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the
value and extent of intellectual
property;
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·
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competitive
position;
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·
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stage
of development of the products, processes or
services;
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·
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degree
of current or potential market acceptance of the products, processes
or
services;
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-4-
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·
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proprietary
features and degree of protection of the products, processes or services;
and
|
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·
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costs
associated with effecting the business
combination.
|
These
criteria are not intended to be exhaustive. Any evaluation relating to the
merits of a particular business combination will be based, to the extent
relevant, on the above factors as well as other considerations deemed relevant
by our management in effecting a business combination consistent with our
business objective. In evaluating a prospective target business, we will conduct
an extensive due diligence review which will encompass, among other things,
meetings with incumbent management and inspection of facilities, as well as
review of financial and other information which will be made available to us.
We
will engage independent third party consultants or experts to assist us in
the
due diligence process. For additional information on such engagements, see
below
under the section entitled “Item 13 Certain Relationships and Related
Transactions.”
The
time
and costs required to select and evaluate a target business and to structure
and
complete the business combination cannot presently be ascertained with any
degree of certainty. Any costs incurred with respect to the identification
and
evaluation of a prospective target business with which a business combination
is
not ultimately completed will result in a loss to us and reduce the amount
of
capital available to otherwise complete a business combination. While we may
pay
fees or compensation to third parties for their efforts in introducing us to
a
potential target business, in no event, however, will we pay any of our existing
officers, directors or stockholders or any entity with which they are affiliated
any finder’s fee or other compensation for services rendered to us or in
connection with the consummation of the initial business
combination.
Fair
market value of target business
The
initial target business or businesses with which we engage in a business
combination must have a collective fair market value equal to at least 80%
of
the amount in our trust account (less the deferred underwriting discount and
commissions and taxes payable) at the time of such acquisition. There is no
limitation on our ability to raise funds privately or through loans that would
allow us to acquire a target business or businesses with a fair market value
in
an amount considerably greater than 80% of the amount in our trust account
(less
the deferred underwriting discount and commissions and taxes payable) at the
time of acquisition. The fair market value of any such business or businesses
will be determined by our board of directors based upon standards generally
accepted by the financial community, such as actual and potential sales,
earnings and cash flow and book value, and the price for which comparable
businesses have recently been sold. If our board is not able to independently
determine that the target business has a sufficient fair market value, we will
obtain an opinion from an unaffiliated independent investment banking firm
which
is a member of the Financial Industry Regulatory Authority, or FINRA, with
respect to the satisfaction of such criteria. Since any opinion, if obtained,
would merely state that fair market value meets the 80% of the amount in our
trust account (less the deferred underwriting discount and commissions and
taxes
payable) threshold, it is not anticipated that copies of such opinion would
be
distributed to our stockholders, although copies will be provided to
stockholders who request it. If we do obtain such an opinion, we will provide
details with respect to how such opinion may be obtained from us in the Current
Report on Form 8-K which we file to disclose our entering into the acquisition
agreement. We will not be required to obtain an opinion from an investment
banking firm as to the fair market value if our board of directors independently
determines that the target business has sufficient fair market
value.
Probable
lack of business diversification
While
we
may seek to effect business combinations with more than one target business,
our
initial business combination must be with one or more target businesses whose
fair market value, collectively, is at least equal to 80% of the amount in
our
trust account (less the deferred underwriting discount and commissions and
taxes
payable) at the time of such acquisition, as discussed above. Consequently,
it
is probable that we will have the ability to effect only a single business
combination although this may entail the acquisition of several operating
businesses. We may not be able to engage in a business combination with more
than one target business because of various factors, including possible complex
accounting issues, which would include generating pro forma financial statements
reflecting the operations of several target businesses as if they had been
combined, and numerous logistical issues, which could include attempting to
coordinate the timing of negotiations, proxy statement disclosure and other
legal issues and closings with multiple target businesses. In addition, we
would
also be exposed to the risks that conditions to closings with respect to the
transaction with one or more of the target businesses would not be satisfied,
bringing the fair market value of the initial business combination below the
required fair market value of 80% of the amount in our trust account (less
the
deferred underwriting discount and commissions and taxes payable) threshold.
Therefore, at least initially, the prospects for our success may be entirely
dependent upon the future performance of a single business. Unlike entities
that
have the resources to complete several business combinations of entities
operating in multiple industries or multiple areas of a single industry, it
is
probable that we will not have the resources to diversify our operations or
benefit from the possible spreading of risks or offsetting of losses. By
consummating a business combination with only a single entity, our lack of
diversification may:
· subject
us to numerous economic, competitive and regulatory developments, any or
all of
which may have a substantial adverse impact upon the particular industry
in
which we may operate subsequent to a business combination;
and
-5-
· result
in
our dependency upon the development or market acceptance of a single or limited
number of products, processes or services.
Limited
ability to evaluate the management of the target business
Although
we intend to closely scrutinize the management of a prospective target business
when evaluating the desirability of effecting a business combination, we cannot
assure you that our assessment will prove to be correct. In addition, we cannot
assure you that new members that join our management following a business
combination will have the necessary skills, qualifications or abilities to
manage a public company. Furthermore, the future role of our officers and
directors, if any, in the target business following a business combination
cannot presently be stated with any certainty. While certain of our current
officers and directors may remain associated in senior management or advisory
positions with us following a business combination, they may not devote their
full time and efforts to our affairs subsequent to a business combination.
Moreover, they would only be able to remain with the company after the
consummation of a business combination if they are able to negotiate employment
or consulting agreements in connection with such business combination, which
would be negotiated at the same time as the business combination negotiations
are being conducted and which may be a term of the business combination. Such
negotiations would take place simultaneously with the negotiation of the
business combination and could provide for such individuals to receive
compensation in the form of cash payments and/or our securities for services
they would render to the company after the consummation of the business
combination. While the personal and financial interests of such individuals
may
influence their motivation in identifying and selecting a target business,
the
ability of such individuals to remain with the company after the consummation
of
a business combination will not be the determining factor in our decision as
to
whether or not we will proceed with any potential business combination.
Additionally, we cannot assure you that our officers and directors will have
significant experience or knowledge relating to the operations of the particular
target business.
Following
a business combination, we may seek to recruit additional managers to supplement
the incumbent management of the target business. We cannot assure you that
we
will have the ability to recruit additional managers, or that any such
additional managers we do recruit will have the requisite skills, knowledge
or
experience necessary to enhance the incumbent management.
Opportunity
for stockholder approval of business combination
Prior
to
the completion of our initial business combination, we will submit the
transaction to our stockholders for approval, even if the nature of the business
combination is such as would not ordinarily require stockholder approval under
applicable state law. In connection with seeking stockholder approval of a
business combination, we will furnish our stockholders with proxy solicitation
materials prepared in accordance with the Securities Exchange Act of 1934,
as
amended, which, among other matters, will include a description of the
operations of the target business and audited historical financial statements
of
the business.
In
connection with the stockholder vote required to approve any business
combination, all of our founding stockholders have agreed to vote the shares
of
common stock owned by them prior to the offering in the same manner as a
majority of the public stockholders who vote at the special or annual meeting
called for the purpose of approving a business combination. Our founding
stockholders have also agreed that if they acquire shares of common stock in
or
following the offering, they will vote such acquired shares in favor of a
business combination. As a result, any of our founding stockholders that acquire
shares during or after the offering may not exercise conversion rights with
respect to those shares in the event that the business combination transaction
is approved. We will proceed with the business combination only if a majority
of
the shares of common stock voted by the public stockholders are voted in favor
of the business combination and public stockholders owning less than 30% of
the
shares sold in the initial public offering exercise their conversion rights.
We
will only structure or consummate a business combination in which all
stockholders exercising their conversion rights, up to 29.99%, will be entitled
to receive their pro rata portion of the trust account (net of taxes payable).
Additionally, we will not propose a business combination to our stockholders
which includes a provision that such business combination will not be
consummated if stockholders owning less than 29.99% vote against such business
combination and exercise their conversion rights as described herein. Voting
against the business combination alone will not result in conversion of a
stockholder’s shares into a pro rata share of the trust account. Such
stockholder must have also exercised its conversion rights described
below.
In
connection with any proposed business combination we submit to our stockholders
for approval, we will also submit to stockholders a proposal to amend our
amended and restated certificate of incorporation to provide for our perpetual
existence, thereby removing the limitation on our corporate life of November
29,
2009. We will only consummate a business combination if stockholders vote both
in favor of such business combination and our amendment to provide for our
perpetual existence. The approval of the proposal to amend our amended and
restated certificate of incorporation to provide for our perpetual existence
would require the affirmative vote of a majority of our outstanding shares
of
common stock.
-6-
Redemption
Rights
At
the
time we seek stockholder approval of any business combination, we will offer
each public stockholder the right to have such stockholder’s shares of common
stock redeemed for cash if the stockholder votes against the business
combination, elects to redeem its shares of common stock and the business
combination is approved and completed. An eligible stockholder may request
redemption at any time after the mailing to our stockholders of the proxy
statement and prior to the vote taken with respect to a proposed business
combination at a meeting held for that purpose, but the request will not be
granted unless the stockholder votes against the business combination, elects
to
redeem its shares of common stock and the business combination is approved
and
completed. The actual per-share redemption price will be equal to $7.92 (plus
the interest earned on the trust account, net of any income taxes due on such
interest and up to $600,000 of interest income released to us to fund our
working capital), divided by the number of shares of common stock sold in the
offering. Because the initial per share redemption price is $7.92 per share
(plus any interest, net of taxes payable and amounts disbursed for working
capital purposes), which may be lower than the market price of the common stock
on the date of the redemption, there may be a disincentive on the part of public
stockholders to exercise their redemption rights.
A
stockholder who requests redemption of his or her shares must hold these shares
from the record date through the closing date of the business combination.
In
order to ensure accuracy in determining whether or not the redemption threshold
has been met, each redeeming stockholder must continue to hold their shares
of
common stock until the consummation of the business combination. We will not
charge redeeming stockholders any fees in connection with the tender of shares
for redemption. If a stockholder votes against the business combination but
fails to properly exercise his or her redemption rights, such stockholder will
not have his or her shares of common stock redeemed for his or her pro rata
distribution of the trust account. Any request for redemption, once made, may
be
withdrawn at any time up to the date of the meeting. It is anticipated the
funds
to be distributed to stockholders entitled to redeem their shares who elect
redemption will be distributed promptly after completion of a business
combination. Public stockholders who redeem their stock into their share of
the
trust account still have the right to exercise the warrants they received as
part of the units. We will not complete any business combination if public
stockholders owning 30% or more of the shares exercise their redemption rights.
Our founding stockholders are not entitled to redeem any shares of common stock
held by them whether acquired by them prior to or after the offering. Even
if
less than 30% of the stockholders, as described above, exercise their redemption
rights, we may be unable to consummate a business combination if such redemption
leaves us with funds less than an aggregate fair market value equal to at least
80% of the amount in our trust account (less the deferred underwriting discount
and commissions and taxes payable) at the time of such transaction, which amount
is required for our initial business combination. In such event, we may be
forced to either find additional financing to consummate such a business
combination, consummate a different business combination or dissolve, liquidate
and wind up.
An
eligible stockholder may request redemption at any time after the mailing to
our
stockholders of the proxy statement and prior to the vote taken with respect
to
a proposed business combination at a meeting held for that purpose, but the
request will not be granted unless the stockholder votes against the business
combination, elects to redeem its shares of common stock and the business
combination is approved and completed. Additionally, we may require public
stockholders, whether they are a record holder or hold their shares in “street
name,” to either tender their certificates to our transfer agent at any time
through the vote on the business combination or to deliver their shares to
the
transfer agent electronically using Depository Trust Company’s DWAC
(Deposit/Withdrawal At Custodian) System, at the holder’s option. The proxy
solicitation materials we will furnish to stockholders in connection with the
vote for any proposed business combination will indicate whether we are
requiring stockholders to satisfy such certification and delivery requirements.
Accordingly, a stockholder would have from the time we send out our proxy
statement through the vote on the business combination to tender his shares
if
he wishes to seek to exercise his redemption rights, a period that will not
be
less than 10, nor more than 60, days. This time period varies depending on
the
specific facts of each transaction. However, as the delivery process can be
accomplished by the stockholder, whether or not he is a record holder or his
shares are held in “street name,” in a matter of hours (because the transfer is
made electronically once final instruction is given to Depository Trust Company)
by simply contacting the transfer agent or his broker and requesting delivery
of
his shares through the DWAC System, we believe this time period is sufficient
for an average investor. However, because we do not have any control over this
process, it may take significantly longer than we anticipated. Additionally,
if
the shares of common stock cannot be transferred through the DWAC system, the
process may take such number of days required to complete the proper paperwork,
obtain the necessary authorizations and consents and to locate and deliver
physical stock certificates, if any. Traditionally, in order to perfect
redemption rights in connection with a blank check company’s business
combination, a holder could simply vote against a proposed business combination
and check a box on the proxy card indicating such holder was seeking to redeem.
After the business combination was approved, the company would contact such
stockholder to arrange for him to deliver his certificate to verify ownership.
As a result, the stockholder then had an “option window” after the consummation
of the business combination during which he could monitor the price of the
stock
in the market. If the price rose above the redemption price, he could sell
his
shares in the open market before actually delivering his shares to the company
for cancellation. Thus, the redemption right, to which stockholders were aware
they needed to commit before the stockholder meeting, would become a right
of
redemption surviving past the consummation of the business combination and
which
we would be obligated to honor until the redeeming holder delivered his
certificate. The requirement for physical or electronic delivery prior to the
meeting ensures that a redeeming holder’s election to redeem is irrevocable once
the business combination is approved. There is a nominal cost associated with
the above-referenced tendering process and the act of certificating the shares
or delivering them through the DWAC system. The transfer agent will typically
charge the tendering broker $35 and it would be up to the broker whether or
not
to pass this cost on to the redeeming holder. This fee would be incurred
regardless of whether or not we require holders seeking to exercise redemption
rights to tender their shares prior to the meeting. The need to deliver shares
is a requirement of redemption regardless of the timing of when such delivery
must be effectuated. Accordingly, this would not result in any increased cost
to
stockholders when compared to the traditional process, however, in the event
a
stockholder elects redemption of their shares of common stock but the proposed
business combination is not approved, a stockholder will have paid $35 to elect
redemption but would not actually have their shares of common stock redeemed.
Further, it is possible this tendering process will be cost-prohibitive for
stockholders in the event their aggregate holdings of our shares of common
stock
do not exceed $35.
-7-
If
a vote
on our initial business combination is held and the business combination is
not
approved, or is not consummated for any other reason, we may continue to try
to
consummate a business combination with a different target until November 29,
2009. Public stockholders voting against our initial business combination who
exercised their redemption rights would not be entitled to redeem their shares
of common stock into a pro rata share of the aggregate amount then on deposit
in
the trust account in respect of the unconsummated initial business combination.
In such case, if we have required public stockholders to tender their
certificates prior to the meeting, we will promptly return such certificates
to
the tendering public stockholder. Public stockholders would be entitled to
receive their pro rata share of the aggregate amount on deposit in the trust
account only in the event the initial business combination they voted against
was duly approved and subsequently completed, or in connection with our
liquidation. If a stockholder redeems his shares of common stock, he will still
have the right to exercise the warrants received as part of the units purchased
in the offering in accordance with the terms hereof. If the proposed business
combination is not consummated then a stockholder’s shares will not be redeemed
into cash, even if such stockholder elected to redeem.
Liquidation
If No Business Combination
Our
amended and restated certificate of incorporation also provides that we will
continue in existence only until November 29, 2009. This provision may not
be
amended except in connection with the consummation of a business combination.
If
we have not completed a business combination by such 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.
This has the same effect as if our board of directors and stockholders had
formally voted to approve our dissolution pursuant to Section 275 of the
Delaware General Corporation Law. Accordingly, limiting our corporate existence
to a specified date as permitted by Section 102(b)(5) of the Delaware General
Corporation Law removes the necessity to comply with the formal procedures
set
forth in Section 275 (which would have required our board of directors and
stockholders to formally vote to approve our dissolution and liquidation and
to
have filed a certificate of dissolution with the Delaware Secretary of
State).
If
we are
unable to consummate a business combination by November 29, 2009, we will
distribute to our public stockholders, in proportion to their respective equity
interests, an aggregate sum equal to the amount in the trust account, inclusive
of any interest plus any remaining net assets (subject to our obligations under
Delaware law to provide for claims of creditors as described below). We
anticipate notifying the trustee of the trust account to begin liquidating
such
assets promptly after such date and anticipate it will take no more than 10
business days to effectuate such distribution.
Our
founding stockholders have waived their rights to participate in any liquidation
of our trust account or other assets with respect to shares of common stock
owned by them prior to the offering. In addition, in the event of liquidation,
our underwriter has agreed to waive its rights to the $1,590,312 of deferred
underwriting discount and commissions deposited in the trust account for its
benefit. There will be no distribution from the trust account or otherwise
in
connection with dissolution with respect to our warrants, which will expire
worthless. We estimate our total costs and expenses for implementing and
completing our liquidation and dissolution will be between $25,000 and $40,000.
This amount includes all costs and expenses relating to filing our dissolution
in the State of Delaware and the winding up of our company. We believe there
should be sufficient funds available, outside of the trust account as well
as
from the interest earned on the trust account and released to us as working
capital, to fund the $25,000 to $40,000 in costs and expenses.
-8-
If
we are
unable to consummate a business combination and expend all of the net proceeds
of the offering and the private placement, other than the proceeds deposited
in
the trust account, and without taking into account interest, if any, earned
on
the trust account, the initial per-share liquidation price to the public
stockholders would be equal to $7.92 per share. The proceeds deposited in the
trust account could, however, become subject to the claims of our creditors,
which could be prior to the claims of our public stockholders. Although we
will
use our reasonable best efforts to have all vendors, prospective target
businesses or other entities we engage execute agreements with us waiving any
right, title, interest or claim of any kind in or to any monies held in the
trust account for the benefit of our public stockholders, there is no guarantee
that they will execute such agreements or even if they execute such agreements
that they would be prevented from bringing claims against the trust account
including but not limited to fraudulent inducement, breach of fiduciary
responsibility or other similar claims, as well as claims challenging the
enforceability of the waiver, in each case in order to gain an advantage with
a
claim against our assets, including the funds held in the trust account. If
any
third party refused to execute an agreement waiving such claims to the monies
held in the trust account, we would perform an analysis of the alternatives
available to us if we chose not to engage such third party and evaluate if
such
engagement would be in the best interest of our stockholders if such third
party
refused to waive such claims. We may elect to forego obtaining waivers only
if
we receive the approval of our Chief Executive Officer and the approving vote
or
written consent of at least a majority of our board of directors. Examples
of
possible instances where we may engage a third party that refused to execute
a
waiver include the engagement of a third party consultant whose particular
expertise or skills are believed by management to be significantly superior
to
those of other consultants that would agree to execute a waiver or in cases
where management is unable to find a provider of required services willing
to
provide the waiver. In order to protect the amounts held in the trust account,
our sponsor has agreed to indemnify us for claims of any vendors, service
providers, prospective target businesses or creditors that have not executed
a
valid and binding waiver of any right or claim to the amounts in trust account.
As further assurance our sponsor will have the necessary funds required to
meet
these indemnification obligations, (i) Camden Partners Strategic Fund III,
L.P.
and Camden Partners Strategic Fund III-A, L.P., or collectively the Camden
III
Funds, have agreed, under our sponsor’s limited liability company agreement, to
make capital contributions to our sponsor as and when required in order for
the
sponsor to fulfill its indemnification obligations and (ii) our sponsor has
agreed to take all such action reasonably necessary to request its members
make
such capital contributions. Additionally, in the event either of the Camden
III
Funds undertakes a liquidating distribution while the indemnification
obligations of the sponsor are outstanding, they have each agreed, in our
sponsor’s limited liability company agreement, to use reasonable efforts to set
aside from such distribution adequate reserves to cover the reasonably
anticipated liabilities which may be incurred by our sponsor. We and the
representative of the underwriters are named as express third party
beneficiaries in and with respect to the provisions of our sponsor’s limited
liability company agreement which require the Camden III Funds to make such
capital contributions and establish such reserves. Although we have a fiduciary
obligation to pursue the sponsor to enforce its indemnification obligations,
and
intend to pursue such actions as and when we deem appropriate, there can be
no
assurance it or the Camden III Funds will be able to satisfy those obligations,
if required to do so.
