Unassociated Document
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, 2008
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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incorporation
or organization)
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500
East Pratt Street, Suite 1200
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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 o
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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 June 30, 2008,
as reported on the OTC Bulletin Board, was approximately $47,718,672 . As of
March 24, 2009, 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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12
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Item
1B.
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Unresolved
Staff Comments
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28
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Item
2.
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Properties
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28
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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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28
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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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35
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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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35
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Item
9A(T).
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Controls
and Procedures
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35
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Item
9B.
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Other
Information
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36
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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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37
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Item
11.
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Executive
Compensation
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39
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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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39
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Item
13.
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Certain
Relationships and Related Transactions
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41
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Item
14.
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Principal
Accountant Fees and Services
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43
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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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44
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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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being a development stage
company with no operating
history;
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dependence on key personnel,
some of whom may join us following an initial
transaction;
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personnel allocating their
time to other businesses and potentially having conflicts of interest with
our business;
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potentially being unable to
obtain additional financing to complete an initial
transaction;
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limited pool of prospective
target businesses;
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securities’ ownership being
concentrated;
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potential change in control if
we acquire one or more target businesses for
stock;
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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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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.
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 on the later
of the completion of a Business Combination or November 29, 2008 (one year from
the effective date of the offering), and expiring on 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 excludes 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.
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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Early
Childcare (pre-school programs and/or day care facilities for pre-school
aged children);
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K-12
(kindergarten through twelfth
grade);
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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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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.
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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financial
condition and results of operation;
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the
value and extent of intellectual
property;
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stage
of development of the products, processes or
services;
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degree
of current or potential market acceptance of the products, processes or
services;
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proprietary
features and degree of protection of the products, processes or services;
and
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costs
associated with effecting the business
combination.
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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 will 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
•
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 and
working capital allowance). 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.
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.
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.
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.
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
161 blank check companies which have gone public since 2003, of which 63 have
actually consummated a business combination and 36 have
liquidated. The remaining 62 companies have more than $12.6 billion
in the trust account and are seeking to consummate a business
combination. Of these companies, 19 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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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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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.
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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.
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 are allocated a percentage of the part-time accounting staff’s
salaries from Camden Partners Holdings. The allocation percentage is
based upon the amount of the staff’s time spent on the Company. 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.
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 161
similarly structured blank check companies which have completed initial public
offerings since August 2003, of which 63 have actually consummated a business
combination and 36 have liquidated. As of such date, the remaining 62
companies have more than $12.6 billion in the trust account and are seeking to
consummate business combinations. Of these companies 19 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 82 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.
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, with the
exception of our independent registered public accountants, 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.
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.
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 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 1,134,900 authorized but unissued and unreserved 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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may
significantly reduce the equity interest of investors in the
offering;
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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;
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may
adversely affect prevailing market prices for our common stock;
and
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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.
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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;
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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;
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covenants
that limit our ability to acquire capital assets or make additional
acquisitions; and
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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.
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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 expended 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
received 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.
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 up to
$600,000 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.
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.
Our
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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make
a special written suitability determination for the
purchaser;
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receive
the purchaser’s written agreement to a transaction prior to
sale;
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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
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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.
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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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solely
dependent upon the performance of a single business;
or
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dependent
upon the development or market acceptance of a single or limited number of
products or services.
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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 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.
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 9,426,300 shares of our
common stock. Additionally, we issued an option to the underwriters to purchase
up to 625,000 units each consisting of one share and one warrant. 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.
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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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.
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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.
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.
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.
We
will need to consummate a business combination in the future to
continue operations as a going concern.
Our
Report from our Independent Registered Accounting Firm raises substantial doubt
about the Company’s ability to continue as a going concern. Our ability to
continue present operations will be dependent upon our ability
to consummate a business combination. Potential sources for business
combinations have not been established. Although we are exploring
various alternatives, there can be no assurance we will be able to locate,
negotiate or consummate a transaction with a suitable target business
on acceptable terms, if at all. If a suitable business
partner is not available, or if we determine it to otherwise be in our best
interest not to consummate a business combination, we will, in all
likelihood seek to liquidate, in which such event amounts currently held in our
trust account will be returned to our common stockholders and our shares, along
with our units and warrants, would then expire worthless.