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
them in a dissolution. If the corporation complies with certain procedures
set
forth in Section 280 of the Delaware General Corporation Law intended to ensure
that it makes reasonable provision for all claims against it, 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 liquidating
distributions are made to stockholders, any liability of stockholders with
respect to a liquidating distribution is limited to the lesser of such
stockholder’s pro rata share of the claim or the amount distributed to the
stockholder, and any liability of the stockholder would be barred after the
third anniversary of the dissolution. However, as stated above, it is our
intention to make liquidating distributions to our stockholders as soon as
reasonably possible after November 29, 2009 and, therefore, we do not intend
to
comply with those procedures. As such, our stockholders potentially could be
liable for any claims to the extent of distributions received by them and
liability of our stockholders may extend well beyond the third anniversary
of
such date. Because we will not be complying with Section 280, Section 281(b)
of
the Delaware General Corporation Law requires us to adopt a plan of dissolution
that will provide for our payment, based on facts known to us at such time,
of
(i) all existing claims, (ii) all pending claims and (iii) all claims that
may
be potentially brought against us within the subsequent 10 years. However,
because we are a blank check company, rather than an operating company, and
our
operations will be limited to searching for prospective target businesses to
acquire, the only likely claims to arise would be from our vendors (such as
accountants, lawyers, investment bankers, etc.) or potential target businesses.
As described above, we intend to have all vendors and prospective target
businesses execute agreements with us waiving any right, title, interest or
claim of any kind in or to any monies held in the trust account. As a result,
the claims which could be made against us are significantly limited and the
likelihood any claim that would result in any liability extending to the trust
is minimal.
-9-
Additionally,
if we are forced to file a bankruptcy case or an involuntary bankruptcy case
is
filed against us which is not dismissed, any distributions received by
stockholders could be viewed under applicable debtor/creditor and/or bankruptcy
laws as either a “preferential transfer” or a “fraudulent conveyance”. As a
result, a bankruptcy court could seek to recover all amounts received by our
stockholders in our dissolution. Furthermore, because we intend to distribute
the proceeds held in the trust account to our public stockholders promptly
after
November 29, 2009, this may be viewed or interpreted as giving preference to
our
public stockholders over any potential creditors with respect to access to
or
distributions from our assets. Additionally, our board may be viewed as having
breached their fiduciary duties to our creditors and/or may have acted in bad
faith, and thereby exposing itself and our company to claims of punitive
damages, by paying public stockholders from the trust account prior to
addressing the claims of creditors. We cannot assure you that claims will not
be
brought against us for these reasons.
Our
public stockholders will be entitled to receive funds from the trust account
only in the event of our liquidation or if they seek to redeem their respective
shares for cash upon a business combination which the stockholder voted against
and which is completed by us. In no other circumstances will a stockholder
have
any right or interest of any kind to or in the trust account.
Competition
for Target Businesses
In
identifying, evaluating and selecting a target business, we may encounter
intense competition from other entities having a business objective similar
to
ours. Based on currently available public information, there are approximately
153 blank check companies which have gone public since 2003, of which 47 have
actually consummated a business combination and 10 have liquidated. The
remaining 96 companies have more than $14.8 billion in the trust account and
are
seeking to consummate a business combination. Of these companies, 22 have
announced that they have entered into definitive agreements for business
combinations but have not yet consummated these transactions. Additionally,
we
may be subject to competition from other companies looking to expand their
operations through the acquisition of a target business. Many of these entities
are well established and have extensive experience identifying and effecting
business combinations directly or through affiliates. Many of these competitors
possess greater technical, human and other resources than us and our financial
resources will be relatively limited when contrasted with those of many of
these
competitors. While we believe there are numerous potential target businesses
we
could acquire with the net proceeds of the offering and the private placement,
our ability to compete in acquiring certain sizable target businesses will
be
limited by our available financial resources. This inherent competitive
limitation gives others an advantage in pursuing the acquisition of a target
business. Further:
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our
obligation to seek stockholder approval of a business combination
or
obtain the necessary financial
information to be included in the proxy statement to be sent to
stockholders in connection with
such business combination may delay or prevent the completion of
a
transaction;
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·
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our
obligation to redeem for cash shares of common stock held by our
public
stockholders in certain
instances may reduce the resources available to us for a business
combination;
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·
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our
outstanding warrants and options, and the future dilution they potentially
represent, may not be viewed
favorably by certain target businesses;
and
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the
requirement to acquire assets or one or more operating businesses
that has
an aggregate fair market value
equal to at least 80% of the amount in our trust account (less the
deferred underwriting discount and
commissions and taxes payable) at the time of such transaction may
require
us to acquire several assets
or closely related operating businesses at the same time, all of
which
sales would be contingent on
the closings of the other sales, which could make it more difficult
to
consummate the business
combination.
|
Any
of
these factors may place us at a competitive disadvantage in negotiating a
business combination. Our management believes, however, our status as a public
entity and potential access to the United States public equity markets may
give
us a competitive advantage over privately-held entities having a similar
business objective as us in acquiring a target business with significant growth
potential on favorable terms.
-10-
If
we
effect a business combination, there will be, in all likelihood, intense
competition from competitors of the target business. We cannot assure you that,
subsequent to a business combination, we will have the resources or ability
to
compete effectively.
Employees
We
have
two executive officers, one of whom is also a member of our Board of Directors.
These individuals are not obligated to contribute any specific number of hours
per week and intend to devote only as much time as they deem necessary to our
affairs. The amount of time they will devote in any time period will vary based
on the availability of suitable target businesses to investigate, although
we
expect such individuals to devote an average of approximately ten hours per
week
to our business. We have two part-time employees in the accounting department.
We do not intend to have any full time employees prior to the consummation
of a
business combination.
Financial
Information
We
will
not acquire an operating business in the education industry if audited financial
statements based on United States generally accepted accounting principles
cannot be obtained for such target business. Additionally, our management will
provide stockholders with audited financial statements, prepared in accordance
with United States generally accepted accounting principles, of the prospective
target business as part of the proxy solicitation materials sent to stockholders
to assist them in assessing each specific target business or assets we seek
to
acquire. We cannot assure you that any particular target business identified
by
us as a potential business combination candidate will have financial statements
prepared in accordance with United States generally accepted accounting
principles or that the potential target business will be able to prepare its
financial statements in accordance with United States generally accepted
accounting principles. The financial statements of a potential target business
will be required to be audited in accordance with United States generally
accepted auditing standards. To the extent that this requirement cannot be
met,
we will not be able to effect a business combination with the proposed target
business. Our management believes that although the requirement of having
available financial information for the target business or assets may limit
the
pool of potential target businesses or assets available for acquisition, the
narrowing of the pool is not expected to be material.
Available
Information
We
are
subject to the information requirements of the Exchange Act. Therefore, we
file
periodic reports, proxy statements and other information with the SEC. Such
reports, proxy statements and other information may be obtained by visiting
the
Public Reference Room of the SEC at 100 F Street, NW, Washington, DC 20549.
You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements
and
other information regarding issuers that file electronically.
Item
1A. Risk Factors
Risks
Associated With Our Business
We
are a newly formed development stage company with no operating history and
no
revenues and, accordingly, our investors will not have any basis on which to
evaluate our ability to achieve our business
objective.
We
are a
development stage company with no operating results to date. Since we do not
have any operations or an operating history, our investors will have no basis
upon which to evaluate our ability to achieve our business objective, which
is
to acquire one or more operating businesses in the education industry. To date,
although we continue to search for a potential candidate for a business
combination, we have not entered into any definitive agreements with any target
business for a business combination. We will not generate any revenues or
income, other than interest on the trust account funds, until, at the earliest,
after the consummation of a business combination. We cannot assure you as to
when or if a business combination will occur.
-11-
If
we are unable to complete a business combination and are forced to liquidate,
our public stockholders will receive less than $8.00 per share upon distribution
of the trust account and our warrants will expire
worthless.
If
we are
unable to complete a business combination, and are forced to liquidate our
assets, the per share liquidation will be less than $8.00 because of the
expenses of the offering, our general and administrative expenses and the
anticipated costs of seeking a business combination. The per share liquidation
value will be $7.92 per share, plus interest earned thereon (net of amounts
released to us and net of taxes payable thereon), which includes the net
proceeds of the offering and the private placement of the insider warrants
and
$1,590,312 ($0.24 per share) of deferred underwriting discounts and
commissions. While we will pay, or reserve for payment, from funds not held
in
trust, our liabilities and obligations, and our sponsor has agreed to indemnify
us under certain circumstances for such liabilities and obligations, we cannot
assure you, where it is subsequently determined that the reserve for liabilities
is insufficient, that stockholders will not be liable for such amounts to
creditors. Furthermore, there will be no distribution with respect to our
outstanding warrants and, accordingly, the warrants will expire worthless if
we
liquidate before the completion of a business combination. For a more complete
discussion of the effects on our stockholders if we are unable to complete
a
business combination, see the section below entitled “Effecting a business
combination—Liquidation if no business combination.”
If
we are unable to consummate a business combination, our public stockholders
will
be forced to wait the full 24 months before receiving liquidation distributions.
We
have
24 months in which to complete a business combination. We have no obligation
to
return funds to investors prior to such date unless we consummate a business
combination prior thereto and only then in cases where investors have sought
redemption of their shares. Only after the expiration of this full time period
will the public stockholders be entitled to liquidation distributions if we
are
unable to complete a business combination. Accordingly, investors’ funds may be
unavailable to them until such date.
You
will not be entitled to protections normally afforded to investors of blank
check companies, including the ability to receive all interest earned on the
amount held in trust.
Since
the
net proceeds of the initial public offering are intended to be used to complete
a business combination with a target business which has not been identified,
we
may be deemed to be a “blank check” company under the United States securities
laws. However, since we had net tangible assets in excess of $5,000,000 and
filed a Current Report on Form 8-K with the SEC following consummation of the
initial public offering, including an audited balance sheet, we are exempt
from
rules promulgated by the SEC to protect investors of blank check companies
such
as Rule 419. Accordingly, investors are not afforded the benefits or protections
of those rules, such as entitlement to all the interest earned on the funds
deposited into the trust account. Because we are not subject to Rule 419, a
portion of the interest earned on the funds deposited in the trust account
will
be released to us to fund our working capital and will not be available at
all
to those public stockholders redeeming in connection with a business
combination.
Because
there are numerous companies with a business plan similar to ours seeking to
effectuate a business combination, it may be more difficult for us to complete
a
business combination.
Based
upon publicly available information, we have identified approximately 153
similarly structured blank check companies which have completed initial public
offerings since August 2003, of which 47 have actually consummated a business
combination and 10 have liquidated. As of such date, the remaining 96 companies
have more than $14.8 billion in the trust account and are seeking to consummate
business combinations. Of these companies 22 have announced that they have
entered into definitive agreements for business combinations but have not yet
consummated these transactions. While many of these companies are targeted
towards specific industries in which they must complete a business combination,
certain of these companies may consummate a business combination in any industry
they choose. As a result, there may be significant demand for the types of
privately-held companies we target, which demand may limit the number of
potential acquisition targets for us.
Further,
because only 69 of such companies have either consummated a business combination
or entered into a definitive agreement for a business combination, it may
indicate there are fewer attractive target businesses available to such entities
or that many privately-held target businesses are not inclined to enter into
these types of transactions with publicly-held blank check companies like ours.
We cannot assure you we will be able to successfully compete for an attractive
business combination. Additionally, because of this competition, we cannot
assure you we will be able to effectuate a business combination within the
prescribed time period. If we are unable to consummate a business combination
within the prescribed time period, we will be forced to liquidate.
The
terms on which we may effect a business combination can be expected to become
less favorable as we approach our twenty four month
deadline.
Pursuant
to our amended and restated certificate of incorporation, we must adopt a plan
of dissolution and liquidation and initiate procedures for our dissolution
and
liquidation and the distribution of our assets, including the funds held in
the
trust account, if we do not effect a business combination within 24 months
after
the completion of the offering. We have agreed with the trustee to promptly
adopt a plan of dissolution and liquidation and initiate procedures for our
dissolution and liquidation and the distribution of our assets, including the
funds held in the trust account, upon expiration of the time periods set forth
above.
-12-
Any
entity with which we negotiate, or attempt to negotiate, a business combination,
will, in all likelihood, be aware of this time limitation and can be expected
to
negotiate accordingly. In such event, we may not be able to reach an agreement
with any proposed target prior to such period and any agreement that is reached
may be on terms less favorable to us than if we did not have the time period
restrictions set forth above. Additionally, as the 24 month time period draws
closer, we may not have the desired amount of negotiating leverage in the event
any new information comes to light after entering into definitive agreements
with any proposed target but prior to consummation of a business
transaction.
The
fact we will proceed with the business combination if public stockholders
holding less than 30% of the shares sold in the initial public offering exercise
their redemption rights, rather than the 20% threshold of most other blank
check
companies, may hinder our ability to consummate a business combination in the
most efficient manner or to optimize our capital
structure.
Unlike
most other blank check offerings which have a 20% redemption threshold, we
will
proceed with the business combination if public stockholders holding less than
30% of the shares sold in the offering exercise their redemption rights. As
a
result of our higher redemption threshold, we may have less cash available
to
complete a business combination. Because we will not know how many stockholders
may exercise such redemption rights, we will need to structure a business
combination meeting the 80% of our net assets test that requires less cash,
or
we may need to arrange third party financing to help fund the transaction in
case a larger percentage of stockholders exercise their redemption rights than
we expect. Alternatively, to compensate for the potential shortfall in cash,
we
may be required to structure the business combination, in whole or in part,
using the issuance of our stock as consideration. Accordingly, this increase
in
redemption threshold to 30% may hinder our ability to consummate a business
combination in the most efficient manner or to optimize our capital
structure.
If
third parties bring claims against us, the proceeds held in trust could be
reduced and the per-share liquidation price received by stockholders from the
trust account will be less than $7.92 per share.
Our
placing of funds in trust may not protect those funds from third party claims
against us. Although we will seek to have all vendors, prospective target
businesses or other entities with which we execute agreements waive any right,
title, interest or claim of any kind in or to any monies held in the trust
account for the benefit of our public stockholders, there is no guarantee they
will execute such agreements, or even if they execute such agreements that
they
would be prevented from bringing claims against the trust account including
but
not limited to fraudulent inducement, breach of fiduciary responsibility and
other similar claims, as well as claims challenging the enforceability of the
waiver, in each case in order to gain an advantage with a claim against our
assets, including the funds held in the trust account. If any third party
refused to execute an agreement waiving such claims to the monies held in the
trust account, we would perform an analysis of the alternatives available to
us
if we chose not to engage such third party and evaluate if such engagement
would
be in the best interest of our stockholders if such third party refused to
waive
such claims. We may elect to forego obtaining waivers only if we receive the
approval of our Chief Executive Officer and the approving vote or written
consent of at least a majority of our board of directors, including all of
our
non-independent directors. Examples of possible instances where we may engage
a
third party that refused to execute a waiver include the engagement of a third
party consultant whose particular expertise or skills are believed by management
to be significantly superior to those of other consultants that would agree
to
execute a waiver or in cases where management is unable to find a provider
of
required services willing to provide the waiver. In addition, there is no
guarantee such entities will agree to waive any claims they may have in the
future as a result of, or arising out of, any negotiations, contracts or
agreements with us and not seek recourse against the trust account for any
reason.
Accordingly,
the proceeds held in trust could be subject to claims that could take priority
over the claims of our public stockholders and the per-share liquidation price
could be less than the $7.92 per share held in the trust account, plus interest
(net of any taxes due on such interest, which taxes, if any, shall be paid
from
the trust account and net of any amounts released to us as working capital),
due
to claims of such creditors. If we are unable to complete a business combination
and are forced to dissolve and liquidate, our sponsor will be liable to ensure
the proceeds in the trust account are not reduced by the claims of various
vendors, prospective target businesses or other entities owed money by us for
services rendered or products sold to us, to the extent necessary to ensure
such
claims do not reduce the amount in the trust account in order to preserve a
$7.92 per-share liquidation price. In order to protect the amounts held in
the
trust account, our sponsor has agreed to indemnify us for claims of creditors
that have not executed a valid and binding waiver of their right to seek payment
of amounts due to them out of the trust account. However, we cannot assure
you
the sponsor will be able to satisfy those obligations. We believe the likelihood
of our sponsor having to indemnify the trust account is minimal because we
will
endeavor to have all vendors and prospective target businesses, as well as
other
entities, execute agreements with us waiving all right, title, interest or
claim
of any kind in or to monies held in the trust account.
-13-
Additionally,
if we are forced to file a bankruptcy case or an involuntary bankruptcy case
is
filed against us which is not dismissed, the funds held in our trust account
will be subject to applicable bankruptcy law, and may be included in our
bankruptcy estate and subject to claims of third parties with priority over
the
claims of our public stockholders. To the extent bankruptcy claims deplete
the
trust account, we cannot assure you we will be able to return to our public
stockholders the liquidation amounts due them.
Our
officers and directors may in the future become affiliated with entities engaged
in business activities similar to those intended to be conducted by us, and,
accordingly, may have conflicts of interest in determining which entity a
particular business opportunity should be presented
to.
None
of
our directors or officers has been a principal of, or affiliated with, a “blank
check” company that executed a business plan similar to our business plan and
none of such individuals is currently affiliated with any such entity. However,
our officers and directors may in the future become affiliated with entities,
including other “blank check” companies, engaged in business activities similar
to those intended to be conducted by us. While our officers and directors have
agreed to present business opportunities first to the company, subject to any
pre-existing duty they may have, they may become aware of business opportunities
which may be appropriate for presentation to us, as well as the other entities
to which they owe fiduciary duties. Accordingly, they may have conflicts of
interest in determining to which entity a particular business opportunity should
be presented. We cannot assure you these conflicts will be resolved in our
favor.
Because
the amount of time it will take to obtain physical stock certificates is
uncertain and beyond our control, stockholders who wish to redeem may be unable
to obtain physical certificates by the deadline for exercising their redemption
rights.
We
may
require that stockholders who wish to exercise their redemption rights tender
physical certificates representing their shares to us not later than the day
prior to the stockholders meeting. In order to obtain a physical stock
certificate, a stockholder’s broker and/or clearing broker, DTC and our transfer
agent will need to act to facilitate this request. It is our understanding
that
stockholders should generally allot at least two weeks to obtain physical
certificates from the transfer agent. However, because we do not have any
control over this process or over the brokers or DTC, it may take significantly
longer than two weeks to obtain a physical stock certificate. If it takes longer
than we anticipate to obtain a physical certificate, stockholders who wish
to
redeem may be unable to obtain physical certificates by the deadline for
exercising their redemption rights and thus will be unable to redeem their
shares.
Our
stockholders may be held liable for claims by third parties against us to the
extent of distributions received by them.
In
the
event of dissolution, stockholders may be held liable under the Delaware General
Corporation Law for claims by third parties against a corporation to the extent
of distributions received by them in a dissolution. If the corporation complies
with certain procedures set forth in Section 280 of the Delaware General
Corporation Law intended to ensure it makes reasonable provision for all claims
against it, 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 liquidating distributions are made to stockholders, any
liability of stockholders with respect to a liquidating distribution is limited
to the lesser of such stockholder’s pro rata share of the claim or the amount
distributed to the stockholder, and any liability of the stockholder would
be
barred after the third anniversary of the dissolution. However, it is our
intention to make liquidating distributions to our stockholders within 10
business days after the 24 month period and, therefore, we do not intend to
comply with these procedures. Because we will not be complying with Section
280,
we will comply with Section 281(b) of the Delaware General Corporation Law,
requiring us to adopt a plan of dissolution that will provide for our payment,
based on facts known to us at such time, of (i) all existing claims, (ii) all
pending claims and (iii) all claims that may be potentially brought against
us
within the subsequent 10 years. However, because we are a blank check company,
rather than an operating company, and our operations will be limited to
searching for prospective target businesses to acquire, the only likely claims
to arise would be from our vendors (such as accountants, lawyers, investment
bankers, etc.) or potential target businesses. As described above, we intend
to
have all vendors and prospective target businesses execute agreements with
us
waiving any right, title, interest or claim of any kind in or to any monies
held
in the trust account. As a result, the claims that could be made against us
are
significantly limited and the likelihood any claim would result in any liability
extending to the trust is minimal. However, because we will not be complying
with Section 280, our public stockholders could potentially be liable for any
claims to the extent of distributions received by them in a dissolution, and
any
such liability of our stockholders will likely extend beyond the third
anniversary of such dissolution. Accordingly, we cannot assure you that third
parties will not seek to recover from our public stockholders amounts owed
to
them by us.
-14-
If
we are
forced to file a bankruptcy case or an involuntary bankruptcy case is filed
against us which is not dismissed, any distributions received by stockholders
could be viewed under applicable debtor/creditor and/or bankruptcy laws as
either a “preferential transfer” or a “fraudulent conveyance.” As a result, a
bankruptcy court could seek to recover all amounts received by our stockholders.
Any distributions received by stockholders could also be viewed under applicable
Delaware fraudulent transfer laws and debtors/creditors could seek to recover
all amounts received by our stockholders. Furthermore, because we intend to
distribute the proceeds held in the trust account to our public stockholders
promptly after November 29, 2009, this may be viewed or interpreted as giving
preference to our public stockholders over any potential creditors with respect
to access to or distributions from our assets. Furthermore, our board may be
viewed as having breached their fiduciary duties to our creditors and/or may
have acted in bad faith, thereby exposing itself and our company to claims
of
punitive damages, by paying public stockholders from the trust account prior
to
addressing the claims of creditors. We cannot assure you that claims will not
be
brought against us for these reasons.
We
may choose to redeem our outstanding warrants at a time that is disadvantageous
to our warrant holders.
Subject
to there being a current prospectus under the Securities Act of 1933 with
respect to the shares of common stock issuable upon exercise of the warrants,
we
may redeem the warrants issued as a part of our units at any time after the
warrants become exercisable in whole and not in part, at a price of $0.01 per
warrant, upon a minimum of 30 days’ prior written notice of redemption, if and
only if, the last sales price of our common stock equals or exceeds $11.50
per
share for any 20 trading days within a 30 trading day period ending three
business days before we send the notice of redemption. Redemption of the
warrants could force the warrant holders (i) to exercise the warrants and pay
the exercise price thereafter at a time when it may be disadvantageous for
the
holders to do so, (ii) to sell the warrants at the then current market price
when they might otherwise wish to hold the warrants, or (iii) to accept the
nominal redemption price which, at the time the warrants are called for
redemption, is likely to be substantially less than the market value of the
warrants. The foregoing does not apply to the warrants included as part of
the
2,800,000 insider warrants purchased prior to the offering, as such warrants
are
not subject to redemption while held by the initial holder or any permitted
transferee of such initial holder.
Although
we are required to use our best efforts to have an effective registration
statement covering the issuance of the shares underlying the warrants at the
time that our warrant holders exercise their warrants, we cannot guarantee
a
registration statement will be effective, in which case our warrant holders
may
not be able to exercise our warrants.
Holders
of our warrants will be able to exercise the warrant only if (i) a current
registration statement under the Securities Act of 1933 relating to the shares
of our common stock underlying the warrants is then effective and (ii) such
shares are qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of warrants reside.
Although we have undertaken in the warrant agreement, and therefore have a
contractual obligation, to use our best efforts to maintain a current
registration statement covering the shares underlying the warrants following
completion of the offering to the extent required by federal securities law,
and
we intend to comply with such undertaking, we cannot assure you we will be
able
to do so. In addition, we have agreed to use our reasonable efforts to register
the shares underlying the warrants under the blue sky laws of the states of
residence of the exercising warrant holders, to the extent an exemption is
not
available. The value of the warrants may be greatly reduced if a registration
statement covering the shares issuable upon the exercise of the warrants is
not
kept current or if the securities are not qualified, or exempt from
qualification, in the states in which the holders of warrants reside. For
example, some states may not permit us to register the shares issuable on
exercise of our warrants for sale. We are not obligated to pay cash or other
consideration to the holders of the warrants in such situations. Holders of
warrants who reside in jurisdictions in which the shares underlying the warrants
are not qualified and in which there is no exemption will be unable to exercise
their warrants and would either have to sell their warrants in the open market
or allow them to expire worthless. If and when the warrants become redeemable
by
us, we may exercise our redemption right even if we are unable to qualify the
underlying securities for sale under all applicable state securities
laws.
Because
the warrants sold in the private placement were originally issued pursuant
to an
exemption from the registration requirements under the federal securities laws,
holders of such warrants will be able to exercise their warrants even if, at
the
time of exercise, a prospectus relating to the common stock issuable upon
exercise of such warrants is not current. As a result, the holders of the
warrants purchased in the private placement will not have any restrictions
with
respect to the exercise of their warrants. As described above, the holders
of
the warrants purchased in the initial public offering will not be able to
exercise them unless we have a current registration statement covering the
shares issuable upon their exercise.
We
may issue shares of our capital stock or debt securities to complete a business
combination, which would reduce the equity interest of our stockholders and
likely cause a change in control of our ownership.
Our
amended and restated certificate of incorporation authorizes the issuance of
up
to 20,000,000 shares of common stock, par value $.0001 per share, and 1,000,000
shares of preferred stock, par value $.0001 per share. As of the date of this
Annual Report, there are 11,811,200 authorized but unissued shares of our common
stock available for issuance, together with all of the 1,000,000 shares of
preferred stock available for issuance. Although we have no commitments as
of
the date of this Annual Report to issue our securities, we may issue a
substantial number of additional shares of our common stock or preferred stock,
or a combination of common and preferred stock, to complete a business
combination. The issuance of additional shares of our common stock or any number
of shares of our preferred stock:
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·
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may
significantly reduce the equity interest of investors in the
offering;
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-15-
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·
|
will
likely cause a change in control if a substantial number of our shares
of
common stock are issued, which may affect, among other things, our
ability
to use our net operating loss carry forwards, if any, and most likely
also
result in the resignation or removal of our present officers and
directors;
|
|
·
|
may
adversely affect prevailing market prices for our common stock;
and
|
|
·
|
may
subordinate the rights of holders of our common stock if preferred
stock
is issued with rights senior to those afforded to the common
stock.
|
Additionally,
acquisitions in the education industry can be capital intensive, often using
indebtedness to finance acquisitions and working capital needs. If we finance
the purchase of assets or operations through the issuance of debt securities,
it
could result in:
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·
|
default
and foreclosure on our assets if our operating cash flow after a
business
combination were insufficient to pay our debt
obligations;
|
|
·
|
acceleration
of our obligations to repay the indebtedness even if we have made
all
principal and interest payments when
due, if the
debt security
contained covenants that required the maintenance of
certain financial ratios or reserves and any such covenant were breached
without a waiver or renegotiation of that
covenant;
|
|
·
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our
immediate payment of all principal and accrued interest, if any,
if the
debt security was payable on
demand;
|
|
·
|
covenants
that limit our ability to acquire capital assets or make additional
acquisitions; and
|
|
·
|
our
inability to obtain additional financing, if necessary, if the debt
security contained covenants restricting our ability to obtain additional
financing while such security was
outstanding.
|
For
a
more complete discussion of the possible structure of a business combination,
see the section below entitled “Effecting a business combination—Selection of a
target business and structuring of a business combination.”
Resources
could be wasted in researching acquisitions that are not consummated, which
could materially adversely affect subsequent attempts to locate and acquire
or
merge with another business.
It
is
anticipated 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 other third
party
fees and expenses. 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 business
combination for any number of reasons including those beyond our control, such
as 29.99% or more of our public stockholders voting against the business
combination and opting to have us redeem their stock into a pro rata share
of
the trust account even if a majority of our stockholders approve the business
combination. Any such event will result in a loss to us of the related costs
incurred which could materially adversely affect subsequent attempts to locate
and acquire or merge with another business.
We
may have insufficient resources to cover our operating expenses and the expenses
of consummating a business combination.
We
have
reserved approximately $800,000 (not including up to $600,000 of interest we
may
earn on funds in the trust account, which we are entitled to in order cover
our
operating expenses and our costs associated with our plan of dissolution and
liquidation if we do not consummate a business combination) from the proceeds
of
the initial public offering and the private placement to cover our operating
expenses for the next 24 months and to cover the expenses incurred in connection
with a business combination. This amount is based on management’s estimates of
the costs needed to fund our operations for the next 24 months and consummate
a
business combination. Those estimates may prove inaccurate, especially if a
portion of the available proceeds is used to make a down payment or pay
exclusivity or similar fees in connection with a business combination, or if
we
expend a significant portion of the available proceeds in pursuit of a business
combination that is not consummated. If we do not have sufficient proceeds
available to fund our expenses, we may be forced to obtain additional financing,
either from our management or the existing stockholders or from third parties.
We may not be able to obtain additional financing and our founding stockholders
and management are not obligated to provide any additional financing. If we
do
not have sufficient proceeds and cannot find additional financing, we may be
forced to dissolve and liquidate as part of our stockholder-approved plan of
dissolution and liquidation prior to consummating a business
combination.
-16-
We
will be dependent upon interest earned on the trust account to fund our search
for a target company and consummation of a business
combination.
Of
the
net proceeds of the offering and the private placement, only approximately
$800,000 is available to us initially outside the trust account to fund our
working capital requirements. We will be dependent upon sufficient interest
being earned on the proceeds held in the trust account to provide us with the
additional working capital we will need to search for a target company and
consummate a business combination. While we are entitled to a portion of the
interest earned on the trust account, if interest rates were to decline
substantially, we may not have sufficient funds available to complete a business
combination. In such event, we would need to sell additional shares of common
stock, borrow funds from our insiders or others or be forced to dissolve,
liquidate and wind up.
Our
ability to effect a business combination and to execute any potential business
plan afterwards will be dependent upon the efforts of our key personnel, some
of
whom may join us following a business combination and whom we would have only
a
limited ability to evaluate.
Our
ability to effect a business combination will be dependent upon the efforts
of
our key personnel. The future role of our key personnel following a business
combination, however, cannot presently be fully ascertained. Although we expect
most of our management and other key personnel to remain associated with us
following a business combination, we may employ other personnel following the
business combination. While we intend to closely scrutinize any additional
individuals we engage after a business combination, we cannot assure you our
assessment of these individuals will prove to be correct. Moreover, our current
management will only be able to remain with the combined company after the
consummation of a business combination if they are able to negotiate terms
with
the combined company as part of any such combination. If we acquired a target
business in an all-cash transaction, it would be more likely that current
members of management would remain with us if they chose to do so. If a business
combination were structured as a merger whereby the stockholders of the target
company were to control the combined company following a business combination,
it may be less likely management would remain with the combined company unless
it was negotiated as part of the transaction via the acquisition agreement,
an
employment or consulting agreement or other arrangement. The determination
to
remain as officers of the resulting business will be determined prior to the
completion of the transaction and will depend upon the appropriateness or
necessity of current management to remain. In making the determination as to
whether current management should remain with us following the business
combination, management will analyze the experience and skill set of the
management of our target business, and negotiate as part of the business
combination that certain members of current management remain if it is believed
to be in the best interests of the combined company post-business combination.
If management negotiates to be retained post-business combination as a condition
to any potential business combination, such negotiations may result in a
conflict of interest.
None
of our officers or directors has ever been associated with a blank check
company, which could adversely affect our ability to consummate a 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 to identify and complete a business combination
using the proceeds of the offering and the private placement. 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 dissolve and
liquidate the trust account to our public stockholders as part of our
stockholder-approved plan of dissolution and liquidation.
Our
officers and directors may allocate their time to other businesses thereby
causing conflicts of interest in their determination as to how much time to
devote to our affairs. This could have a negative impact on our ability to
consummate a business combination.
Our
officers and directors are not required to commit their full time to our
affairs, which may result in a conflict of interest in allocating their time
between our operations and other businesses. We do not intend to have any full
time employees prior to the consummation of a business combination. Each of
our
officers are engaged in several other business endeavors and are not obligated
to contribute any specific number of hours per week to our affairs. If our
officers’ other business affairs require them to devote more substantial amounts
of time to such affairs, it could limit their ability to devote time to our
affairs and could have a negative impact on our ability to consummate a business
combination. For a discussion of potential conflicts of interest that you should
be aware of, see the section below entitled “Management—Conflicts of Interest.”
We cannot assure you these conflicts will be resolved in our favor.
-17-
Certain
directors and officers of ours own shares of our common stock, and certain
of
our directors own warrants purchased in the private placement, which will not
participate in liquidation distributions and therefore they may have a conflict
of interest in determining whether a particular target business is appropriate
for a business combination.
The
sponsor is partially owned, indirectly, by David Warnock, our President,
Chairman and Chief Executive Officer, and it is the sponsor that owns shares
of
our common stock, as well as warrants purchased in a private placement
consummated prior to the initial public offering. The sponsor has waived its
right to the liquidation of the trust account as part of our
stockholder-approved plan of dissolution and liquidation with respect to those
shares upon the liquidation of the trust account to our public stockholders
if
we are unable to complete a business combination. The shares and warrants owned
by the sponsor will be worthless if we do not consummate a business combination.
The personal and financial interests of Mr. Warnock may influence his motivation
in identifying and selecting a target business and completing a business
combination in a timely manner. Consequently, his discretion in identifying
and
selecting a suitable target business may result in a conflict of interest when
determining whether the terms, conditions and timing of a particular business
combination are appropriate and in our stockholders’ best interest.
Our
founding stockholders will not receive reimbursement for any out-of-pocket
expenses incurred by them to the extent such expenses exceed the amount
available outside the trust account unless the business combination is
consummated, and therefore they may have a conflict of
interest.
Our
founding stockholders will not receive reimbursement for any out-of-pocket
expenses incurred by them to the extent such expenses exceed the amount
available outside the trust account, unless the business combination is
consummated. The amount of available proceeds is based on management estimates
of the capital needed to fund our operations for the next 24 months and to
consummate a business combination. Those estimates may prove to be inaccurate,
especially if a portion of the available proceeds is used to make a down payment
or pay exclusivity or similar fees in connection with a business combination,
or
if we expend a significant portion in pursuit of an acquisition which is not
consummated. The financial interests of such persons could influence their
motivation in selecting a target business and thus, there may be a conflict
of
interest when determining whether a particular business combination is in the
stockholders’ best interest.
If
our common stock becomes subject to the SEC’s penny stock rules, broker-dealers
may experience difficulty in completing customer transactions and trading
activity in our securities may be adversely affected.
If
at any
time we have net tangible assets of less than $5,000,000 and our common stock
has a market price per share of less than $5.00, transactions in our common
stock may be subject to the “penny stock” rules promulgated under the Securities
Exchange Act of 1934, as amended. Under these rules, broker-dealers who
recommend such securities to persons other than institutional accredited
investors must:
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·
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make
a special written suitability determination for the
purchaser;
|
|
·
|
receive
the purchaser’s written agreement to a transaction prior to
sale;
|
|
·
|
provide
the purchaser with risk disclosure documents which identify certain
risks
associated with investing in “penny stocks” and which describe the market
for these “penny stocks” as well as a purchaser’s legal remedies;
and
|
|
·
|
obtain
a signed
and dated acknowledgment from the purchaser demonstrating the purchaser
has actually received the required risk disclosure document before
a
transaction in a “penny stock” can be
completed.
|
If
our
common stock becomes subject to these rules, broker-dealers may find it
difficult to effectuate customer transactions and trading activity in our
securities may be adversely affected. As a result, the market price of our
securities may be depressed and you may find it more difficult to sell our
securities.
It
is probable our initial business combination will be with a single target
business, which may cause us to be solely dependent on a single business and
a
limited number of products or services. Additionally, we may face obstacles
to
completing simultaneous acquisitions.
Our
initial business combination must be with a business or businesses with a
collective fair market value of at least 80% of the amount in our trust account
(excluding deferred underwriting compensation, and interest thereon, held in
the
trust) at the time of such acquisition, which amount is required as a condition
to the consummation of our initial business combination. We may not be able
to
acquire more than one target business because of various factors, including
the
amount of funds available to consummate a business combination, possible complex
accounting issues, which would include generating pro forma financial statements
reflecting the operations of several target businesses as if they had been
combined, and numerous logistical issues, which could include attempting to
coordinate the timing of negotiations, proxy statement disclosure and closings
with multiple target businesses. In addition, we may not have sufficient
management, financial or other resources to effectively investigate the business
and affairs of multiple acquisition candidates simultaneously or to negotiate
the terms of multiple acquisition agreements at the same time, which could
result in a failure to properly evaluate multiple acquisitions. Further, we
would also be exposed to the risk that conditions to closings with respect
to
the acquisition of one or more of the target businesses would not be satisfied,
bringing the fair market value of the initial business combination below the
required fair market value of 80% of the amount in our trust account (excluding
deferred underwriting compensation, and interest thereon, held in the trust).
Accordingly, while it is possible we may attempt to effect our initial business
combination with more than one target business, we are more likely to choose
a
single target business if deciding between one target business meeting such
80%
threshold and comparable multiple target business candidates collectively
meeting the 80% threshold. Consequently, it is probable that, unless the
purchase price consists substantially of our equity, we will have the ability
to
complete only the initial business combination with the proceeds of the offering
and the private placement. Accordingly, the prospects for our success may
be:
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·
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solely
dependent upon the performance of a single business;
or
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-18-
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·
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dependent
upon the development or market acceptance of a single or limited
number of
products or services.
|
In
this
case, we will not be able to diversify our operations or benefit from the
possible spreading of risks or offsetting of losses, unlike other entities
which
may have the resources to complete several business combinations in different
industries or different areas of a single industry.
The
ability of our stockholders to exercise their redemption rights may not allow
us
to effectuate the most desirable business combination or optimize our capital
structure.
At
the
time we seek stockholder approval of any business combination, we will offer
each public stockholder the right to have such stockholder's shares of common
stock redeemed for cash if the stockholder votes against the business
combination and the business combination is approved and completed. Accordingly,
if our business combination requires us to use substantially all of our cash
to
pay the purchase price, because we will not know how many stockholders may
exercise such redemption rights, we may either need to reserve part of the
trust
account for possible payment upon such redemption, or we may need to arrange
third party financing to help fund our business combination in case a larger
percentage of stockholders exercise their redemption rights than we expected.
Therefore, we may not be able to consummate a business combination that requires
us to use all of the funds held in the trust account as part of the purchase
price, or we may end up having a leverage ratio not optimal for our business
combination. This may limit our ability to effectuate the most attractive
business combination available to us.
We
will not be required to obtain an opinion from an investment banking firm as
to
the fair market value of a proposed business combination if our board of
directors independently determines the target business has sufficient fair
market value.
The
initial target business we acquire must have a fair market value equal to at
least 80% of the amount in our trust account (excluding $1,590,312 of deferred
compensation to be held for the benefit of the underwriters) at the time of
such
acquisition. There is no limitation on our ability to raise funds privately
or
through loans that would allow us to acquire a target business or businesses
with a fair market value in an amount considerably greater than 80% of the
amount in our trust account (excluding underwriter’s deferred underwriting
compensation, and interest thereon, held in the trust) at the time of such
acquisition. We have not had any preliminary discussions, or made any agreements
or arrangements, with respect to financing arrangements with any third party.
The fair market value of such business will be determined by our board of
directors based upon standards generally accepted by the financial community,
such as actual and potential sales, earnings and cash flow and book value,
and
the price for which comparable businesses have recently been sold. If our board
is not able to independently determine whether the target business has a
sufficient fair market value, we will obtain an opinion from an unaffiliated,
independent investment banking firm which is a member of the Financial Industry
Regulatory Authority, or FINRA. with respect to the satisfaction of such
criteria.
We
may be unable to obtain additional financing, if required, to complete a
business combination or to fund the operations and growth of the target
business, which could compel us to restructure the transaction or abandon a
particular business combination.
Although
we believe the net proceeds of the offering and the private placement will
be
sufficient to allow us to consummate a business combination, in as much as
we
have not yet identified any prospective target business, we cannot ascertain
the
capital requirements for any particular transaction. If the net proceeds of
the
offering and the private placement prove to be insufficient, either because
of
the size of the business combination or the depletion of the available net
proceeds in search of a target business, or because we become obligated to
redeem for cash a significant number of shares from dissenting stockholders,
we
will be required to seek additional financing. We cannot assure you such
financing would be available on acceptable terms, if at all. To the extent
additional financing proves to be unavailable when needed to consummate a
particular business combination, we would be compelled to restructure the
transaction or abandon that particular business combination and seek an
alternative target business candidate. In addition, if we consummate a business
combination, we may require additional financing to fund the operations or
growth of the target business. The failure to secure additional financing could
have a material adverse effect on the continued development or growth of the
target business. None of our officers, directors or stockholders is required
to
provide any financing to us in connection with or after a business
combination.
-19-
Our
founding stockholders, including our officers and directors, control a
substantial interest in us and thus may influence certain actions requiring
stockholder vote.
Our
founding stockholders (including all of our officers and directors) collectively
own 21.68% of our issued and outstanding shares of common stock (not including
the purchase of 2,800,000 warrants in the private placement by our sponsor).