Compliance
with the Sarbanes-Oxley Act of 2002 will require substantial financial and
management resources and may increase the time and costs of completing an
acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on
our system of internal controls and requires that we have such system of
internal controls audited beginning with our 2009 Annual Report on Form 10-K. If
we fail to maintain the adequacy of our internal controls, we could be subject
to regulatory scrutiny, civil or criminal penalties and/or stockholder
litigation. Any inability to provide reliable financial reports could harm our
business. Section 404 of the Sarbanes-Oxley Act also requires that our
independent registered public accounting firm report on management’s evaluation
of our system of internal controls. A target company may not be in compliance
with the provisions of the Sarbanes-Oxley Act regarding adequacy of their
internal controls. The development of the internal controls of any such entity
to achieve compliance with the Sarbanes-Oxley Act may increase the time and
costs necessary to complete any such acquisition. Furthermore, any failure to
implement required new or improved controls, or difficulties encountered in the
implementation of adequate controls over our financial processes and reporting
in the future, could harm our operating results or cause us to fail to meet our
reporting obligations. Inferior internal controls could also cause investors to
lose confidence in our reported financial information, which could have a
negative effect on the trading price of our stock.
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.
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.
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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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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.
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.
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.
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.
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 that 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.
Item
4. Submission of Matters
to a Vote of Security Holders
No
matters were submitted to a vote of stockholders during the year ended December
31, 2008.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
First Quarter
|
|
$ |
7.24 |
|
|
$ |
7.03 |
|
|
$ |
1.25 |
|
|
$ |
0.48 |
|
|
$ |
8.14 |
|
|
$ |
7.70 |
|
|
2008
Second Quarter
|
|
$ |
7.47 |
|
|
$ |
7.24 |
|
|
$ |
0.65 |
|
|
$ |
0.40 |
|
|
$ |
8.13 |
|
|
$ |
7.70 |
|
|
2008
Third Quarter
|
|
$ |
7.61 |
|
|
$ |
7.33 |
|
|
$ |
0.56 |
|
|
$ |
0.24 |
|
|
$ |
8.13 |
|
|
$ |
7.00 |
|
|
2008
Fourth Quarter
|
|
$ |
7.40 |
|
|
$ |
6.85 |
|
|
$ |
0.26 |
|
|
$ |
0.04 |
|
|
$ |
7.49 |
|
|
$ |
6.92 |
|
On March
24, 2009, the closing prices of our common stock, units and warrants were $7.65,
$7.60 and $0.03, respectively.
(b) Holders
On March
24, 2009, 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. These 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 this
purchase.
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.
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, and on December 19, 2007,
we sold additional units subject to the underwriters’ over-allotment option. 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 and the sale of the underwriters’
purchase option, 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 $508,635, was
$48,791,137. $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.
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.
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.
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 approximately $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.
|
|
|
|
|
|
April
10, 2007
|
|
|
April
10, 2007
|
|
|
|
|
For
the year
|
|
|
(inception)
through
|
|
|
(inception)
through
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
held in trust – beginning of period
|
|
$ |
52,543,772 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
to trust (which includes the deferred underwriting discount and commission
of $1,590,312 )
|
|
|
- |
|
|
|
52,389,984 |
|
|
|
52,389,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income received
|
|
|
1,100,550 |
|
|
|
153,788 |
|
|
|
1,254,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawals
to pay taxes
|
|
|
(610,000 |
) |
|
|
- |
|
|
|
(610,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments held in trust
|
|
$ |
53,034,322 |
|
|
$ |
52,543,772 |
|
|
$ |
53,034,322 |
|
At
December 31, 2008, $600,000 remains available for working capital purposes from
the restricted funds held in the Trust Account.
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.
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
For the
year ended December 31, 2008, we had net income of $279,142 consisting of
interest income of $1,048,371 less costs attributable to organization, formation
and general and administrative expenses of $565,106 and net of a provision for
income taxes of $204,123. For the period from April 10, 2007
(inception) through December 31, 2007, we had a net income of $44,190,
consisting of interest income of $131,605 less costs attributable to
organization, formation and general and administrative expenses of $59,547 and
net of a provision for income taxes of $27,868. For the period from
April 10, 2007 (inception) through December 31, 2008, we had net income of
$323,332 consisting of interest income of $1,179,976 less costs attributable to
organization, formation and general and administrative expenses of $624,653 and
net of a provision for income taxes of $231,991.
Through
December 31, 2008, 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 and sale of the underwriters’
purchase option 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.
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.”
The
Company entered into an engagement agreement with a consultant on June 23,
2008. The consultant will provide financial advisory services to the
Company in connection with a potential Business Combination with certain
predetermined entities. The Company is obligated to pay the
consultant 1.5% of the Transaction Value (as defined in the engagement
agreement), provided, however, the aggregate Transaction Fee shall not be less
than $1,000,000 in the event a Business Combination is completed with any of the
predetermined entities. The Company also agreed to reimburse the
consultant for its reasonable business expenses in connection with services
rendered. The agreement is on a month-to-month basis. Upon
termination, no party shall have any liability to the other except that the
consultant shall be entitled to its transaction fee if, within twelve (12)
months from the date of termination of the engagement agreement, the Company
consummates a Business Combination with one of the predetermined
entities.
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, 2008, the
balance of the Trust Account was $53,034,322. 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 43 through 53 comprising a portion of this Annual Report on
Form 10-K.
Item
9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
On June
25, 2008, the Company dismissed Eisner LLP (“Eisner”) as its independent
registered public accountant, effective immediately. The dismissal
was approved by the Company’s Board of Directors.
The
reports of Eisner on the financial statements of the Company as of and for the
period from April 10, 2007 to December 31, 2007, did not contain any adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
During
the period from April 10, 2007 to December 31, 2007, and through the date of
dismissal, there were no disagreements with Eisner on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which if not resolved to the satisfaction of Eisner would have caused
it to make reference thereto in connection with its reports on the financial
statements for such period.
On July
1, 2008, the Company engaged McGladrey & Pullen, LLP as the Company’s
independent registered public accountant. The engagement of McGladrey
& Pullen, LLP was approved by the Board of Directors. The Company
had not previously consulted with McGladrey & Pullen, LLP on any of the
application of accounting principles to a specified transaction, the type of
audit opinion that might be rendered with respect to the Company’s financial
statements or any matter that was either the subject of a disagreement or a
reportable event.
Item
9A. Controls
and Procedures.
Disclosure
Controls and Procedures
Our
management with the participation of our Chief Executive Officer and Chief
Financial Officer (the “Certifying Officers”) evaluated the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, the “Exchange
Act”) as of the end of the period covered by this Annual Report on Form
10-K. Based on this evaluation, our Certifying Officers have
concluded that, as of the end of such period, our disclosure controls and
procedures were adequate and effective.
Internal
Control over Financial Reporting
Our
Certifying Officers are responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rule
13a-15(f) and 15d-15(f) of the Exchange Act.
Internal
control over financial reporting is promulgated under the Exchange Act as a
process designed by, or under the supervision of our Certifying Officers and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
|
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and
directors; and
|
|
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition or disposition of our assets that could have a
material effect on the financial
statements.
|
Readers
are cautioned that internal control over financial reporting, no matter how well
designed, has inherent limitations and may not prevent or detect
misstatements. Therefore, even effective internal control over
financial reporting can only provide reasonable assurance with respect to the
financial statement preparation and presentation.
Our
management, with the participation of our Certifying Officers, assessed the
effectiveness of the Company’s internal control over financial reporting as of
the end of the fiscal year ended December 31 2008. In making this
assessment, management used the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission, or COSO. Based on this assessment,
management has concluded that, as of December 31, 2008 the Company’s
internal control over financial reporting is effective.
This
report does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting, pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management’s report in this annual report.
No change
in our internal controls over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred
during the Company’s fourth fiscal quarter ended December 31, 2008 that has
materially affected, or is reasonably likely to materially affect, our internal
controls 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, CIBT Education Group, Inc., a post-secondary institution in
China, 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.
David is
also involved with numerous non-profit organizations. He is the Chairman of the
Center For Urban Families, as well as former Chairman of the Board for
Calvert Education Services, the nation's largest non-sectarian home-schooling
organization. He also serves on the board of the University of Wisconsin Applied
Security Analysis Program and is a trustee on the board of the Baltimore Museum
of Art.