None of our other founding stockholders, officers and directors has indicated
to
us they intend to purchase units or warrants on the open market.
In
addition, our
sponsor has entered into an agreement with the representative pursuant to which
it will place limit orders for $4,000,000 of our common stock commencing ten
business days after we file our Current Report on Form 8-K announcing our
execution of a definitive agreement for a business combination and ending on
the
business day immediately preceding the meeting date for the meeting of
stockholders at which such business combination is to be approved. These
purchases will be made in accordance with Rule 10b-18 under the Exchange Act
at
a price equal to the per share amount held in our trust account as reported
in
such Form 8-K.
Our
board
of directors is divided into two classes, each of which will generally serve
for
a term of two years, with only one class of directors being elected in each
year. It is unlikely there will be an annual meeting of stockholders to elect
new directors prior to the consummation of a business combination, in which
case
all of the current directors will continue in office at least until the
consummation of the business combination. If there is an annual meeting, as
a
consequence of our “staggered” board of directors, initially only a minority of
the board of directors will be considered for election and our founding
stockholders, because of their ownership position, will have considerable
influence regarding the outcome. Accordingly, our founding stockholders will
continue to exert control at least until the consummation of a business
combination. In addition, our founding stockholders and their affiliates and
relatives are not prohibited from purchasing units in the open market. If they
do, we cannot assure you our founding stockholders will not have considerable
influence upon the vote in connection with a business combination.
Our
outstanding warrants may have an adverse effect on the market price of common
stock and make it more difficult to effect a business
combination.
In
connection with the initial public offering as part of the units, and the
private placement, we issued warrants to purchase up to 10,051,300 shares of
our
common stock. To the extent we issue shares of common stock to effect a business
combination, the potential for the issuance of substantial numbers of additional
shares upon exercise of these warrants could make us a less attractive
acquisition vehicle in the eyes of a target business as such securities, when
exercised, will increase the number of issued and outstanding shares of our
common stock and reduce the value of the shares issued to complete the business
combination. Accordingly, our warrants may make it more difficult to effectuate
a business combination or increase the cost of the target business.
Additionally, the sale, or even the possibility of sale, of the shares
underlying the warrants could have an adverse effect on the market price for
our
securities or on our ability to obtain future public financing. If and to the
extent these warrants are exercised, you may experience dilution to your
holdings.
If
our founding stockholders exercise their registration rights, it may have an
adverse effect on the market price of our common stock and the existence of
these rights may make it more difficult to effect a business
combination.
Our
founding stockholders, including our sponsor, which purchased warrants in the
private placement, are entitled to require us to register the resale of their
warrants as well as their shares of common stock at any time after the date
on
which their securities are released from escrow. If such existing security
holders exercise their registration rights with respect to all of their shares
of common stock (including those 2,800,000 shares of common stock issuable
upon
exercise of warrants included as part of the insider warrants), there will
be an
additional 4,362,500 shares of common stock eligible for trading in the public
market and we will bear the costs of registering such securities. The presence
of this additional number of shares of common stock eligible for trading in
the
public market may have an adverse effect on the market price of our common
stock. In addition, the existence of these rights may make it more difficult
to
effectuate a business combination or increase the cost of the target business,
as the stockholders of the target business may be discouraged from entering
into
a business combination with us or will request a higher price for their
securities as a result of these registration rights and the potential future
effect their exercise may have on the trading market for our common
stock.
-20-
Our
securities are quoted on the OTC Bulletin Board, which limits the liquidity
and
price of our securities more than if our securities were quoted or listed on
the
Nasdaq Stock Market or a national exchange.
Our
securities are traded in the over-the-counter market and quoted on the OTC
Bulletin Board, an NASD-sponsored and operated inter-dealer automated quotation
system for equity securities not included in the Nasdaq Stock Market. Quotation
of our securities on the OTC Bulletin Board limits the liquidity and price
of
our securities more than if our securities were quoted or listed on The Nasdaq
Stock Market or a national exchange. Lack of liquidity will limit the price
at
which you may be able to sell our securities or your ability to sell our
securities at all.
If
we are deemed to be an investment company, we may be required to institute
burdensome compliance requirements and our activities may be restricted, which
may make it difficult for us to complete a business
combination.
We
may be
deemed to be an investment company, as defined under Sections 3(a)(1)(A) and
(C)
of the Investment Company Act of 1940, as amended, because, prior to the
consummation of a business combination, we may be viewed as engaging in the
business of investing in securities (in this case United States government
securities as described below) having a value exceeding 40% of our total assets.
If we are deemed to be an investment company under the Investment Company Act
of
1940, our activities may be restricted which, among other problems, may make
it
difficult for us to complete a business combination. Such restrictions include
restrictions on the nature of our investments and restrictions on the issuance
of securities.
In
addition, we may have imposed upon us burdensome requirements,
including:
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registration
as an investment company;
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·
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adoption
of a specific form of corporate structure;
and
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reporting,
record keeping, voting, proxy and disclosure requirements and other
rules
and regulations.
|
However,
we do not believe our anticipated principal activities will subject us to the
Investment Company Act of 1940. To this end, the proceeds held in trust may
only
be invested by the trust agent in “government securities” with specific maturity
dates or in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act of 1940. By restricting the
investment of the proceeds to these instruments, we intend to avoid being deemed
an investment company within the meaning of the Investment Company Act of 1940.
The offering was not intended for persons who are seeking a return on
investments in government securities. The trust account and the purchase of
government securities for the trust account is intended as a holding place
for
funds pending the earlier to occur of either: (i) the consummation of our
primary business objective, which is a business combination, or (ii) absent
a
business combination, our dissolution and return of the funds held in trust
to
our public stockholders as part of our plan of dissolution and
liquidation.
Our
directors may not be considered “independent” under the policies of the North
American Securities Administrators Association, Inc. and, therefore, may take
actions or incur expenses not deemed to be independently approved or
independently determined to be in our best interest.
No
salary
or other compensation will be paid to any of our officers or directors for
services rendered by them on our behalf prior to or in connection with a
business combination. We do not believe any members of our board of directors
are currently “independent” as that term is commonly used. Under the policies of
the North American Securities Administrators Association, Inc., because our
directors may receive reimbursement for out-of-pocket expenses incurred by
them
in connection with activities on our behalf, such as identifying potential
target businesses and performing due diligence on suitable business
combinations, state securities administrators could take the position such
individual is not “independent.” If this were the case, they would take the
position that we would not have the benefit of independent directors examining
the propriety of expenses incurred on our behalf and subject to reimbursement.
Additionally, there is no limit on the amount of out-of-pocket expenses that
could be incurred and there will be no review of the reasonableness of the
expenses by anyone other than our board of directors, which would include
persons who may seek reimbursement, or a court of competent jurisdiction if
such
reimbursement is challenged. To the extent such out-of-pocket expenses exceed
the available proceeds not deposited in the trust account, such out-of-pocket
expenses would not be reimbursed by us unless we consummate a business
combination, in which event this reimbursement obligation would in all
likelihood be negotiated with the owners of a target business. Although we
believe all actions taken by our directors on our behalf will be in our best
interests, whether or not they are deemed to be “independent” under the policies
of the North American Securities Administrator Association, we cannot assure
you
this will actually be the case. If actions are taken, or expenses are incurred
that are actually not in our best interests, it could have a material adverse
effect on our business and operations and the price of our stock held by the
public stockholders.
-21-
Since
we have not currently selected a prospective target business with which to
complete a business combination, investors in the offering are unable to
currently ascertain the merits or risks of the target business’
operations.
Since
we
have not yet identified a prospective target, our stockholders have no current
basis to evaluate the possible merits or risks of the target business’
operations. To the extent we complete a business combination with a financially
unstable company, an entity in its development stage and/or an entity subject
to
unknown or unmanageable liabilities, 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 we will properly ascertain or assess all of the significant
risk factors. We also cannot assure you an investment in our units will not
ultimately prove to be less favorable to investors in the offering than a direct
investment, if an opportunity were available, in a target business. For a more
complete discussion of our selection of a target business, see the section
below
entitled “Effecting a business combination—We have not identified a target
business.”
Your
only opportunity to evaluate and affect the investment decision regarding a
potential business combination will be limited to voting for or against the
business combination submitted to our stockholders for approval.
At
the
time of your investment in us, you will not be provided with an opportunity
to
evaluate the specific merits or risks of one or more target businesses.
Accordingly, your only opportunity to evaluate and affect the investment
decision regarding a potential business combination will be limited to voting
for or against the business combination submitted to our stockholders for
approval. In addition, a proposal you vote against could still be approved
if a
sufficient number of public stockholders vote for the proposed business
combination. Alternatively, a proposal you vote for could still be rejected
if a
sufficient number of public stockholders vote against the proposed business
combination.
Risks
Associated with the Our Acquisition of a Target Business in the Education
Industry
We
intend
to seek a business combination with a company in the education industry. The
following risk factors address issues that may arise in connection with the
purchase of such a company. Because we have not yet identified a target
business, there are likely to be additional risks applicable to any particular
target business, and some of the following risks may be inapplicable. Therefore,
you should bear in mind that the following risks are illustrative
only.
Failure
of any acquired schools to comply with the extensive regulatory requirements
for
school operations could result in financial penalties, restrictions on
operations and loss of external financial aid funding, which could affect
revenues and impose significant operating restrictions on any business we
acquire.
Any
on-ground or online schools we acquire can be expected to be subject to
extensive regulation by federal and state governmental agencies and by
accrediting commissions. In particular, the Higher Education Act of 1965, as
amended, and the regulations promulgated thereunder by the Department of
Education, or DOE, set forth numerous standards schools must satisfy to
participate in various federal student financial assistance programs under
Title IV Programs. To participate in Title IV Programs, schools must
receive and maintain authorization by the applicable education agencies in
the
state in which each school is physically located, be accredited by an
accrediting commission recognized by the DOE and be certified as an eligible
institution by the DOE. These regulatory requirements can be expected to cover
the vast majority of operations of any business we acquire in the education
services market, including educational programs, facilities, instructional
and
administrative staff, administrative procedures, marketing, recruiting,
financial operations and financial condition. These regulatory requirements
may
also affect our ability to acquire or open additional schools, add new
educational programs, expand existing educational programs, and change our
corporate structure and ownership.
If
any
acquired school fails to comply with applicable regulatory requirements, the
school and its related main campus and/or additional locations, if any, could
be
subject to the loss of state licensure or accreditation, the loss of eligibility
to participate in and receive funds under the Title IV Programs, the loss
of the ability to grant degrees, diplomas and certificates, provisional
certification, or the imposition of liabilities or monetary penalties, each
of
which could adversely affect our revenues and impose significant operating
restrictions upon us. The various regulatory agencies periodically revise their
requirements and modify their interpretations of existing requirements and
restrictions. We cannot predict with certainty how any of these regulatory
requirements will be applied or whether each of our schools will be able to
comply with these requirements or any additional requirement instituted in
the
future.
-22-
If
we fail to demonstrate "administrative capability" to the Department Of
Education, our business could suffer.
DOE
regulations specify extensive criteria an institution must satisfy to establish
it has the requisite “administrative capability” to participate in Title IV
Programs. These criteria require, among other things, that the
institution:
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Comply
with all applicable Title IV regulations;
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Have
capable and sufficient personnel to administer Title IV
Programs;
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Have
acceptable methods of defining and measuring the satisfactory academic
progress of its students;
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Provide
financial aid counseling to its students;
and
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Submit
in a timely manner all reports and financial statements required
by the
regulations.
|
If
an
institution fails to satisfy any of these criteria or any other DOE regulation,
the DOE may:
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Require
repayment of Title IV funds;
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·
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Impose
a less favorable payment system for the institution's receipt of
Title IV funds;
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Place
the institution on provisional certification status; or
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Commence
a proceeding to impose a fine or to limit, suspend or terminate the
participation of the institution in Title IV
Programs.
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If
we are
found not to have satisfied the DOE's "administrative capability" requirements,
one or more of our institutions, including its additional locations, could
be
limited in its access to, or lose, Title IV Program funding which could
materially impact our future growth and financial prospects.
If
we do not meet specific financial responsibility ratios and tests established
by
the DOE, our U.S. schools may lose eligibility to participate in federal student
financial aid programs.
To
participate in the federal student financial aid programs, an institution must
either satisfy quantitative standards of financial responsibility, or post
a
letter of credit in favor of the DOE and possibly accept other conditions on
its
participation in the federal student financial aid programs. Each year, based
on
financial information submitted by institutions that participate in federal
student financial aid programs, the DOE calculates three financial ratios for
an
institution: an equity ratio, a primary reserve ratio and a net income ratio.
Each of these ratios is scored separately and then combined to determine the
institution’s financial responsibility. If an institution’s score is above 1.5,
it may continue its participation in federal student financial aid programs.
We
cannot assure you that we and our institutions will continue to satisfy the
numeric standards in the future.
Congress
may change the law or reduce funding for Title IV Programs, which could
reduce student population, revenues or profit margin.
Congress
periodically revises the Higher Education Act and other laws governing
Title IV Programs and annually determines the funding level for each
Title IV Program. Recently, Congress temporarily extended the provisions of
the Higher Education Act, or HEA, pending completion of the formal
reauthorization process. In February 2006, Congress enacted the Deficit
Reduction Act of 2005, which contained a number of provisions affecting Title
IV
Programs, including some provisions that had been in the HEA reauthorization
bills. It is possible the Democrat-controlled U.S. Congress will revise
provisions of the HEA in significantly different ways than were being considered
by the Republican-controlled U.S. Congress in 2005 and 2006. Any action by
Congress that significantly reduces funding for Title IV Programs or the
ability of schools or students to receive funding through these programs could
reduce student population and revenues of any target business we acquire.
Congressional action may also require modification of practices in ways that
could result in increased administrative costs and decreased profit margin.
In
addition, current requirements for student and school participation in
Title IV Programs may change or one or more of the present Title IV
Programs could be replaced by other programs with materially different student
or school eligibility requirements. If we cannot comply with the provisions
of
the Higher Education Act, as they may be revised, or if the cost of such
compliance is excessive, our revenues or profit margin could be adversely
affected.
Regulatory
agencies or third parties may conduct compliance reviews, bring claims or
initiate litigation against us. If the results of these reviews or claims are
unfavorable, our future results of operations and financial condition could
be
adversely affected.
Because
education is a highly regulated industry, a company we acquire may be subject
to
compliance reviews and claims of noncompliance and lawsuits by government
agencies and third parties. If the results of these reviews or proceedings
are
unfavorable, or if we are unable to defend successfully against third-party
lawsuits or claims, we may be required to pay money damages or be subject to
fines, limitations on the operations of our business, loss of federal funding,
injunctions or other penalties. Even if we adequately address issues raised
by
an agency review or successfully defend a third-party lawsuit or claim, we
may
have to divert significant financial and management resources from our ongoing
business operations to address issues raised by those reviews or defend those
lawsuits or claims.
-23-
If
our target business is unable to respond to the technological, legal, financial
or other changes in the education industry and changes in our customers’
requirements and preferences, we will not be able to effectively compete with
our competitors.
If
our
target business is unable, for technological, legal, financial or other reasons,
to adapt in a timely manner to changing market conditions, customer needs or
regulatory requirements, it could lose customers. Changes in customer
requirements and preferences, the introduction of new products and services
embodying new technologies, and the emergence of new industry standards and
practices could render the existing products of the company we acquire obsolete.
The success of our target business will depend, in part, on its ability to:
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Enhance
products and services;
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Anticipate
changing customer requirements by designing, developing and launching
new
products and services that address the increasingly sophisticated
and
varied needs of customers;
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Respond
to technological advances and emerging industry standards and practices
on
a cost-effective and timely basis; and
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Respond
to changing regulatory requirements in a cost effective and timely
manner.
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The
development of additional products and services involves significant
technological and business risks and requires substantial expenditures and
lead
time. We cannot assure you, even if our target business is able to introduce
new
products or adapt our products to new technologies, its products would gain
acceptance among its customers.
We
may be unable to protect or enforce the intellectual property rights of any
target businesses we acquire.
We
may
acquire a target business whose business is dependent upon its proprietary
technology and intellectual property. Accordingly, the protection of trademarks,
copyrights, patents, domain names, trade dress and trade secrets may be critical
to the ability of our target business to compete with its competitors. In such
a
case, our target business will likely rely on a combination of copyright,
trademark, trade secret laws and contractual restrictions to protect any
proprietary technology and rights it may acquire. Despite the efforts of our
target business to protect its proprietary technology and rights, our target
business may not be able to prevent misappropriation of its proprietary rights,
disclosure of such rights to government entities in connection with performing
work for them or deter independent development of technologies that compete
with
the business we acquire. Competitors may file patent applications or obtain
patents and proprietary rights that block or compete with patents of any company
we acquire. Litigation may be necessary in the future to enforce intellectual
property rights, to protect trade secrets, or to determine the validity and
scope of the proprietary rights of others. It is also possible third parties
may
claim our target business has infringed their patent, trademark, copyright
or
other proprietary rights. Claims or litigation, with or without merit, could
result in substantial costs and diversions of resources, either of which could
have a material adverse effect on the competitive position and business of
our
target business. Depending on the target business or businesses we acquire,
we
may have to protect trademarks, patents and domain names in an increasing number
of jurisdictions, a process that is expensive and may not be successful in
every
location. With respect to certain proprietary rights, such as trademarks and
copyrighted materials, of the target business or businesses we will acquire,
the
target business or businesses may have entered into license agreements in the
past and will continue to enter into such agreements in the future. These
licensees may take actions that diminish the value of such target business
or
businesses’ proprietary rights or cause harm to such target business or
businesses’ reputation.
-24-
Our
target business may regularly employ subcontractors to assist in satisfying
its
contractual obligations. If these subcontractors fail to adequately perform
their contractual obligations, our target business’s prime contract performance
and its ability to obtain future business could be materially and adversely
impacted.
The
performance by our target business of government contracts may involve the
issuance of subcontracts to other companies upon which our target business
may
rely to perform all or a portion of the work it is obligated to deliver to
customers. There is a risk our target business may have disputes with
subcontractors concerning a number of issues including the quality and
timeliness of work performed by the subcontractor. A failure by one or more
subcontractors to satisfactorily deliver on a timely basis the agreed-upon
supplies and/or perform the agreed-upon services may materially and adversely
impact the ability of our target business to perform its obligations as a prime
contractor. In extreme cases, such subcontractor performance deficiencies could
result in the government terminating our target’s contract for default. A
default termination could expose our target business to liability for excess
costs of reprocurement by the government and have a material adverse effect
on
the ability of our target business to compete for future contracts.
Our
ability to execute our business plan will depend, in part, on our ability to
respond to constantly changing trends and consumer
demands.
Our
ability to execute our business plan will depend, in part, on our ability to
originate and define products and trends, as well as to anticipate, gauge and
react to changing consumer demands in a timely manner. Our products and services
will need to appeal to a broad range of consumers whose preferences cannot
be
predicted with certainty and are subject to rapid change. We cannot assure
you
we will be able to develop appealing products or have the ability to meet
constantly changing consumer demands in the future. In addition, we cannot
assure you any new products we introduce will be accepted by consumers. Any
failure on our part to anticipate, identify and respond effectively to changing
consumer demands and trends could adversely affect acceptance of our products
and services.
Failure
to establish and operate additional schools or campuses or effectively identify
suitable expansion opportunities could reduce our ability to implement our
growth strategy.
In
the
event we acquire a company with on-ground schools, as part of our business
strategy we may open and operate new schools or campuses following consummation
of the business combination. Establishing new schools or campuses poses unique
challenges and requires us to make investments in management and capital
expenditures, incur marketing expenses and devote other resources that are
different, and in some cases greater, than those required with respect to the
operation of acquired schools.
To
open a
new school or campus, we would be required to obtain appropriate state and
accrediting commission approvals, which may be conditioned or delayed in a
manner that could significantly affect our growth plans. In addition, to be
eligible for federal Title IV Program funding, a new school or campus would
have to be certified by the DOE and would require federal authorization and
approvals. In the case of entirely separate, freestanding U.S. schools, a
minimum of two years' operating history is required to be eligible for
Title IV Program funding. We cannot be sure we will be able to identify
suitable expansion opportunities or that we will be able to successfully
integrate or profitably operate any new schools or campuses. A failure to
effectively identify suitable expansion opportunities and establish and manage
the operations of newly established schools or online offerings could slow
our
growth and make any newly established schools or online programs unprofitable
or
more costly to operate than we had planned.
Our
success depends in part on our ability to update and expand the content of
existing programs and develop new programs in a cost-effective manner and on
a
timely basis.