David earned
a B.A. degree from the University of Delaware and a M.S. (in Finance) from the
University of Wisconsin. David is also a Chartered Financial
Analyst 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.
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 Director in the Education Practice at Dutko Worldwide, a
government affairs strategy and management firm. Mr. Tomalis will be
assisting clients to strategically position their companies in the K-12 and
postsecondary space to take advantage of growth opportunities and minimize
business risk. Previously, he served as 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 served as a director
from July 2005 until his departure in January, 2009. 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.
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, 2008, 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.
| |
|
Amount and Nature of
|
|
|
|
|
|
Name
and Address of Beneficial Owner (1)
|
|
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)
|
|
|
|
|
|
|
%
|
|
Donald
W. Hughes, Chief Financial Officer and Secretary(3)
|
|
|
|
|
|
|
%
|
|
Therese
Kreig Crane, Ed.D, Director
|
|
|
34,722
|
|
|
|
.424 |
% |
|
Ronald
Tomalis, Director
|
|
|
34,722
|
|
|
|
.424 |
% |
|
William
Jews, Director
|
|
|
34,722
|
|
|
|
.424 |
% |
|
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.
|
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.
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.”
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 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.
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 working
capital allowance 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, 2008, the firm of McGladrey & Pullen
LLP which we refer to as McGladrey, was our principal accountant. The following
is a summary of fees paid or to be paid to McGladrey 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
McGladrey in connection with regulatory filings. We expect to be
billed approximately $60,000 in connection with our December 31, 2008
and 2007 year-end audit, and we have incurred fees of $31,000 from McGladrey for
reviews of interim financial statements.
We paid
Eisner LLP (former principal accountant) $39,800 in connection with our December
31, 2007 year-end audit and we paid $15,500 for the review of our first quarter
2008 interim financial statements.
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 McGladrey.
Tax Fees. There were no fees
paid for professional services rendered by McGladrey for tax compliance, tax
planning and tax advice for the fiscal year ended December 31,
2008.
We paid
Eisner LLP $7,950 for the preparation of our 2007 corporate tax
returns.
All other
fees. Auditing services provided by Eisner LLP in regards to
our initial public offering totaled $135,000.
PART
IV
Item
15. Exhibits and Financial Statement Schedules.
CAMDEN
LEARNING CORPORATION
(a
corporation in the development state)
Financial
Statements
Contents
|
Report
of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
Audited
Financial Statements:
|
|
|
|
|
|
|
|
Balance
Sheets as of December 31, 2008 and 2007
|
|
46
|
|
|
|
|
|
Statements
of Operations for the year ended December 31, 2008, for the period from
April 10, 2007 (inception) to December 31, 2007 and for the cumulative
period from April 10, 2007 (inception) to December 31,
2008
|
|
47
|
|
|
|
|
|
Statement
of Stockholders’ Equity for the cumulative period from April 10, 2007
(inception) to December 31, 2008
|
|
48
|
|
|
|
|
|
Statements
of Cash Flows for the year ended December 31, 2008, for the period from
April 10, 2007 (inception) to December 31, 2007 and for the cumulative
period from April 10, 2007 (inception) to December 31,
2008
|
|
49
|
|
|
|
|
|
|
|
50
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Camden
Learning Corporation
We have
audited the accompanying balance sheets of Camden Learning Corporation
(a corporation in the development stage) as of December 31, 2008 and
2007, and the related statements of operations, stockholders' equity, and cash
flows for the year ended December 31, 2008, the period from April 10, 2007
(inception) to December 31, 2007 and the cumulative period from April 10, 2007
(inception) to December 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide 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, 2008 and 2007, and the results of its operations and its cash flows
for the year ended December 31, 2008, the period from April 10, 2007 (inception)
to December 31, 2007, and the cumulative period from April 10, 2007 (inception)
to December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
The
accompanying financial statements have been prepared assuming that Camden
Learning Corporation will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company will face a mandatory liquidation on
November 29, 2009 if a business combination is not consummated, which raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We were
not engaged to examine management's assessment of the effectiveness of Camden
Learning Corporation’s internal control over financial reporting as of December
31, 2008, included in the accompanying management’s report on Internal Control
over Financial Reporting, and, accordingly, we do not express an opinion
thereon.
/s/ McGladrey & Pullen,
LLP
McGLADREY
& PULLEN, LLP
New York,
NY
March 24,
2009
Camden
Learning Corporation
(a
corporation in the development stage)
Balance
Sheets
|
|
|
December
31,
2008
|
|
|
December
31,
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$ |
190,665 |
|
|
$ |
858,347 |
|
|
Prepaid
expenses
|
|
|
60,695 |
|
|
|
— |
|
|
Total
current assets
|
|
|
251,360 |
|
|
|
858,347 |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
funds held in trust
|
|
|
53,034,322 |
|
|
|
52,543,772 |
|
|
Deferred
tax asset
|
|
|
222,610 |
|
|
|
19,141 |
|
|
Refundable
income tax
|
|
|
155,399 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
53,663,691 |
|
|
$ |
53,421,260 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
59,290 |
|
|
$ |
104,656 |
|
|
Income
tax payable
|
|
|
— |
|
|
|
47,009 |
|
|
Deferred
interest
|
|
|
57,051 |
|
|
|
— |
|
|
Total
current liabilities
|
|
|
116,341 |
|
|
|
151,665 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
underwriting compensation
|
|
|
1,590,312 |
|
|
|
1,590,312 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,706,653 |
|
|
|
1,741,977 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, subject to possible redemption 1,987,889 shares
|
|
|
15,744,081 |
|
|
|
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 |
|
|
|
620 |
|
|
Additional
paid-in capital
|
|
|
35,889,005 |
|
|
|
35,890,392 |
|
|
Retained
earnings accumulated during the development stage
|
|
|
323,332 |
|
|
|
44,190 |
|
|
Total
stockholders’ equity
|
|
|
36,212,957 |
|
|
|
35,935,202 |
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
53,663,691 |
|
|
$ |
53,421,260 |
|
See notes
to financial statements.
Camden
Learning Corporation
(a
corporation in the development stage)
Statements
of Operations
For
the year ended December 31, 2008, for the period from April 10, 2007 (inception)
through December 31, 2007 and for the cumulative period from
April
10, 2007 (inception) through December 31, 2008
|
|
|
Year
ended
December
31,
2008
|
|
|
April
10, 2007
(inception)
through
December
31,
2007
|
|
|
April
10, 2007
(inception)
through
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Operating
and formation expenses
|
|
$ |
565,106 |
|
|
$ |
59,547 |
|
|
$ |
624,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(565,106 |
) |
|
|
(59,547 |
) |
|
|
(624,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
|
1,048,371 |
|
|
|
131,605 |
|
|
|
1,179,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for taxes
|
|
|
483,265 |
|
|
|
72,058 |
|
|
|
555,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(204,123 |
) |
|
|
(27,868 |
) |
|
|
(231,991 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
279,142 |
|
|
$ |
44,190 |
|
|
$ |
323,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$ |
0.03
|
|
|
$ |
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
8,188,800
|
|
|
|
2,217,752
|
|
|
|
|
|
See notes
to financial statements.
Camden
Learning Corporation
(a
corporation in the development stage)
Statements
of Stockholders’ Equity
For
the cumulative period from April 10, 2007 (inception) to December 31,
2008
|
|
|
Common
Stock
|
|
|
|
|
|
Retained
Earnings
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
During
the
Development
Stage
|
|
|
Total
Stockholders’
Equity
|
|
|
Common
shares issued to initial stockholders on April 10, 2007 at approximately
$.02 per share
|
|
|
1,562,500 |
|
|
$ |
156 |
|
|
$ |
24,844 |
|
|
$ |
— |
|
|
$ |
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 2,800,000 private placement warrants on November 29, 2007 at
$1.00
per warrant
|
|
|
— |
|
|
|
— |
|
|
|
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) and sale of underwriter’s
purchase
option
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering
expenses
|
|
|
|
|
|
|
|
|
|
|
(1,387 |
) |
|
|
|
|
|
|
(1,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
279,142 |
|
|
|
279,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
8,188,800 |
|
|
$ |
620 |
|
|
$ |
35,889,005 |
|
|
$ |
323,332 |
|
|
$ |
36,212,957 |
|
See notes
to financial statements.