Prospective
employers demand that employees possess appropriate technological skills. These
skills are becoming more sophisticated in line with technological advancements
across all industries. Accordingly, educational programs must keep pace with
those technological advancements. The expansion of our existing programs and
the
development of new programs may not be accepted by our students, prospective
employers or the education market. Even if we are able to develop acceptable
new
programs, we may not be able to introduce these new programs as quickly as
our
competitors or as quickly as employers demand. If we are unable to adequately
respond to changes in market requirements due to financial constraints,
unusually rapid technological changes or other factors, our ability to attract
and retain students could be impaired, our placement rates could suffer and
our
revenues could be adversely affected.
We
may not be able to retain our key personnel or hire and retain the personnel
needed to sustain and grow our business.
The
success of any business we acquire will depend largely on the skills, efforts
and motivation of our executive officers who generally have significant
experience within the education industry. Our success also depends in large
part
upon our ability to attract and retain highly qualified faculty, school
directors, administrators and corporate management. Due to the nature of the
business, we expect to face significant competition in the attraction and
retention of personnel who possess the skill sets we seek. In addition, key
personnel may leave and subsequently compete against us. The loss of the
services of any of our key personnel, or our failure to attract and retain
other
qualified and experienced personnel on acceptable terms, could have an adverse
effect on our ability to operate our business efficiently and execute our growth
strategy.
-25-
If
we are unable to hire, retain and continue to develop and train our employees
responsible for student recruitment, the effectiveness of our student recruiting
efforts would be adversely affected.
In
order
to support revenue growth, we need to hire new employees dedicated to student
recruitment and retain and continue to develop and train our current student
recruitment personnel. Our ability to develop a strong student recruiting team
may be affected by a number of factors, including our ability to integrate
and
motivate our student recruiters; our ability to effectively train our student
recruiters; the length of time it takes new student recruiters to become
productive; regulatory restrictions on the method of compensating student
recruiters; the competition in hiring and retaining student recruiters; and
our
ability to effectively manage a multi-location educational organization. If
we
are unable to hire, develop or retain our student recruiters, the effectiveness
of our student recruiting efforts would be adversely affected.
Competition
could decrease our market share and cause us to lower our tuition
rates.
The
education market is highly competitive, as we expect to compete for students
and
faculty with colleges and universities and proprietary schools, many of which
have greater financial and other resources than we expect to have, which may,
among other things, allow our competitors to secure strategic relationships
with
some or all of our existing strategic partners or develop other high profile
strategic relationships or devote more resources to expanding their programs
and
their school network, all of which could affect the success of our marketing
programs. If we are unable to compete effectively for students, our student
enrollments and revenues will be adversely affected.
We
may be
required to reduce tuition or increase spending in response to competition
in
order to retain or attract students or pursue new market opportunities. As
a
result, our market share, revenues and operating margin may be decreased. We
cannot be sure we will be able to compete successfully against current or future
competitors or that the competitive pressures we face will not adversely affect
our revenues and profitability.
An
institution would lose eligibility to participate in Title IV Programs if
its former students defaulted on repayment of their federal student loans in
excess of specified levels, which could reduce its student population and
revenues.
An
institution of higher education loses its eligibility to participate in some
or
all Title IV Programs if its former students default on the repayment of
their federal student loans in excess of specified levels. If any institution
we
acquire exceeds the official student loan default rates published by the DOE,
it
will lose eligibility to participate in Title IV Programs. That loss would
adversely affect students' access to various government-sponsored student
financial aid programs, which could reduce its student population and
revenues.
An
increase in interest rates could adversely affect our ability to attract and
retain students.
Interest
rates have reached historic lows in recent years, creating a favorable borrowing
environment for students. Much of the financing students receive is tied to
floating interest rates. However, interest rates have increased recently,
resulting in a corresponding increase in the cost to students of financing
their
education. Higher interest rates can also contribute to higher default rates
with respect to student repayment of education loans. Higher default rates
may
in turn adversely impact eligibility for Title IV Program participation or
the willingness of private lenders to make private loan programs available
to
students who attend any schools we may acquire, which could result in a
reduction in student population.
Failure
to comply with environmental laws and regulations governing education activities
could result in financial penalties and other costs which could adversely impact
results of operations.
On-ground
schools use hazardous materials and generate small quantities of waste, such
as
used oil, antifreeze, paint and car batteries. As a result, schools are subject
to a variety of environmental laws and regulations governing, among other
things, the use, storage and disposal of solid and hazardous substances and
waste, and the clean-up of contamination at on-site or off-site locations to
which hazardous waste is sent for disposal. In the event of non-compliance
with
any of these laws and regulations, or any on-ground school we acquire or
establish, is responsible for a spill or release of hazardous materials, we
could incur significant costs for clean-up, damages, and fines or penalties
which could adversely impact our results of operations.
-26-
The
number of lenders and financial institutions that make federally guaranteed
student loans and that guarantee Title IV loans is relatively small. The
loss of any of these lenders or guarantors could cause a material adverse effect
on revenues.
While
we
believe the lenders would be willing to make federally guaranteed student loans
to students if loans were no longer available from current lenders, we cannot
assure you there are other lenders who would make federally guaranteed loans
to
students. If such alternative lenders were not forthcoming, enrollment and
our
results of operations and future operating prospects could be materially and
adversely affected.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
We
do not
own any real estate or other physical properties materially important to our
operation. Our executive office is located at 500 East Pratt Street, Suite
1200,
Baltimore, MD 21202. The cost for this space is included in the $7,500 per-month
fee Camden Partners Holdings, LLC charges us for general and administrative
services, including but not limited to receptionist, secretarial and general
office services, pursuant to a letter agreement between us and Camden Partners
Holdings, LLC. This
agreement commenced on November 29, 2007 and shall continue until the earliest
to occur of: (i) consummation of a business combination, (ii) November 29,
2009,
and (iii) the date on which we cease our corporate existence in accordance
with
our amended and restated certificate of incorporation. We believe, based on
fees
for similar services in the greater Baltimore, Maryland metropolitan area that
the fee charged by Camden Partners Holdings, LLC is at least as favorable as
we
could have obtained from an unaffiliated person.
We
consider our current office space adequate for our current
operations.
Item
3. Legal
Proceedings
To
the
knowledge of our management, there is no litigation currently pending or
contemplated against us or any of our officers or directors in their capacity
as
such.
-27-
Item
4. Submission
of Matters to a Vote of Security Holders
No
matters were submitted to a vote of stockholders during the quarter ended
December 31, 2007.
PART
II
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity
Securities
|
(a)
Market Information
Our
Common Stock, Warrants and Units are each traded on the OTC Bulletin Board
under
the symbols CAEL, CAELW and CAELU, respectively. Our units commenced public
trading on November 29, 2007, and our common stock and warrants commenced public
trading on December 21, 2007.
The
following tables set forth, for the calendar quarter indicated, the quarterly
high and low sales price for the Company’s units, common stock and warrants,
respectively, as reported on the OTC Bulletin Board. The quotations merely
reflect the prices at which transactions were proposed, and do not necessarily
represent actual transactions.
|
OTC
Bulletin Board
|
|||||||||||||||||||
|
Camden
Learning
Common Stock
|
Camden
Learning
Warrants
|
Camden
Learning
Units
|
|||||||||||||||||
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
||||||||||||||
|
2007
Fourth Quarter
|
$
|
7.24
|
$
|
7.24
|
$
|
0.70
|
$
|
0.70
|
$
|
8.00
|
$
|
8.00
|
|||||||
On
March
24, 2008, the closing prices of our common stock, units and warrants were $7.24,
$8.00 and $0.70, respectively.
(b) Holders
On
March
24, 2008, there were 5 holders of record of our Common Stock, 2 holders
of record of our Warrants and 1 holder of record of our Units.
(c)
Dividends
We
have
not paid any dividends on our common stock to date and do not intend to pay
dividends prior to the completion of a business combination. The payment of
dividends in the future will be contingent upon our revenues and earnings,
if
any, capital requirements and general financial condition subsequent to
completion of a business combination. The payment of any dividends subsequent
to
a business combination will be within the discretion of the board of directors.
It is the present intention of our board of directors to retain all earnings,
if
any, for use in our business operations and, accordingly, our board does not
anticipate declaring any dividends in the foreseeable future.
(d)
Securities Authorized for Issuance Under Equity Compensation Plans.
None.
Recent
Sales of Unregistered Securities
Prior
to
the consummation of the IPO, we completed a private placement of an aggregate
of
2,800,000 warrants to Camden Learning, LLC, a limited liability company
indirectly controlled and partially owned by certain of the Company’s officers
and directors, generating gross proceeds of $2,800,000. The warrants sold in
the
private placement contain substantially similar terms and conditions as the
warrants sold in the IPO, except that the warrants sold in the private placement
(i) will not be subject to redemption, (ii) may be exercised on a cashless
basis, in each case if held by the Company’s sponsor or its permitted assigns
and (iii) may not be sold, assigned or transferred prior to the 90th
day
following the Company’s consummation of a business combination.
-28-
On
April
10, 2007 we issued 1,125,000 shares of our common stock as set forth below
for
an aggregate offering price of $25,000 at an average purchase price of
approximately $0.02 per share. No underwriting discounts or commissions were
paid with respect to such sales.
|
Stockholders
|
Number
of Shares
|
|||
|
Camden
Learning, LLC
|
1,000,000
|
|||
|
Jack
L. Brozman
|
25,000
|
|||
|
Therese
Kreig Crane, Ed.D
|
25,000
|
|||
|
Ronald
Tomalis
|
25,000
|
|||
|
Harry
T. Wilkins
|
25,000
|
|||
|
William
Jews
|
25,000
|
|||
On
July
3, 2007, Mr. Wilkins resigned as a director and transferred, for a purchase
price of $.02 per share, an aggregate of 25,000 shares of common stock to Camden
Learning, LLC such that our current share ownership is as reflected in the
section entitled “Principal Stockholders.”
On
August
27, 2007, Mr. Brozman resigned as a director and transferred, for a purchase
price of $.02 per share, an aggregate of 25,000 shares of common stock to Camden
Learning, LLC such that our current share ownership is as reflected in the
section entitled “Principal Stockholders.”
Effective
November 20, 2007, our board of directors authorized a forward stock split
in
the form of a stock dividend of 0.3888888 shares of common stock for each
outstanding share of common stock, effectively lowering the purchase price
to
approximately $0.016 per share.
Prior
to
the consummation of our IPO, our sponsor purchased 2,800,000 insider warrants
from us. These insider warrants were issued pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act as they were sold
to sophisticated, wealthy non “U.S. Person” individuals. No underwriting
discounts or commissions were paid with respect to such sales. A private
placement subscription agreement was entered into between the Company and our
sponsor in connection with these insider warrants.
Use
of Proceeds from our Initial Public Offering
The
effective date of our registration statement, which was filed on Form S-1 under
the Securities Act of 1933 (File No. 333-143098), and which related to the
initial public offering of our units, was November 29, 2007. Each unit consisted
of one share of common stock, $.0001 par value per share, and one warrant to
purchase one share of common stock. A total of 7,812,500 (including the
underwriters’ over allotment) units were registered at a proposed maximum
aggregate offering price of $57,500,000 (including the underwriters’ over
allotment).
The
public offering was consummated on December 5, 2007. The underwriters of the
offering were Morgan Joseph & Co. Inc., Ferris, Baker Watts Incorporated and
Legend Merchant Capital Group. A total of 6,626,300 Units were sold in the
offering for an aggregate offering price of $53,010,400. Each of our units
commenced trading its component share of common stock and warrant separately
on
December 21, 2007.
The
net
proceeds to us from the sale of our Units, after deducting underwriting
discounts and commissions of $3,710,728 (including $1,590,312 placed in the
Trust Account representing a deferred underwriters’ discount) and offering
expenses of $507,248, was $48,792,524. $49,589,984 plus interest and proceeds
from the sale of our sponsor warrants is currently being held in trust and
the
remaining funds of approximately $800,000 are being held outside of the trust.
The remaining proceeds are held for working capital such as business, legal
and
accounting due diligence on prospective acquisitions and continuing general
and
administrative expenses. We will use substantially all of the net proceeds
of
the initial public offering to acquire a target business, including identifying
and evaluating prospective acquisition candidates, selecting the target
business, and structuring, negotiating and consummating the business
combination. To the extent that our capital stock is used in whole or in part
as
consideration to effect a business combination, the proceeds held in the trust
fund as well as any other net proceeds not expended will be used to finance
the
operations of the target business. We believe we will have sufficient available
funds outside of the trust fund to operate through November 2009, assuming
that
a business combination is not consummated during that time. We do not believe
we
will need to raise additional funds in order to meet the expenditures required
for operating our business. However, we may need to raise additional funds
through a private or public offering of debt or equity securities if such funds
are required to consummate a business combination that is presented to us.
We
would only consummate such a financing simultaneously with the consummation
of a
business combination.
-29-
No
expenses of the offering were paid to any of our officers and directors, to
persons owning ten percent (10%) or more of Common Stock or any of their
respective affiliates. We did, however, repay our sponsor for loans made to
us
prior to the consummation of the initial public offering. The aggregate amount
of principal on such loans that we repaid was $200,000. This loan had an
interest rate of 4.9%. All the funds held in the trust account have been
invested in Government Institutional Securities.
Repurchases
of Equity Securities
None.
-30-
Item
6. Selected
Financial Data
We
are a
smaller reporting company as defined in Regulation S-K; as such pursuant to
Regulation S-K we are not required to make disclosures under this Item.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 thereto which are included in this annual
report and the Company’s audited financial statements and notes thereto included
in our Final Prospectus filed with the SEC on November 29, 2007 and our Form
8-K
filed with the SEC on December 5, 2007.
We
were
formed on April 10, 2007, for the purpose of acquiring, through a merger,
capital stock exchange, asset acquisition or other similar Business Combination,
an operating business in the education industry. Our initial Business
Combination must be with a target business whose fair market value is at least
equal to 80% of our net assets (excluding the deferred underwriting commission
of the underwriters held in the Trust Account) at the time of such acquisition.
We intend to use cash derived from the proceeds of our initial public offering
and concurrent private placement, our capital stock, debt or a combination
of
cash, capital stock and debt, to effect such Business Combination.
Since
our
initial public offering, we have been actively searching for a suitable Business
Combination candidate. We currently have not entered into any definitive
agreement with any potential target businesses. We have met with service
professionals and other intermediaries to discuss our company, the background
of
our management and our combination preferences. In the course of these
discussions, we have also spent time explaining the capital structure of the
initial public offering, the combination approval process and the timeline
within which we must either enter into a letter of intent or definitive
agreement for a Business Combination, or return the proceeds of the initial
public offering held in the Trust Account to investors. Consistent with the
disclosures in our prospectus, we have focused our search on companies in the
education industry, which include but are not limited to early child care
(pre-school programs and/or day care facilities for pre-school aged children),
K-12 (kindergarten through twelfth grade), Post-secondary (a formal
instructional program for students who have completed the requirements for
a
high school diploma or its equivalent, including programs whose purpose is
academic, vocational and continuing professional education), and corporate
training. We cannot assure investors that we will find a suitable Business
Combination in the allotted time.
We
are
currently in the process of evaluating and identifying targets for an initial
transaction. We are not presently engaged in, and will not engage in, any
substantive commercial business until we consummate an initial transaction.
We
intend to utilize cash derived from the proceeds of our initial public offering,
the private placement, our capital stock, debt or a combination of cash, capital
stock and debt, in effecting an initial transaction. The issuance of additional
shares of our capital stock:
|
·
|
may
significantly reduce the equity interest of our current
stockholders;
|
|
·
|
may
subordinate the rights of holders of common stock if preferred stock
is
issued with rights senior to those afforded to our common
stock;
|
|
·
|
will
likely cause a change in control if a substantial number of our shares
of
common stock or preferred stock are issued, which may affect, among
other
things, our ability to use our net operating loss carry forwards,
if any,
and most likely also result in the resignation or removal of one
or more
of our present officers and directors;
and
|
|
·
|
may
adversely affect prevailing market prices for our
securities.
|
-31-
Similarly,
if we issued debt securities, it could result in:
|
·
|
default
and foreclosure on our assets, if our operating revenues after an
initial
transaction were insufficient to pay our debt
obligations;
|
|
·
|
acceleration
of our obligations to repay the indebtedness, even if we have made
all
principal and interest payments when due, if the debt security contained
covenants that required the maintenance of certain financial ratios
or
reserves and any such covenant were breached without a waiver or
renegotiation of that covenant;
|
|
·
|
our
immediate payment of all principal and accrued interest, if any,
if the
debt security was payable on demand;
and
|
|
·
|
our
inability to obtain additional financing, if necessary, if the debt
security contained covenants restricting our ability to obtain additional
financing while such security was
outstanding.
|
We
anticipate that we would only consummate such a financing simultaneously with
the consummation of a Business Combination, although nothing would preclude
us
from raising more capital in anticipation of a possible Business
Combination.
CHANGES
IN FINANCIAL CONDITION
Liquidity
and Capital Resources
On
May
16, 2007 we entered into an agreement with certain of our initial stockholders
for the sale of 2,800,000 warrants in a private placement. Each warrant entitles
the holder to purchase from us one share of our common stock on a cashless
basis. The warrants were sold at a price of $1.00 per warrant, generating net
proceeds of $2,800,000.
On
December 5, 2007 we consummated our initial public offering of 6,250,000 units.
Each unit consists of one share of common stock and one warrant. On December
19,
2007, we consummated the closing of 376,300 additional units subject to the
underwriters’ over allotment option. Each warrant entitles the holder to
purchase from us one share of our common stock at an exercise price of
$5.50.
The
net
proceeds we received from the private placement and the sale of our units and
warrants were $53,182,836 (not including deferred underwriting discounts and
commissions of $1,590,312). Of this amount, $52,389,984 was placed in a Trust
Account at JP Morgan Chase Bank, N.A. maintained by Continental Stock Transfer
& Trust Company, as trustee. The remaining funds of approximately $800,000
are being held outside of the trust. The $800,000 held outside of trust (and
including $600,000 of interest we may earn on funds in the trust account, which
we are entitled to in order to cover our operating expenses and the costs
associated with our plan of dissolution and liquidation if we do not consummate
a business combination) will be used to cover our operating expenses for the
next 24 months and to cover the expenses incurred in connection with a business
combination.
We
will
use substantially all of the net proceeds of the initial public offering to
acquire a target business, including identifying and evaluating prospective
acquisition candidates, selecting the target business, and structuring,
negotiating and consummating the business combination. To the extent that our
capital stock is used in whole or in part as consideration to effect a business
combination, the proceeds held in the trust fund as well as any other net
proceeds not expended will be used to finance the operations of the target
business. We believe we will have sufficient available funds outside of the
trust fund to operate through November 2009, assuming that a business
combination is not consummated during that time. We do not believe we will
need
to raise additional funds in order to meet the expenditures required for
operating our business. However, we may need to raise additional funds through
a
private or public offering of debt or equity securities if such funds are
required to consummate a business combination that is presented to us. We would
only consummate such a financing simultaneously with the consummation of a
business combination.
The
$1,590,312 of the funds attributable to the deferred underwriting discount
and
commissions in connection with the offering and private placement will be
released to the underwriters less $0.24 per share for any public stockholders
exercising their redemption rights, upon completion of a business combination
as
such term is defined in our prospectus filed on Form 424B4 on November 30,
2007
with the Securities and Exchange Commission.
-32-
We
may
need to raise additional funds in order to meet the expenditures required to
consummate a Business Combination before November 29, 2009. Although we believe
the net proceeds of the offering and the private placement will be sufficient
to
allow us to consummate a business combination, in as much as we have not yet
identified any prospective target business, we cannot ascertain the capital
requirements for any particular transaction. If the net proceeds of the offering
and the private placement prove to be insufficient, either because of the size
of the business combination or the depletion of the available net proceeds
in
search of a target business, or because we become obligated to redeem for cash
a
significant number of shares from dissenting stockholders, we will be required
to seek additional financing. We cannot assure you such financing would be
available on acceptable terms, if at all.
Commencing
on November 29, 2007 we began incurring a fee of $7,500 per month for certain
administrative services from Camden Partners Holdings, LLC. In addition, in
2007, Camden Learning, LLC advanced to us an aggregate of $200,000 for payment
of offering expenses on our behalf. These advances were repaid on December
5,
2007 from the proceeds of the initial public offering that were allocated to
pay
offering expenses.