Camden
Learning Corporation
(a
corporation in the development stage)
Statements
of Cash Flows
For the year ended December 31, 2008,
for the period from April 10, 2007 (inception) through December 31, 2007 and for
the cumulative period from
April
10, 2007 (inception) through December 31, 2008
|
|
|
Year ended
December 31, 2008
|
|
|
April 10, 2007
(inception)
through
December 31,
2007
|
|
|
April 10, 2007
(inception)
through December
31, 2008
|
|
| |
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
279,142 |
|
|
$ |
44,190 |
|
|
$ |
323,332 |
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of interest on note payable
|
|
|
— |
|
|
|
17,569 |
|
|
|
17,569 |
|
|
Deferred
income taxes
|
|
|
(203,469 |
) |
|
|
(19,141 |
) |
|
|
(222,610 |
) |
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in prepaid expenses
|
|
|
(60,695 |
) |
|
|
— |
|
|
|
(60,695 |
) |
|
Increase
in refundable income tax
|
|
|
(155,399 |
) |
|
|
— |
|
|
|
(155,399 |
) |
|
Increase/(decrease)
in accounts payable and accrued expenses
|
|
|
10,812 |
|
|
|
48,478 |
|
|
|
59,290 |
|
|
Increase/(decrease)
in income tax payable
|
|
|
(47,009 |
) |
|
|
47,009 |
|
|
|
— |
|
|
Increase
in accrued interest
|
|
|
— |
|
|
|
4,083 |
|
|
|
— |
|
|
Increase
in deferred interest
|
|
|
57,051 |
|
|
|
— |
|
|
|
57,051 |
|
|
Net
cash (used in)/provided by operating
activities
|
|
|
(119,567 |
) |
|
|
138,105 |
|
|
|
18,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of units placed in trust
|
|
|
— |
|
|
|
(49,589,984 |
) |
|
|
(49,589,984 |
) |
|
Proceeds
from sale of warrants placed in trust
|
|
|
— |
|
|
|
(2,800,000 |
) |
|
|
(2,800,000 |
) |
|
Interest
income earned on funds held in trust
|
|
|
(1,100,550 |
) |
|
|
(153,788 |
) |
|
|
(1,254,338 |
) |
|
Withdrawals
for payments of income tax expense
|
|
|
610,000 |
|
|
|
— |
|
|
|
610,000 |
|
|
Net
cash used in investing activities
|
|
|
(490,550 |
) |
|
|
(52,543,772 |
) |
|
|
(53,034,322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of stock to initial stockholders
|
|
|
— |
|
|
|
25,000 |
|
|
|
25,000 |
|
|
Proceeds
from note payable to affiliate
|
|
|
— |
|
|
|
200,000 |
|
|
|
200,000 |
|
|
Advance
from affiliates
|
|
|
— |
|
|
|
37,500 |
|
|
|
37,500 |
|
|
Repayment
to affiliates
|
|
|
— |
|
|
|
(37,500 |
) |
|
|
(37,500 |
) |
|
Gross
proceeds from initial public offering
|
|
|
— |
|
|
|
53,010,500 |
|
|
|
53,010,500 |
|
|
Proceeds
from issuance of warrants
|
|
|
— |
|
|
|
2,800,000 |
|
|
|
2,800,000 |
|
|
Payment
of offering costs
|
|
|
(57,565 |
) |
|
|
(2,571,486 |
) |
|
|
(2,629,051 |
) |
|
Repayment
of note payable to affiliate
|
|
|
— |
|
|
|
(200,000 |
) |
|
|
(200,000 |
) |
|
Net
cash (used in)/provided by financing activities
|
|
|
(57,565 |
) |
|
|
53,264,014 |
|
|
|
53,206,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash
|
|
|
(667,682 |
) |
|
|
858,347 |
|
|
|
190,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
858,347 |
|
|
|
— |
|
|
|
— |
|
|
Cash
at end of period
|
|
$ |
190,665 |
|
|
$ |
858,347 |
|
|
$ |
190,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital from discount on note payable to affiliate
|
|
|
— |
|
|
$ |
17,569 |
|
|
|
— |
|
|
Increase
in deferred offering costs, and in related accounts payable and accrued
expenses and due to affiliates
|
|
|
|
|
|
$ |
56,178 |
|
|
|
— |
|
|
Deferred
underwriting compensation
|
|
|
— |
|
|
$ |
1,590,312 |
|
|
$ |
1,590,312 |
|
|
Cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for income taxes
|
|
$ |
610,000 |
|
|
|
— |
|
|
$ |
610,000 |
|
|
Cash
paid for interest
|
|
|
— |
|
|
$ |
5,987 |
|
|
$ |
5,987
|
|
See notes
to financial statements.
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 5).
At
December 31, 2008, the Company had not commenced any operations. All
activity through December 31, 2008 relates to the Company’s formation, initial
public offering (the “Offering”) and efforts to identify prospective target
businesses described below and in Note 4. 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 $45,991,365, 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. On September 25, 2008, the Company determined, in light of the current
market uncertainties, to authorize the transfer of funds being held in a trust
account from the Morgan Stanley Institutional Liquidity Fund – Government
Portfolio to the Morgan Stanley Institutional Liquidity Fund – Treasury
Portfolio. The portfolio invests in U.S. treasuries and short
duration repurchase agreements collateralized by the U.S.
treasuries.
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. Through December 31, 2008, $610,000 has been withdrawn
from the trust account for payment of income taxes.
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 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. Consequently, the amended and restated
certificate of incorporation includes a limitation on the Company’s corporate
existence of November 29, 2009, if the Company does not consummate a Business
Combination. This factor raises substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do
not include any adjustment that may result from the outcome of this
uncertainity.
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 affect 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 sold 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 5) 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.
Note
2 – Summary of Significant Accounting Policies
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.
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.
Earnings
Per Share
Basic net
income per common share is computed by dividing net income by the weighted
average number of shares outstanding during each period. Diluted net income per
common share reflects the additional dilution for all potentially dilutive
securities such as outstanding warrants and the underwriter’s option described
in Note 3. The effect of the warrants outstanding as of December 31, 2008 for
the purchase of 6,626,000 shares issued in connection with the Offering and for
the purchase of 2,800,000 shares issued in a private placement have not been
considered in the computation of diluted net income per common share since the
ability of the holders to exercise the warrants is contingent upon the
consummation of a Business Combination. The effect of the 625,000 units included
in the underwriters’ option (See Note 3) has not been considered in the
calculation of diluted earnings per common share since the average market price
of a unit through December 31, 2008 was less than the exercise price per
unit.
Earnings
per share for the period April 10, 2007 (inception) through December 31, 2007
has been restated to include the shares issued to initial stockholders on April
10, 2007.
|
|
|
As Filed
|
|
|
Restated
|
|
|
Difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Net Income Per Share
|
|
$ |
0.07 |
|
|
$ |
0.02 |
|
|
$ |
(0.05 |
) |
|
Diluted
Net Income Per Share
|
|
$ |
0.06 |
|
|
$ |
0.02 |
|
|
$ |
(0.04 |
) |
Recent
accounting pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS
141R”), which establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree. SFAS 141R also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS
141R will apply to us with respect to any acquisitions that we complete on or
after January 1, 2009.
In
December 2007, the FASB released SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (“SFAS 160”), which
establishes accounting and reporting standards for the ownership interests in
subsidiaries held by parties other than the parent and for the deconsolidation
of a subsidiary. SFAS 160 also establishes disclosure requirements
that clearly identify and distinguish between the interest of the parent and the
interests of the non-controlling owners. SFAS 160 is effective for financial
statements issued for fiscal years beginning after December 15,
2008. SFAS 160 will apply to us with respect to any acquisitions,
that we complete on or after January 1, 2009, which will result in a
noncontrolling interest.
In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF
07-5”). EITF 07-5 provides guidance on how to determine if certain
instruments or embedded features are considered indexed to our own stock,
including instruments similar to our convertible notes and warrants to purchase
our stock. EITF 07-5 requires companies to use a two-step approach to
evaluate an instrument’s contingent exercise provisions and settlement
provisions in determining whether the instrument is considered to be indexed to
its own stock and exempt from the application of SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities”. Although EITF 07-5 is
effective for fiscal years beginning after December 15, 2008, any outstanding
instrument at the date of adoption will require a retrospective application of
the accounting through a cumulative effect adjustment to retained earnings upon
adoption. The Company is currently evaluating the impact that
adoption of EITF 07-5 will have on its financial statements.