We
may
use all or substantially all of the proceeds held in trust other than the
deferred portion of the underwriter’s fee to acquire one or more target
businesses. 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. The operating businesses that we acquire in
such
business combination must have, individually or collectively, a fair market
value equal to at least 80% of the balance in the trust account (excluding
deferred underwriter’s fee of $1,590,312) at the time of such acquisition. If we
consummate multiple business combinations that collectively have a fair market
value of 80% of our net assets, then we would require that such transactions
are
consummated simultaneously.
If
we are
unable to find a suitable target business by November 29, 2009, we will be
forced to liquidate. If we are forced to liquidate, the per share liquidation
amount may be less than the initial per unit offering price because of the
underwriting commissions and expenses related to our initial public offering
and
because of the value of the warrants in the per unit offering price.
Additionally, if third parties make claims against us, the initial public
offering proceeds held in the Trust Account could be subject to those claims,
resulting in a further reduction to the per share liquidation price. Under
Delaware law, our stockholders who have received distributions from us may
be
held liable for claims by third parties to the extent such claims have not
been
paid by us. Furthermore, our warrants will expire worthless if we liquidate
before the completion of a business combination.
RESULTS
OF OPERATIONS
Through
December 31, 2007, our efforts have been primarily organizational activities,
activities relating to our initial public offering and active searching for
a
target company to do a business combination. We have neither engaged in any
operations nor generated any revenues to date. We currently have no operating
business and have not entered into a definitive agreement with any potential
target businesses. Beginning December 5, 2007 (the date of the consummation
of
our initial public offering) until our consummation of a business combination,
we expect interest earned on the offering proceeds held in our Trust Account
to
be our primary source of income.
The
Company received net proceeds from the offering of $47,492,852, before deducting
deferred underwriting compensation of $1,500,000. On December 19, 2007 the
underwriters for the offering exercised a portion of their over-allotment
option, generating proceeds of $2,889,984, before deducting deferred
underwriting compensation of $90,312.
In
addition, we may need to raise additional funds through a private offering
of
debt or equity securities if such funds are required to consummate an initial
transaction that is presented to us. Subject to compliance with applicable
securities laws, we would only consummate such a fund-raising simultaneously
with the consummation of an initial transaction.
We
currently pay Camden Partners Holdings, LLC an aggregate fee of $7,500 per
month
which includes the cost of other general and administrative services provided
to
us by Camden Partners Holdings, LLC.
-33-
Contractual
Obligations
We
did
not have any long term debt, capital lease obligations, operating lease
obligations, purchase obligations or other long term liabilities. We entered
into a Service Agreement with Camden
Partners Holdings, LLC requiring
us to pay $7,500 per month. The agreement terminates on the earlier of the
completion of a business combination or upon our dissolution.
The
Company has entered into an engagement agreement with Morgan Joseph & Co.
Inc. whereby Morgan Joseph & Co. Inc. will provide financial advisory and
investment banking services to the Company. For a more complete discussion
of
this engagement, see below under the section entitled “Item 13 Certain
Relationships and Related Transaction.”
Other
than contractual obligations incurred in the ordinary course of business, we
do
not have any other long-term contractual obligations.
Item
7A. Quantitative and Qualitative Disclosure about Market
Risk.
Market
risk is the sensitivity of income to changes in interest rates, foreign exchange
rates, commodity prices, equity prices, and other market-driven rates or prices.
We are not presently engaged in, and if a suitable business target is not
identified by us prior to the prescribed liquidation of the Trust Account we
may
not engage in, any substantive commercial business. Accordingly, the risks
associated with foreign exchange rates, commodity prices, and equity prices
are
not significant. We have not engaged in any hedging activities with respect
to
the market risk to which we are exposed.
The
total
net proceeds to us from the offering (including $2,800,000 from the sale of
the
insider warrants) before deducting the deferred underwriting discount and
commissions were approximately $53,182,836, and an amount of $52,389,984 was
deposited into the Trust Account, which is maintained by Continental Stock
Transfer & Trust Company, acting as trustee. As of December 31, 2007, the
balance of the Trust Account was $52,543,772. The proceeds held in the Trust
Account will only be invested in short-term debt securities issued by the U.S.
government and its federal agencies to include: U.S. Treasury obligations;
federal agency securities; and repurchase agreements collateralized by the
obligations of the U.S. government and its agencies and instrumentalities.
Thus,
the Company is subject to market risk primarily through the effect of changes
in
interest rates on government securities. Our only material market risk exposure
relates to fluctuations in interest rates. Given our limited risk in our
exposure to money market funds, we do not view the interest rate risk to be
significant.
Item
8. Financial
Statements and Supplementary Data
Reference
is made to pages 42 through 52 comprising a portion of this Annual Report on
Form 10-K.
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
None.
|
Item
9A.
|
Controls
and Procedures.
|
Disclosure
Controls and Procedures
As
of the
end of the period covered by this annual report on Form 10-K, our chief
executive officer and chief financial officer conducted an evaluation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) of the
Securities Exchange Act). Based upon this evaluation, our chief executive
officer and chief financial officer concluded that our disclosure controls
and
procedures are effective in timely alerting them of any material information
relating to us that is required to be disclosed by us in the reports we file
or
submit under the Securities Exchange Act.
Internal
Control over Financial Reporting
This
annual report does not include a report of our management’s assessment regarding
internal control over financial reporting or an attestation report of our
registered public accounting firm due to a transition period established by
rules of the SEC for newly public companies.
-34-
During
the period covered by this report, there have been no significant changes in
our
internal control over financial reporting (as defined in Rule 13-15(f) of the
Securities Exchange Act) that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
Item
9B. Other Information
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
Our
current directors and executive officers are as follows:
|
Name
|
|
Age
|
|
Position
|
|
David
L. Warnock
|
|
50
|
|
President,
Chief Executive Officer and Chairman
|
|
Donald
W. Hughes
|
|
57
|
|
Chief
Financial Officer, Secretary
|
|
Therese
Kreig Crane, Ed.D
|
|
57
|
|
Director
|
|
Ronald
Tomalis
|
|
45
|
|
Director
|
|
William
Jews
|
|
55
|
|
Director
|
David
L. Warnock is
a
partner with Camden Partners and co-founded the firm in 1995. He has over 24
years of investment experience and focuses on investments in the education
and
business and financial services sectors. He serves on the boards of directors
of
American Public Education, Inc., a regionally accredited online post-secondary
university, New Horizons Worldwide, Inc., one of the largest global IT training
companies, Nobel Learning Communities, Inc., a nationwide provider of pre-K
through 8th
grade
private schools and Questar Assessment, Inc., formerly Touchstone Applied
Science Associates which provides testing and assessment services for
standardized testing, all of which are Camden Partners’ portfolio companies. Mr.
Warnock served as the Chairman of Nobel from September 2003 through February
2004. Mr. Warnock has previously served on the boards of Concord Career Colleges
from 1997 thru 2006 and Children’s Comprehensive Services, Inc. from 1993 to
2000. Previously, Mr. Warnock was President of T. Rowe Price Strategic Partners
and T. Rowe Price Strategic Partners II. He was also co-manager of the T. Rowe
Price New Horizons Fund. Mr. Warnock was employed by T. Rowe Price Associates
from 1983 to 1995. Upon forming Camden Partners (formerly known as Cahill,
Warnock & Company) and until December 31, 1997, Mr. Warnock served as a
consultant to the advisory committees of T. Rowe Price Strategic Partners and
T.
Rowe Price Strategic Partners II.
Mr.
Warnock is also involved with numerous non-profit organizations. He is the
Chairman of the Center for Fathers, Families, and Workforce Development, as
well
as Calvert Education Services, the nation's largest non-sectarian home-schooling
organization. He also serves on the board of the National Alliance to End
Homelessness and the University of Wisconsin Applied Security Analysis Program
and is a trustee on the board of the Baltimore Museum of Art. Mr. Warnock earned
a B.A. degree from the University of Delaware and a M.S. (in Finance) from
the
University of Wisconsin. He is a CFA Charterholder.
Donald
W. Hughes
has been
our Chief Financial Officer and Secretary since inception. Since February 1997,
Mr. Hughes has served as Executive Vice President and Chief Financial Officer
of
Camden Partners, Inc. and a member of and Chief Financial Officer of Camden
Partners Holdings, LLC, each of which is an affiliate of Camden Learning, LLC,
Camden Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund
III-A, L.P. Prior to joining Camden in February 1997, Mr. Hughes served as
Vice
President, Chief Financial Officer and Secretary of Capstone Pharmacy Services,
Inc. from December 1995 and as Executive Vice President and Chief Financial
Officer of Broventure Company, Inc., a closely-held investment management
company, from July 1984 to November 1995. Mr. Hughes serves on the boards of
directors of Questar Assessment, Inc., New Horizons Worldwide, Inc. and the
Maryland Food Bank. Mr. Hughes received a B.A. from Lycoming College and an
M.S.F. from Loyola College in Maryland, and is a Certified Public
Accountant.
-35-
Therese
Kreig Crane, Ed.D,
currently serves in various leadership capacities within the education industry,
including as a trustee for the National Education Association Foundation
(2003 - present) and the Western Governors University
(2001 - present), as Chairman of the Board of Directors of Nobel
Learning Communities Inc. (2004 - present) and as a director of
Questia Media, Inc. (2001 - present) and Tutor.com.
(2005 - Present). From 2003 until June 2005, Dr. Crane served on the
board of AlphaSmart, a provider of affordable, portable personal learning
solutions for the K-12 classroom. In August, 2003, she formed Crane Associates
as a sole proprietorship, engaged in the educational technology consulting
practice, advising educational technology companies in business strategy,
marketing, and sales. Dr. Crane was engaged as a retained consultant by
e-Luminate Group in 2003 and currently serves as the Senior Education Advisor.
From 2000 to 2003, Dr. Crane was Vice President, Information and Education
Products at America Online. Prior to that, she was President of Jostens Learning
Corporation and its successor company, Compass Learning. Dr. Crane also held
various positions with Apple Computer, including Senior Vice President,
Education of Americas, and was a corporate officer as Apple Computer’s Senior
Vice President, Worldwide Strategic Market Segments. Dr. Crane started her
career as an elementary school classroom teacher. Dr. Crane has a B.S. in
elementary education and mathematics from the University of Texas at Austin,
an
M.Ed. in early childhood education, and an Ed.D. in administrative leadership
from the University of North Texas.
Ronald
Tomalis
is a
director, owner and co-founder of The Chartwell Educational Group, an
international education consulting firm that serves private, non profit and
governmental organizations focusing on pre-K, K-12 and post-secondary education.
He has served as a director since July 2005. Mr. Tomalis advises education
companies, non profit organizations, and domestic and international education
organizations/agencies on areas of education policy, finance, governance, and
management. Mr. Tomalis also served as a director of ELLIS, Inc from 2005
through 2006. From August 2004 to July 2005, Mr. Tomalis was an independent
consultant. From June 2001 to August 2004, Mr. Tomalis held various senior
positions in the United States Department of Education, including managing
the
implementation of the No Child Left Behind Law as well as the $25 billion Title
I/II programs. Mr. Tomalis also served as counselor to the United States
Secretary of Education and as Acting Assistant Secretary of Elementary and
Secondary Education. For six years prior to joining the United States Department
of Education, Mr. Tomalis was the Executive Deputy Secretary of Education for
the Commonwealth of Pennsylvania. He was appointed to the position by Governor
Tom Ridge in December of 1995. As Executive Deputy Secretary for Education
for
the Commonwealth of Pennsylvania, he took on the role of Chief Operating Officer
for that department. He was also the principal policy advisor to the
Pennsylvania Secretary of Education and spearheaded many of the reform
initiatives proposed by Governor Ridge. Mr. Tomalis graduated from Dickinson
College with a degree in political science.
William
Jews retired
in December 2006. Prior to such time, Mr. Jews was the President and Chief
Executive Officer of CareFirst Inc./CareFirst Blue Cross Blue Shield from 1993
through 2006. With more than $5 billion in annual revenues, CareFirst and its
affiliates and subsidiaries are a combination of not-for-profit and for-profit
entities with nearly 3 million customers, including the nation's largest federal
health program, served by 6,300 associates in five states and the District
of
Columbia. From 1990 through 1993, Mr. Jews was the President and Chief Executive
Officer of Dimensions Health Corporation, a multi-faceted health care
corporation which included two acute care hospitals, a for-profit and
not-for-profit nursing home and an emergency ambulatory/surgical center. Mr.
Jews currently serves on the boards of directors of The Ryland Group, a national
home builder and mortgage provider and Fortress International Group, Inc.,
the
parent company of Total Site Solutions, which supplies industry and government
with secure data centers and other facilities designed to survive terrorist
attacks, natural disasters and blackouts. He also serves on the board of Choice
Hotels International, a worldwide lodging franchisor, including serving on
the
Nominating/Governance and Diversity committees. He has previously been a
director of Ecolab, Inc., MBNA, MuniMae Inc., Nations Bank and Crown Central
Petroleum and is a former governor of the Federal Reserve Bank. Mr. Jews
received a B.A. in Social and Behavioral Science from The Johns Hopkins
University and a Masters in Urban Planning and Policy Analysis, with Health
Administration emphasis from MorganStateUniversity, Baltimore, MD.
Number
and Terms of Office of Directors
Our
board
of directors is divided into two classes with only one class of directors being
elected in each year and each class serving a two-year term. The term of office
of the first class of directors, consisting of Messrs. Warnock and Tomalis,
will
expire at our first annual meeting of stockholders. The term of office of the
second class of directors, consisting of Ms. Crane and Mr. Jews, will expire
at
the second annual meeting.
-36-
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers,
directors and persons who beneficially own more than ten percent of our common
stock to file reports of ownership and changes in ownership with the SEC. These
reporting persons are also required to furnish us with copies of all Section
16(a) forms they file. All of these reports were filed in a timely
manner.
Board
Committees
Our
board
of directors in its entirety will act as the audit committee. We intend to
establish an audit committee and a compensation committee upon consummation
of a
business combination. At that time our board of directors intends to adopt
charters for these committees. Prior to such time we do not intend to establish
either one. Accordingly, there will not be a separate committee comprised of
some members of our board of directors with specialized accounting and financial
knowledge to meet, analyze and discuss solely financial matters concerning
potential target businesses. We do not feel a compensation committee is
necessary prior to a business combination as there is no salary, fees or other
compensation being paid to our officers or directors prior to a business
combination other than as disclosed in this prospectus.
Code
of Conduct
We
have
adopted a code of conduct and ethics applicable to our directors, officers
and
employees in accordance with applicable federal securities laws.
Item
11. Executive Compensation
Executive
Compensation
No
compensation of any kind, including finders and consulting fees, has or will
be
paid to any of our founding stockholders, including all of our officers and
directors, or any of their respective affiliates, prior to, or for any services
they render in order to effectuate, the consummation of a business combination.
However, our existing stockholders will be reimbursed for any out-of-pocket
expenses incurred in connection with activities on our behalf such as
identifying potential target businesses and performing due diligence on suitable
business combinations. There is no limit on the amount of these out-of-pocket
expenses and there will be no review of the reasonableness of the expenses
by
anyone other than our board of directors, which includes persons who may seek
reimbursement, or a court of competent jurisdiction if such reimbursement is
challenged.
Since
our
formation, we have not granted any stock options or stock appreciation rights
or
any awards under long-term incentive plans.
Item
12.
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of December 31, 2007, based on information obtained from the
persons named below, with respect to the beneficial ownership of shares of
our
common stock by:
|
·
|
each
person known by us to be the beneficial owner of more than 5% of
our
outstanding shares
of
common stock;
|
|
|
·
|
each
of our officers and directors; and
|
|
·
|
all
our officers and directors as a
group.
|
Unless
otherwise indicated, we believe that all persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them.
-37-
|
Name
and Address of Beneficial Owner (1)
|
Amount
and Nature of Beneficial Ownership(2)
|
Percentage
of
Class
|
|||||
|
Camden
Learning, LLC(3)
|
1,670,834
|
20.41
|
%
|
||||
|
David
L. Warnock, President, Chief Executive Officer and
Chairman(3)
|
1,670,834
|
20.41
|
% | ||||
|
Donald
W. Hughes, Chief Financial Officer and Secretary(3)
|
1,670,834
|
20.41
|
% | ||||
|
Therese
Kreig Crane, Ed.D, Director
|
34,722
|
.424
|
%
|
||||
|
Ronald
Tomalis, Director
|
34,722
|
.424
|
%
|
||||
|
William
Jews, Director
|
34,722
|
.424
|
%
|
||||
|
Platinum
Partners Value Arbitrage Fund LP(4)
|
500,000
|
6.40
|
%
|
||||
|
North
Star Partners, L.P. (5)
|
450,000
|
5.80
|
%
|
||||
|
North
Star Partners II, L.P. (5)
|
450,000
|
5.80
|
%
|
||||
|
Andrew
R. Jones(5)
|
450,000
|
5.80
|
%
|
||||
|
Millenco
LLC(6)
|
510,000
|
6.5
|
%
|
||||
|
All
directors and executive officers as a group (5
individuals)
|
1,775,000
|
21.68
|
%
|
||||
|
(1)
|
Unless
otherwise indicated, the business address of each of the individuals
is
500 East Pratt Street, Suite 1200, Baltimore, MD 21202 and our telephone
number is (410) 878-6800.
|
|
(2)
|
The
percentage ownership for all executive officers and directors does
not
include the shares of common stock underlying the insider warrants
sold in
the private placement. Such warrants are not currently exercisable
but are
expected to be exercisable on the 90th
day following consummation of our business
combination.
|
|
(3)
|
Camden
Learning, LLC is the sponsor, as described herein. The sole owners
and
members of our sponsor are
Camden Partners Strategic Fund III, L.P. (96.01% ownership of the
sponsor)
and Camden Partners Strategic
Fund III-A, L.P. (3.99% ownership of the sponsor). The general partner
of
each limited partnership is
Camden Partners Strategic III, LLC and the managing member of such
entity
is Camden Partners Strategic Manager,
LLC. David L. Warnock, our President, Chief Executive Officer and
Chairman, Donald W. Hughes, our
Chief Financial Officer and Secretary, Richard M. Johnston and Richard
M.
Berkeley are the four managing
members of Camden Partners Strategic Manager, LLC, which has sole
power to
direct the vote and
disposition of our securities held by the sponsor. Each of Mr. Warnock
and
Mr. Hughes disclaims beneficial
ownership of all shares owned by Camden Learning,
LLC.
|
| (4) |
The
reporting person also owns 500,000 warrants. Such reporting person
is
located at 152 West 57th Street, 54th Floor, New York, NY
10019.
|
| (5) |
Persons
voting as a group as such term is defined in Section 13(d)(3).
Such
reporting persons are located at 274 Riverside Avenue, Westport,
CT 06880.
227,745
shares are directly beneficially owned by North Star Partners,
L.P. and
222,255 shares are directly beneficially owned by North Star Partners
II,
L.P.
|
| (6) |
Based
on information contained in a Statement on Schedule 13G filed by
Millenco
LLC, Millenium Management LLC and Israel A. Englander on December
11,
2007. Millennium Management LLC, a Delaware limited liability company
("Millennium Management"), is the manager of Millenco, and consequently
may be deemed to have shared voting control and investment discretion
over
securities owned by Millenco. Israel A. Englander ("Mr. Englander")
is the
managing member of Millennium Management. As a result, Mr. Englander
may
be deemed to have shared voting control and investment discretion
over
securities deemed to be beneficially owned by Millennium Management.
All
reporting parties have shared voting and dispositive power over
such
securities. The address of all such reporting parties is 666 Fifth
Avenue,
New York, NY 10103.
|
If
holders of more than 20% of the shares sold in the offering vote against a
proposed business combination and seek to exercise their redemption rights
and
such business combination is consummated, our founding stockholders have agreed
to forfeit, on a pro rata basis, and return to us for cancellation, a number
of
the initial 1,562,500 shares of our common stock purchased, up to a maximum
of
112,997 shares, so that the existing stockholders will collectively own no
more
than 23.81% (without regard to any purchase of units in the initial public
offering, any open market purchases or private purchases of units by the sponsor
directly from us, as set forth elsewhere herein) of our outstanding common
stock
immediately prior to the consummation of such business combination after giving
effect to the redemption.
Subject
to the possible forfeiture of shares described above, all of the shares of
our
common stock outstanding prior to the date of our initial public offering were
placed in escrow with Continental Stock Transfer & Trust Company, as escrow
agent, until the earlier of:
|
·
|
one
year following consummation of a business combination;
or
|
|
·
|
the
consummation of a liquidation, merger, stock exchange or other similar
transaction which results in all of our stockholders having the right
to
exchange their shares of common stock for cash, securities or other
property subsequent
to our consummating a business combination with a target
business.
|
During
the escrow period, the holders of these shares will not be able to sell or
transfer their securities except to their spouses and children or trusts
established for their benefit, but will retain all other rights as our
stockholders including, without limitation, the right to vote their shares
of
common stock and the right to receive cash dividends, if declared. If dividends
are declared and payable in shares of common stock, such dividends will also
be
placed in escrow. If we are unable to effect a business combination and
liquidate, none of our existing stockholders will receive any portion of the
liquidation proceeds with respect to common stock owned by them prior to the
date of initial public offering or purchased in the private
placement.
-38-
The
warrants purchased by our sponsor in the private placement contain restrictions
prohibiting their transfer until the earlier of the 90th day following
consummation of a business combination or our liquidation and will be held
in
escrow by Continental Stock Transfer & Trust Company until such
time.
Our
sponsor has entered into an agreement with the representative of the
underwriters pursuant to which it will place limit orders to purchase up to
$4,000,000 of our common stock in the open market commencing ten business days
after we file our current report on Form 8-K announcing our execution of a
definitive agreement for a business combination and ending on the business
day
immediately preceding the date of the meeting of stockholders at which a
business combination is to be approved. Such purchases will be made in
accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as
amended, at a price per share of not more than the per share amount held in
the
trust account (less taxes payable) as reported in such Form 8-K and will be
made
by a broker-dealer mutually agreed upon by our sponsor and the representative
of
the underwriters in such amounts and at such times as such broker-dealer may
determine, in its sole discretion, so long as the purchase price does not exceed
the above-referenced per share purchase price. Our sponsor has agreed to vote
all such shares of common stock purchased in the open market in favor of our
initial business combination, representing a maximum aggregate of 8% of the
shares entitled to vote on any proposed business combination. Unless a business
combination is approved by our stockholders, our sponsor has agreed not to
sell
such shares, provided it will be entitled to participate in any liquidating
distributions with respect to the shares purchased in the open market. In the
event our sponsor does not purchase $4,000,000 of our common stock through
those
open market purchases, our sponsor has agreed to purchase from us in a private
placement a number of units identical to the units offered hereby at a purchase
price of $8.00 per unit until it has spent an aggregate of $4,000,000 in the
open market purchases described above and this co-investment. This co-investment
will occur immediately prior to our consummation of a business combination,
which will not occur until after the signing of a definitive business
combination agreement and the approval of that business combination by a
majority of our public stockholders. Our sponsor, whose sole owners are the
Camden III Funds, has agreed to such purchases because the managing members
of
the general partner of the Camden III Funds, including David L. Warnock, our
Chairman, President and Chief Executive Officer and Donald W. Hughes, our Chief
Financial Officer and Secretary, want the Camden III Funds to have a substantial
cash investment in us, including any target business we may acquire. All of
our
directors will be deemed to be our “parents” and “promoters” as these terms are
defined under the federal securities laws.
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Certain
Relationships and Related Transactions
In
April
2007, we issued 1,125,500 shares of our common stock as set forth below for
an
aggregate amount of $25,000 in cash, at an average purchase price of
approximately $0.02 per share, as follows:
|
Name
|
Number
of Shares
|
Relationship
to Us
|
|||||
|
Camden
Learning, LLC
|
1,000,000
|
Sponsor.
Donald W. Hughes and David L. Warnock are among the four managing
members
of the managing member of Camden Learning, LLC.
|
|||||
|
Jack
L. Brozman
|
25,000
|
Director
|
|||||
|
Therese
Kreig Crane, Ed.D
|
25,000
|
Director
|
|||||
|
Ronald
Tomalis
|
25,000
|
Director
|
|||||
|
William
Jews
|
25,000
|
Director
|
|||||
|
Harry
T. Wilkins
|
25,000
|
Director
|
|||||
On
July
3, 2007, Mr. Wilkins resigned as a director and transferred, for a purchase
price of $.02 per share, an aggregate of 25,000 shares of common stock to Camden
Learning, LLC such that our current share ownership is as reflected in the
section entitled “Principal Stockholders.”
On
August
27, 2007, Mr. Brozman resigned as a director and transferred, for a purchase
price of $.02 per share, an aggregate of 25,000 shares of common stock to Camden
Learning, LLC such that our current share ownership is as reflected in the
section entitled “Principal Stockholders.”
-39-
Effective
November 20, 2007, our board of directors authorized a forward stock split
in
the form of a stock dividend of 0.3888888 shares of common stock for each
outstanding share of common stock, effectively lowering the purchase price
to
approximately $0.016 per share.
The
holders of the majority of these shares will be entitled to require us, on
up to
two occasions, to register these shares pursuant to an agreement signed prior
to
the effective date of the prospectus. The holders of the majority of these
shares may elect to exercise these registration rights at any time after the
date on which these shares of common stock are released from escrow, which,
except in limited circumstances, is not before one year from the consummation
of
a business combination. In addition, these stockholders have certain
“piggy-back” registration rights on registration statements filed subsequent to
the date on which these shares of common stock are released from escrow. We
will
bear the expenses incurred in connection with the filing of any such
registration statements.
Our
sponsor purchased 2,800,000 warrants from us at a purchase price of $1.00 per
warrant in a private placement pursuant to Regulation D of the Securities Act.
We have granted the holders of such warrants demand and “piggy-back”
registration rights with respect to the warrants and shares of common stock
underlying such warrants at any time commencing on the date we announce we
have
entered into a letter of intent with respect to a proposed business combination,
provided, however, any such registration will not become effective prior to
completion of our initial business combination. The demand registration may
be
exercised by the holders of a majority of such warrants. We will bear the
expenses incurred in connection with the filing of any such registration
statements. The insider warrants will not be subject to redemption and may
be
exercised on a “cashless” basis if held by the initial holder thereof or its
permitted assigns.
In
order
to protect the amounts held in the trust account, our sponsor has agreed to
indemnify us for claims of any vendors, service providers, prospective target
businesses or creditors that have not executed a valid and binding waiver of
any
right or claim to the amounts in trust account. As further assurance our sponsor
will have the necessary funds required to meet these indemnification
obligations, (i) the Camden III Funds have agreed, under our sponsor’s limited
liability company agreement, to make capital contributions to our sponsor as
and
when required in order for the sponsor to fulfill its indemnification
obligations and (ii) our sponsor has agreed to take all such action reasonably
necessary to request its members make such capital contributions. Additionally,
in the event either of the Camden III Funds undertakes a liquidating
distribution while the indemnification obligations of the sponsor are
outstanding, they have agreed, in our sponsor’s limited liability company
agreement, to use reasonable efforts to set aside from such distribution,
adequate reserves to cover the reasonably anticipated liabilities which may
be
incurred by our sponsor. We and the representative of the underwriters are
named
as express third party beneficiaries in and with respect to the provisions
of
our sponsor’s limited liability company agreement which require the Camden III
Funds to make such capital contributions and establish such reserves. Although
we have a fiduciary obligation to pursue the sponsor to enforce its
indemnification obligations, and intend to pursue such actions as and when
we
deem appropriate, there can be no assurance it or the Camden III Funds will
be
able to satisfy those obligations, if required to do so.
During
2007, our sponsor has loaned us a total of $200,000, which was used to pay
a
portion of the expenses of the offering, such as SEC registration fees, FINRA
registration fees, blue sky fees and certain legal and accounting fees and
expenses. This loan was repaid, with interest on December 5, 2007.
We
maintain executive offices at 500 East Pratt Street, Suite 1200, Baltimore,
MD
21202 and our telephone number is (410) 878-6800. The cost for this space is
included in the $7,500 per month fee Camden Partners Holdings, LLC charges
us
for general and administrative services, including but not limited to
receptionist, secretarial and general office services, pursuant to a letter
agreement between us and Camden Partners Holdings, LLC. This agreement commenced
on November 29, 2007 and shall continue until the earliest to occur of: (i)
consummation of a business combination, (ii) 24 months after the completion
of
the offering if no business combination has been consummated and (iii) the
date
on which we cease our corporate existence in accordance with our amended and
restated certificate of incorporation. We believe, based on fees for similar
services in the greater Baltimore, Maryland metropolitan area, that the fee
charged by Camden Partners Holdings, LLC is at least as favorable as we could
have obtained from an unaffiliated person.
We
will
reimburse our officers and directors for any reasonable out-of-pocket business
expenses incurred by them in connection with certain activities on our behalf
such as identifying and investigating possible target businesses and business
combinations. There is no limit on the amount of accountable out-of-pocket
expenses reimbursable by us, which will be reviewed only by our board or a
court
of competent jurisdiction if such reimbursement is challenged.
-40-
Other
than the reimbursable out-of-pocket expenses payable to our officers and
directors, no compensation or fees of any kind, including finders and consulting
fees, will be paid to any of our founding stockholders, officers or directors
who owned our common stock prior to the offering, or to any of their respective
affiliates for services rendered to us prior to or with respect to the business
combination.
Our
Initial Stockholders will not receive reimbursement for any out-of- pocket
expenses incurred by them to the extent that such expenses exceed the amount
in
the trust account unless the business combination is consummated and there
are
sufficient funds available for reimbursement after such consummation. The
financial interest of such persons could influence their motivation in selecting
a target business and thus, there may be a conflict of interest when determining
whether a particular business combination is in the stockholders’ best
interest.
After
the
consummation of a business combination, if any, to the extent our management
remains as officers of the resulting business, we anticipate that our officers
and directors may enter into employment or consulting agreements, the terms
of
which shall be negotiated and which we expect to be comparable to employment
or
consulting agreements with other similarly-situated companies in the industry
in
which we consummate a business combination. Further, after the consummation
of a
business combination, if any, to the extent our directors remain as directors
of
the resulting business, we anticipate that they will receive compensation
comparable to directors at other similarly-situated companies in the industry
in
which we consummate a business combination.
Director
Independence
All
ongoing and future transactions between us and any of our officers and directors
or their respective affiliates, including loans by our officers and directors,
will be on terms believed by us to be no less favorable than are available
from
unaffiliated third parties and such transactions or loans, including any
forgiveness of loans, will require prior approval in each instance by a majority
of our uninterested “independent” directors or the members of our board who do
not have an interest in the transaction, in either case who had access, at
our
expense, to our attorneys or independent legal counsel.
Under
the
policies of the North American Securities Administrators Association, Inc.,
an
international organization devoted to investor protection, because each of
our
directors own shares of our common stock and may receive reimbursement for
out-of-pocket expenses incurred by them in connection with activities on our
behalf, such as identifying potential target businesses and performing due
diligence on suitable business combinations, state securities administrators
could take the position such individual is not “independent.”
Item
14.
Principal
Accountant Fees and Services.
During
the fiscal year ended December 31, 2007, the firm of Eisner LLP which we
refer to as Eisner, was our principal accountant. Eisner conducts the audit,
and
is exclusively responsible for the opinion rendered in connection with its
examination. The following is a summary of fees paid or to be paid to Eisner
for
services rendered.
Audit
Fees.
Audit
fees consist of fees billed for professional services rendered for the audit
of
our year-end financial statements and services that are normally provided by
Eisner in connection with regulatory filings. We expect to be billed
approximately $35,000 in connection with our December 31, 2007 year end
audit.
Audit-Related
Fees.
Audit-related services consist of fees billed for assurance and related services
that are reasonably related to performance of the audit or review of our
financial statements and are not reported under “Audit Fees.” These services
include attest services that are not required by statute or regulation and
consultations concerning financial accounting and reporting standards. There
were no fees billed for audit-related services rendered by Eisner.
Tax
Fees.
Fees
for professional services rendered by Eisner for tax compliance, tax planning
and tax advice for the fiscal year ended December 31, 2007 are expected to
be
approximately $10,000.
All
Other Fees.
Auditing services provided by Eisner in regards to our initial public offering
totaled $135,000.
-41-
PART
IV
Item
15. Exhibits and Financial Statement Schedules.
CAMDEN
LEARNING CORPORATION
(a
corporation in the development state)
Financial
Statements
for
the
period from April 10, 2007 (inception) to December 31, 2007
Contents
Audited
Financial Statements:
|
Report
of Independent Registered Public Accounting Firm
|
43
|
|
Balance
Sheet as of December 31, 2007
|
44
|
|
Statement
of Operations for the period from April 10, 2007 (inception) to
December
31, 2007
|
45
|
|
Statement
of Stockholders’ Equity for the period from April 10, 2007 (inception) to
December 31, 2007
|
46
|
|
Statement
of Cash Flows for the period from April 10, 2007 (inception) to
December
31, 2007
|
47
|
|
Notes
to Financial Statements for the period from April 10, 2007 (inception)
to
December 31, 2007
|
48
|
-42-
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Directors and Stockholders
Camden
Learning Corporation
We
have
audited the accompanying balance sheet of Camden Learning Corporation, a
corporation in the development stage (the “Company”), as of December 31, 2007,
and the related statements of operations, stockholders' equity and cash flows
for the period from April 10, 2007 (inception) through December 31, 2007.
These
financial statements are the responsibility of the Company's management.
Our
responsibility is to express an opinion on these financial statements based
on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform
an
audit of the Company's internal control over financial reporting. Our audit
includes consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting
the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Camden Learning Corporation
as of
December 31, 2007, and the results of its operations and its cash flows for
the
period from April 10, 2007 (inception) through December 31, 2007 in conformity
with accounting principles generally accepted in the United States of
America.
Eisner
LLP
/s/
Eisner LLP
New
York,
New York
March
27,
2008
-43-
Camden
Learning Corporation
(a
corporation in the development stage)
Balance
Sheet
December
31, 2007
|
Assets
|
||||
|
Current
assets:
|
||||
|
Cash
and cash equivalents
|
$
|
858,347
|
||
|
Total
current assets
|
858,347
|
|||
|
Restricted
funds held in trust
|
52,543,772
|
|||
|
Deferred
tax asset
|
19,141
|
|||
|
Total
assets
|
$
|
53,421,260
|
||
|
Liabilities
and Stockholders’ Equity
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable and accrued expenses
|
$
|
104,656
|
||
|
Income
tax payable
|
47,009
|
|||
|
Total
current liabilities
|
151,665
|
|||
|
Deferred
underwriting compensation
|
1,590,312
|
|||
|
Total
liabilities
|
1,741,977
|
|||
|
Commitments
|
||||
|
Common
stock, subject to possible redemption 1,987,889 shares
|
15,744,081
|
|||
|
Stockholders’
equity
|
||||
|
Preferred
Stock, $.0001 par value, 1,000,000 shares
|
||||
|
authorized;
none issued or outstanding
|
—
|
|||
|
Common
Stock, $.0001 par value, 20,000,000 shares
|
||||
|
authorized;
8,188,800 shares issued and outstanding
|
||||
|
(less
1,987,889 shares subject to possible redemption)
|
620
|
|||
|
Additional
paid-in capital
|
35,890,392
|
|||
|
Retained
earnings accumulated during the development stage
|
44,190
|
|||
|
Total
stockholders’ equity
|
35,935,202
|
|||
|
Total
liabilities and stockholders’ equity
|
$
|
53,421,260
|
The
accompanying notes are an integral part of the financial
statements.
-44-
Camden
Learning Corporation
(a
corporation in the development stage)
Statement
of Operations
For
the period from April 10, 2007 (inception) to December 31,
2007
|
Operating
expenses:
|
||||
|
Operating
and formation expenses
|
$
|
59,547
|
||
|
Loss
from operations
|
(59,547
|
)
|
||
|
Other
income:
|
||||
|
Interest
income, net of expense of $23,556
|
131,605
|
|||
|
Income
before provision for taxes
|
72,058
|
|||
|
Provision
for income taxes
|
(27,868
|
)
|
||
|
Net
income
|
$
|
44,190
|
||
|
Net
income per share
|
||||
|
Basic
|
$ |
0.07
|
||
|
Diluted
|
$ |
0.06
|
||
|
Weighted
average shares outstanding
|
||||
|
Basic
|
655,252
|
|||
|
Diluted
|
797,280
|
|||
The
accompanying notes are an integral part of the financial
statements.
-45-
Camden
Learning Corporation
(a
corporation in the development stage)
Statement
of Stockholders’ Equity
For
the period from April 10, 2007 (inception) to December 31,
2007
|
|
|
Common
Stock
|
|
Additional
Paid-
|
|
Retained
Earnings
Accumulated
During
the
Development
|
|
Total
Stockholders’
|
||||||||
|
Shares
|
Amount
|
In
Capital
|
Stage
|
Equity
|
||||||||||||
|
Initial
capital from founding stockholders
|
1,562,500
|
$
|
156
|
$
|
24,844
|
$
|
—
|
$
|
25,000
|
|||||||
|
Sale
of private placement warrants
|
—
|
—
|
2,800,000
|
—
|
2,800,000
|
|||||||||||
|
Sale
of 6,626,300 units, net of underwriters’ discount and offering expenses of
$507,248 (including 1,987,889 shares subject to possible
redemption)
|
6,626,300
|
663
|
48,791,861
|
—
|
48,792,524
|
|||||||||||
|
Net
proceeds subject to possible redemption of 1,987,889
shares
|
(199
|
)
|
(15,743,882
|
)
|
(15,744,081
|
)
|
||||||||||
|
Discount
on note payable to affiliate
|
—
|
—
|
17,569
|
—
|
17,569
|
|||||||||||
|
Net
income
|
—
|
—
|
—
|
44,190
|
44,190
|
|||||||||||
|
Balance
at December 31, 2007
|
8,188,800
|
$
|
620
|
$
|
35,890,392
|
$
|
44,190
|
$
|
35,935,202
|
|||||||
The
accompanying notes are an integral part of the financial
statements.
-46-
Camden
Learning Corporation
(a
corporation in the development stage)
Statement
of Cash Flows
For
the period from April 10, 2007 (inception) to December 31,
2007
|
Cash
flows from operating activities:
|
||||
|
Net
income
|
$
|
44,190
|
||
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||
|
Accretion
of interest on note payable
|
17,569
|
|||
|
Deferred
income taxes
|
(19,141
|
)
|
||
|
Changes
in assets and liabilities
|
||||
|
Increase
in accrued expenses and accounts payable
|
48,478
|
|||
|
Increase
in income taxes payable
|
47,009
|
|||
|
Net
cash provided by operating activities
|
138,105
|
|||
|
Cash
flows from investing activities:
|
||||
|
Restricted
funds held in trust account
|
(52,543,772
|
)
|
||
|
Cash
flows from financing activities:
|
||||
|
Proceeds
from sale of stock to initial stockholders
|
25,000
|
|||
|
Proceeds
from note payable to affiliate
|
200,000
|
|||
|
Repayment
of note payable to affiliate
|
(200,000
|
)
|
||
|
Proceeds
from public offering
|
50,439,014
|
|||
|
Proceeds
from issuance of warrants
|
2,800,000
|
|||
|
Net
cash provided by financing activities
|
53,264,014
|
|||
|
Net
increase in cash
|
858,347
|
|||
|
Cash
and cash equivalents at beginning of period
|
-
|
|||
|
Cash
and cash equivalents at end of period
|
$
|
858,347
|
||
|
Supplemental
Disclosures:
|
||||
|
Non-cash
financing activities:
|
||||
|
Deferred
underwriting compensation
|
$
|
1,590,312
|
||
|
Accounts
payable and accrued offering expenses
|
$
|
56,178
|
||
The
accompanying notes are an integral part of the financial
statements.
-47-
Camden
Learning Corporation
(a
corporation in the development stage)
Notes
to Financial Statements
Note
1 - Organization and Nature of Business Operations
Camden
Learning Corporation (the “Company”) is a blank check company incorporated in
the state of Delaware on April 10, 2007 for the purpose of effecting a merger,
capital stock exchange, stock purchase, asset acquisition or other similar
business combination with one or more operating businesses in the education
industry. In April 2007, the Company issued 1,562,500 shares of common stock
to
the Initial Stockholders for an aggregate amount of $25,000. The Company is
20.4% owned by Camden Learning, LLC, whose members are Camden Partners Strategic
Fund III, LP and Camden Partners Strategic Fund III-A, LP (see Note
4).
At
December 31, 2007, the Company had not commenced any operations. All activity
through December 31, 2007 relates to the Company’s formation, initial public
offering (the “Offering”) and efforts to identify prospective target businesses
described below and in Note 3. The Company has selected December 31 as its
fiscal year end.
The
financial statements give retroactive effect to a common stock split in the
form
of a stock dividend of 0.3888888 shares of common stock for each outstanding
share of common stock declared and paid as of November 20, 2007.
The
registration statement for the Offering was declared effective November 29,
2007. The Company consummated the Offering on December 5, 2007 and received
proceeds of $45,992,852, net of underwriting discounts and commissions of
$3,500,000 (including $1,500,000 of deferred underwriting discounts and
commissions placed in the trust account pending completion of a business
combination). In addition, on December 19, 2007 the underwriters for the
Offering exercised a portion of their over-allotment option, generating proceeds
of $2,799,672, net of underwriting discounts and commissions of $210,728
(including $90,312 of deferred underwriting discounts and commissions placed
in
the trust account pending completion of a business combination). The Company’s
management has broad discretion with respect to the specific application of
the
net proceeds of the Offering, although substantially all of the net proceeds
of
the Offering are intended to be applied toward effecting a merger, capital
stock
exchange, stock purchase, asset acquisition or other similar business
combination with one or more operating businesses in the education industry.
As
used herein, a “Business Combination” shall mean the merger, capital stock
exchange, asset acquisition or other similar business combination with one
or
more operating businesses in the education industry having, collectively, a
fair
market value of at least 80.0% of the amount in the Company’s trust account,
less the deferred underwriting discount and commissions and taxes payable at
the
time of such transaction.
The
trust
account is maintained by Continental Stock Transfer & Trust Company, as
Trustee, and is invested in the Morgan Stanley Government Institutional Fund.
The portfolio invests in short-term debt securities issued by the U.S.
government and its federal agencies, including: U.S. Treasury obligations;
federal agency securities; and repurchase agreements collateralized by the
obligations of the U.S. government and its agencies and
instrumentalities.
-48-
Upon
the
closing of the Offering, the Over-Allotment Option Exercise by the underwriters
and the private placement of warrants (see Note 4), $52,389,984 was placed
in a
trust account invested until the earlier of (i) the consummation of the
Company’s initial Business Combination or (ii) the dissolution of the Company.
The proceeds in the trust account include the deferred underwriting discount
of
$1,590,312 that will be released to the underwriters if the initial Business
Combination is completed (subject to a $0.24 per share reduction for public
stockholders who exercise their redemption rights). Interest (after taxes)
earned on assets held in the trust account will remain in the trust. However,
up
to $600,000 of the interest earned on the trust account, and amounts required
for payment of taxes on interest earned, may be released to the Company to
cover
a portion of the Company’s operating expenses and expenses incurred in
connection with the Company’s dissolution and liquidation, if a Business
Combination is not consummated.
The
Company will seek stockholders’ approval before it will effect the initial
Business Combination. In connection with the stockholder vote required to
approve the initial Business Combination, the Company’s holders of common stock
prior to the Offering including all of the Company’s officers and directors,
have agreed to vote the shares of common stock owned by them prior to the
Offering in accordance with the majority of the shares of common stock voted
by
the Public Stockholders. “Public Stockholders” is defined as the holders of
common stock sold as part of the units in the Offering or in the aftermarket.
The Company will proceed with the initial Business Combination only if a
majority of the shares of common stock voted by the Public Stockholders are
voted in favor of such Business Combination and Public Stockholders owning
less
than 30% of the shares sold in the Offering exercise their right to convert
their shares into a pro rata share of the aggregate amount then on deposit
in
the trust account. If a majority of the shares of common stock voted by the
Public Stockholders are not voted in favor of a proposed initial Business
Combination but 24 months has not yet passed since the date of the prospectus,
the Company may combine with another Target Business meeting the fair market
value criterion described above.
Public
Stockholders voting against a Business Combination will be entitled to redeem
their stock for a pro rata share of the total amount on deposit in the trust
account including the $0.24 per share deferred underwriter’s compensation, and
including any interest earned net of income taxes on their portion of the trust
account, net of up to $600,000 of the interest less income taxes thereon earned
on the trust account which may be released to the Company to cover a portion
of
the Company’s operating expenses. Public Stockholders who convert their stock
into their share of the trust account will continue to have the right to
exercise any Warrants they may hold.
If
holders of more than 20% of the shares sold in the Offering vote against a
proposed Business Combination and seek to exercise their redemption rights
and
the Business Combination is consummated, the Company’s initial stockholders have
agreed to forfeit, on a pro rata basis, a number of the initial 1,562,500 shares
of the Company’s common stock purchased, up to a maximum of 112,997 shares, so
that the initial stockholders will collectively own no more than 23.81% (without
regard to any purchase of units in the Offering, any open market purchases
or
private purchases of units directly from the Company) of the Company’s
outstanding common stock immediately prior to the consummation of the Business
Combination.
The
Company’s amended and restated certificate of incorporation filed with the State
of Delaware includes a requirement that the initial Business Combination be
presented to Public Stockholders for approval; a prohibition against completing
a Business Combination if 30% or more of the Company’s Public Stockholders
exercise their redemption rights in lieu of approving a Business Combination;
a
provision giving Public Stockholders who vote against a Business Combination
the
right to redeem their shares for a pro rata portion of the trust account in
lieu
of participating in a proposed Business Combination; and a requirement that
if
the Company does not consummate a Business Combination within 24 months from
the
date of the prospectus for the Offering, the Company will dissolve and
liquidate, including liquidation of the trust account for the benefit of the
Public Stockholders. The amended and restated certificate of incorporation
includes a limitation on the Company’s corporate existence of November 29,
2009.
-49-
The
Company will dissolve and promptly distribute only to its Public Stockholders
the amount in the trust account, less any income taxes payable on interest
income, plus any remaining net assets if the Company does not effect a Business
Combination within 24 months after consummation of the Offering.
In
the
event of dissolution, it is likely that the per share value of the residual
assets remaining available for distribution (including trust account assets)
will be less than the initial public offering price per share in the Offering
(assuming no value is attributed to the Warrants contained in the units in
the
Offering discussed in Note 3).
The
Company’s initial stockholders placed the shares they owned before the Offering
into an escrow account, and with limited exceptions, these shares will not
be
transferable and will not be released from escrow until one year after
consummation of a Business Combination. If the Company is forced to dissolve or
liquidate, these shares will be cancelled. Additionally, the insider warrants
(see Note 4) have been placed into the escrow account, and subject to limited
exceptions, will not be transferable and will not be released from escrow until
the 90th
day
following the completion of a Business Combination. The compensatory portion
of
the escrowed shares, generally shares held by or attributable to officers and
directors, will be recognized as a charge to income in the period in which
a
Business Combination is consummated, based upon the price of the units in the
Company’s Initial Public Offering. The escrowed warrants were issued at or above
fair value, and will not generate a charge to income upon their release from
escrow.
Note
2 - Summary of Significant Accounting Policies
Income
per Common Share
Basic
net
income per common share is computed by dividing net income by the weighted
average number of common shares outstanding for the period, exclusive of
1,562,500 shares which have been placed into an escrow account, the release
of
which is contingent upon the completion of a Business Combination. Diluted
net
income per common share includes the dilutive effect of shares issuable pursuant
to the Company’s outstanding warrants which are exercisable on the later of (i)
the completion of a Business Combination or (ii) one year after consummation
of
the Company’s Initial Public Offering, but excludes the effect of 2,800,000
warrants issued in the private placement which are in escrow.
|
Weighted
average shares outstanding for computation of basic per share
results
|
655,252
|
|||
|
Incremental
shares from assumed exercise of warrants
|
142,028
|
|||
|
Weighted
average shares for computation of diluted per share
results
|
797,280
|
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 expenses during the
reporting period. Actual results could differ from those estimates.
Cash
and cash equivalents
The
Company considers all highly liquid investments with an original maturity
of
three months or less to be cash equivalents.
Income
Taxes
Deferred
income taxes are provided for the differences between the bases of assets and
liabilities for financial reporting and income tax purposes. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.
-50-
Recently
issued accounting pronouncements
In
July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which addresses
the accounting for uncertainty in income taxes recognized in the financial
statements in accordance with FASB Statement No. 109, “Accounting for Income
Taxes.” FIN 48 provides guidance on the financial statement recognition and
measurement of a tax position taken on the Company’s tax return. FIN 48 also
provides guidance on classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for interim
periods of fiscal years beginning after December 15, 2006. Adoption of Fin
48
did not have a material impact on the Company’s financial position or results of
operations. The Company intends to classify any future expense for income tax
related interest and penalties as component of tax expense.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the
principle that fair value should be based on the assumptions market participants
would use when pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions.
Under the standard, fair value measurements would be separately disclosed by
level within the fair value hierarchy. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years, with early adoption permitted. The
Company does not believe that SFAS No. 157 would have a material effect on
the
accompanying financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” including an amendment of FASB
Statement 115. This statement provides companies with an option to report
selected financial assets and liabilities at fair value. This statement is
effective for fiscal years beginning after November 15, 2007 with early adoption
permitted. The Company is assessing SFAS No. 159 and has not yet determined
the
impact that the adoption of SFAS No. 159 will have on its results of operations
or financial position.
Note
3 - Initial Public Offering
On
December 5, 2007, the Company sold to the public 6,250,000 units (“Units”) at a
price of $8.00 per unit. Each Unit consists of one share of the Company’s common
stock, $.0001 par value, and one warrant. Each warrant will entitle the holder
to purchase from the Company one share of common stock at an exercise price
of
$5.50 commencing the later of the completion of a Business Combination with
a
Target Business or one year from the date of the prospectus for the Offering
and
expiring four years from the date of the prospectus, unless earlier redeemed.
The warrants will be redeemable at the Company’s option, at a price of $0.01 per
warrant upon 30 days’ written notice after the warrants become exercisable, only
in the event that the last price of the common stock is at least $11.50 per
share for any 20 trading days within a 30 trading day period ending on the
third
business day prior to the date on which notice of redemption is
given.
In
accordance with the Warrant Agreement related to the warrants (the “Warrant
Agreement”), the Company is only required to use its best efforts to effect the
registration of the shares of common stock underlying 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 exercise.
Additionally,
in the event that a registration statement is not effective at the time of
exercise, the holder of a 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.
On
December 19, 2007 the Company sold an additional 376,300 Units pursuant to
the
Over-Allotment Option Exercise.
-51-
The
Company sold to the underwriters, for $100, an option to purchase up to a total
of 625,000 units exercisable on a cashless basis at $9.60 per unit commencing
one year from the date of the prospectus and expiring five years from the date
of the prospectus. The units issuable upon exercise of this option are identical
to those that were sold in the Offering, except that the warrants in these
units
have an exercise price of $6.71. The sale of the option was accounted for as
a
cost attributable to the Offering. Accordingly, there was no net impact on
the
Company’s financial position or results of operations, except for the recording
of the $100 proceeds from the sale. The Company has estimated, based upon a
Black-Scholes model, that the fair value of the option on the date of sale
would
be approximately $2,430,000, using an expected life of five years, volatility
of
59.4%, and a risk-free interest rate of 3.08%. However, because the units do
not
have a trading history, the volatility assumption is based on information
currently available to the Company. The Company believes the volatility estimate
calculated is a reasonable benchmark to use in estimating the expected
volatility of the units. The volatility calculation is based on the most recent
trading day average volatility of publicly traded companies providing
educational services with market capitalizations less than $500 million.
Although an expected life of five years was used in the calculation, if the
Company does not consummate a Business Combination within the prescribed time
period and automatically dissolves and subsequently liquidates the trust
account, the option will become worthless.
Note
4 - Note Payable to Affiliate and Related Party
Transactions
The
Company issued a $200,000 unsecured promissory note to Camden Learning, LLC,
an
affiliate, on April 26, 2007. The note was interest bearing at an annual rate
of
4.9% and both principal and interest were payable on the earlier of April 26,
2008 or the consummation of the Offering of the Company. The note was fully
repaid on December 5, 2007 and no further amounts are due.
On
April
26, 2007 the note was recorded as a liability in the amount of $182,431, net
of
a discount in the amount of $17,569, which has been credited to additional
paid-in capital, based on an imputed interest rate of 15% per annum. The $17,569
discount was accreted by charges to interest expense over the term of the note
using the interest method. The amount of interest expense recorded through
December 5, 2007 totaled $23,556, including amounts accrued at 4.9% per annum.
In its computations of the discount on the note, the Company considered that
the
loan was unsecured, the Company had no operations and the Company would be
able
to repay the loan only in the event of a successful public offering, as to
which
there could be no assurance. In making its computation, the Company also
considered the related party nature of the note, the below-market stated
interest rate, the equity-like risks associated with the note and the higher
interest rates commonly associated with bridge financings.
The
Company has agreed to pay up to $7,500 a month in total for certain general
and
administrative services, including but not limited to receptionist, secretarial
and general office services, to Camden Partners Holdings, LLC. Services
commenced on November 29, 2007 and will terminate upon the earlier of (i) the
completion of the Company’s Business Combination or (ii) the Company’s
dissolution.
On
November 29, 2007, Camden Learning, LLC purchased warrants to purchase 2,800,000
shares of Common Stock from the Company at a price of $1.00 per warrant for
a
total of $2,800,000 in a private placement prior to the completion of the
Offering.
The
terms
of these warrants are identical to the terms of the warrants issued in the
Offering, except that these insider warrants will not be subject to redemption
and may be exercised on a cashless basis, in each case if held by the initial
holder thereof or its permitted assigns, and may not be sold, assigned or
transferred prior to the 90th
day
following consummation of a Business Combination. The holder of these insider
warrants will not have any right to any liquidation distributions with respect
to shares underlying these warrants if the Company fails to consummate a
Business Combination, in which event these warrants will expire worthless.
Camden
Learning, LLC has agreed to indemnify the Company for claims of creditors that
have not executed a valid and binding waiver of their rights to seek payments
of
amounts due to them out of the trust account. The Company believes the
likelihood of Camden Learning, LLC having to indemnify the trust account is
minimal.
-52-
The
Company’s principal stockholder has entered into an agreement with the
underwriter pursuant to which it will place limit orders to purchase up to
an
additional $4,000,000 of the Company’s common stock in the open market
commencing the later of (i) ten business days after the Company files its
current report on Form 8-K announcing its execution of a definitive agreement
for a Business Combination and (ii) 60 calendar days after the end of the
restricted period in connection with the Offering, as defined under the
Securities Exchange Act of 1934, and ending on the business day preceding the
record date of the stockholders’ meeting at which a Business Combination is to
be approved. In the event the Company’s principal stockholder does not purchase
$4,000,000 of the Company’s common stock in the open market, the stockholder has
agreed to purchase from the Company in a private placement a number of units
identical to the units to be sold in the Offering at a purchase price of $8.00
per unit until it has spent, together with the aforementioned open market
purchases, an aggregate of $4,000,000 for purchase of the Company’s common
stock.
Note
5 - Common Stock Subject to Possible Redemption
The
Company will not proceed with a Business Combination if Public Stockholders
owning 30% or more of the shares sold in the Offering vote against the Business
Combination and exercise their redemption rights. Accordingly, the Company
may
effect a Business Combination only if stockholders owning one share less than
30% of the shares sold in this Offering exercise their redemption rights. If
this occurred, the Company would be required to redeem for cash up to one share
less than 30% of the 6,626,300 shares of common stock sold in the Offering,
or
1,987,889 shares of common stock, at a per-share redemption price of $7.92
(plus
a portion of the interest earned on the trust account, but net of (i) taxes
payable on interest earned and (ii) up to $600,000 of interest income released
to the Company to fund its working capital), which includes $0.24 per share
of
deferred underwriting discount and commissions which the underwriters have
agreed to forfeit to pay redeeming stockholders.
The
actual per-share redemption price will be equal to:
|
·
|
the
initial amount in the trust account ($7.92 per share) which includes
the
amount attributable to deferred underwriting discounts and commissions
and
including all accrued interest (less taxes payable and up to $600,000
of
interest income released to the Company to fund its working capital),
as
of two business days prior to the proposed consummation of the Business
Combination, divided by
|
|
·
|
the
number of shares of common stock sold in the
Offering.
|
Note
6 - Preferred Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined
from
time to time by the Board of Directors.
Note
7 - Income Taxes
The
Company’s provision for income taxes consists of:
|
Current
|
||||
|
Federal
|
$
|
37,859
|
||
|
State
|
9,150
|
|||
|
Deferred
|
(19,141
|
)
|
||
|
$
|
27,868
|
-53-
The
difference between the actual income tax expense and that computed by applying
the U.S. federal income tax rate of 27% to pretax income from operations is
summarized below:
|
Computed
expected tax expense
|
27
|
%
|
||
|
Permanent
differences
|
7
|
%
|
||
|
State
income tax net of federal benefit
|
5
|
%
|
||
|
Effective
tax rate
|
39
|
%
|
Company
is considered to be in the development stage for income tax reporting purposes.
Federal income tax regulations require that the Company defer substantially
all
of its operating expenses for tax purposes until the Company begins business
operations. Therefore, the Company has recorded a deferred income tax asset
of
$19,141. The Company believes that it is more likely than not that it will
be
able to realize this deferred tax asset in the future and, therefore, it
has not
provided a valuation allowance against this deferred tax asset.
-54-
Exhibits.
We
hereby
file as part of this Annual Report on Form 10-K the Exhibits listed in the
attached Exhibit Index. Exhibits which are incorporated herein by reference
can
be inspected and copied at the public reference facilities maintained by the
SEC, 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of such
material can also be obtained from the Public Reference Section of the SEC,
100
F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC
website at www.sec.gov.
|
Exhibit
No.
|
Description
|
|
|
|
||
|
1.1
|
|
Form
of Underwriting Agreement. *
|
|
3.1
|
Form
of Amended and Restated Certificate of Incorporation. *
|
|
|
3.2
|
By-laws.
*
|
|
|
4.1
|
Specimen
Unit Certificate. *
|
|
|
4.2
|
Specimen
Common Stock Certificate.*
|
|
|
4.3
|
Specimen
Warrant Certificate. *
|
|
|
4.4
|
Form
of Warrant Agreement between Camden Learning, LLC and the
Registrant.*
|
|
|
4.5
|
Form
of Unit Option Purchase Agreement between the Registrant and Morgan
Joseph
& Co. Inc.*
|
|
|
10.1.1
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and Camden
Learning, LLC.*
|
|
|
10.1.2
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and Jack L.
Brozman.*
|
|
|
10.1.3
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and Therese
Kreig Crane, Ed.D.*
|
|
|
10.1.4
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and Ronald
Tomalis.*
|
|
|
10.1.5
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and Harry T.
Wilkins.*
|
|
|
10.1.6
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and William
Jews.*
|
|
|
10.2
|
Form
of Investment Management Trust Agreement between Continental Stock
Transfer & Trust Company and the Registrant.*
|
|
|
10.3
|
Form
of Stock Escrow Agreement between the Registrant, Continental Stock
Transfer & Trust Company and the Initial
Stockholders.*
|
|
|
10.4
|
Form
of Registration Rights Agreement among the Registrant and the Initial
Stockholders.*
|
|
|
10.5
|
Lease/Office
Services Agreement dated November 20, 2007 by and among the Registrant
and
Camden Partners Holdings, LLC.*
|
|
|
10.6
|
Subscription
Agreement between the Registrant and certain officers and directors
of the
Registrant.*
|
|
|
10.7
|
Promissory
Note in the amount of $200,000 dated April 26, 2007 issued in favor
of
Camden Learning, LLC.*
|
|
|
23.1
|
Consent
of Eisner LLP*
|
|
|
31
|
Certification
of Chief Executive Officer and Principal Financial Officer pursuant
to
Rule 13a-14 of the Securities Exchange Act of 1934, as
amended
|
|
|
32
|
Certification
of Chief Executive Officer and Principal Financial Officer pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
1350
|
|
|
99.1
|
Code
of Ethics.
|
*Previously
filed with the Securities Exchange Commission on Form S-1 on November 27, 2007.
-55-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
CAMDEN
LEARNING CORP.
|
||
| |
|
|
| By: |
/s/
David L. Warnock
|
|
|
Name:
David L. Warnock
Title:
Chief Executive Officer
(Principal
Executive Officer)
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/
David L. Warnock
David
L. Warnock
|
President,
Chief Executive Officer and Chairman
(principal
executive officer)
|
March
28, 2008
|
||
|
/s/
Donald W. Hughes
Donald W. Hughes |
Chief
Financial Officer and Secretary
(principal
financial and accounting officer)
|
March
28, 2008
|
||
|
/s/
Therese Kreig Crane
Therese Kreig Crane |
Director
|
March
28, 2008
|
||
|
/s/
Ronald Tomalis
Ronald Tomalis |
Director
|
March
28, 2008
|
||
|
/s/
William Jews
William Jews |
Director
|
March
28, 2008
|
-56-