No other
recently issued accounting pronouncements that became effective during the year
ended December 31, 2008 or that will become effective in a subsequent period has
had or is expected to have a material impact on our financial
statements.
Reclassifications
Certain
reclassifications have been made to the prior year’s financial statements to
conform to the current year’s presentation.
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.
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.
The
Company allocated a percentage of the part-time accounting staff’s salaries
from Camden Partners Holdings. The allocation percentage is based
upon the amount of the staff’s time spent on the Company.
On
November 29, 2007, Camden Learning, LLC purchased warrants to acquire 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’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 – Restricted Funds Held in Trust:
|
|
|
|
|
|
April
10, 2007
|
|
|
April
10, 2007
|
|
|
|
|
For
the year
|
|
|
(inception)
through
|
|
|
(inception)
through
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
held in trust – beginning of period
|
|
$ |
52,543,772 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
to trust (which includes the deferred underwriting discount and commission
of $1,590,312 )
|
|
|
- |
|
|
|
52,389,984 |
|
|
|
52,389,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income received
|
|
|
1,100,550 |
|
|
|
153,788 |
|
|
|
1,254,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawals
to pay taxes
|
|
|
(610,000 |
) |
|
|
- |
|
|
|
(610,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments held in trust
|
|
$ |
53,034,322 |
|
|
$ |
52,543,772 |
|
|
$ |
53,034,322 |
|
At
December 31, 2008, $600,000 remains available for working capital purposes from
the restricted funds held in the Trust Account.
Note
6 – 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 their pro-rata portion of the interest earned on the trust
account, 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. Through
December 31, 2008, total interest earned of $1.25 million less taxes of $464,105
and working capital of $600,000 is approximately $190,233. The dissenting
stockholder’s pro-rata share of this amount is reflected on the balance sheet as
deferred interest.
Note
7 – Commitments
The
Company entered into an engagement agreement with a consultant on June 23,
2008. The consultant will provide financial advisory services to the
Company in connection with a potential Business Combination with certain
predetermined entities. The Company is obligated to pay the
consultant 1.5% of the Transaction Value (as defined in the engagement
agreement), provided, however, the aggregate Transaction Fee shall not be less
than $1,000,000 in the event a Business Combination is completed with any of the
predetermined entities. The Company also agreed to reimburse the
consultant for its reasonable business expenses in connection with services
rendered. The agreement is on a month-to-month basis. Upon
termination, no party shall have any liability to the other except that the
consultant shall be entitled to its transaction fee if, within twelve (12)
months from the date of termination of the agreement, the Company consummates a
Business Combination with one of the predetermined
entities.
Note
8 – Common Stock
The
Company has 10,676,300 shares reserved for issuance for the exercise of the
underwriter’s purchase option units and the private placement warrants, as well
as the warrants sold in the initial public offering.
Note
9 – 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
10 – Income Taxes
The
Company’s 2008 and 2007 provisions for income taxes consist of:
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
April
1, 2007
|
|
|
|
|
Year
ended
|
|
|
(inception)
to
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
| Current: |
|
|
|
|
|
|
|
Federal
|
|
$ |
341,603 |
|
|
$ |
37,859 |
|
|
State
|
|
|
65,989 |
|
|
|
9,150 |
|
|
Deferred
|
|
|
(203,469 |
) |
|
|
(19,141 |
) |
|
|
|
$ |
204,123 |
|
|
$ |
27,868 |
|
Significant
components of the Company’s deferred tax asset are as follows:
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Expenses
deferred for income tax purposes
|
|
$ |
227,832 |
|
|
$ |
19,141 |
|
| Income
deferred for book purposes |
|
|
22,033 |
|
|
|
- |
|
|
Less:
Valuation Allowance
|
|
|
(27,255 |
) |
|
|
- |
|
|
Total
|
|
$ |
222,610 |
|
|
$ |
19,141 |
|
The
difference between the actual income tax expense and that computed by applying
the U.S. federal income tax rate to pretax income from operations is summarized
below:
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
April
1, 2007
|
|
|
|
|
Year
Ended
|
|
|
(inception)
to
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
Computed statutory federal tax
rate
|
|
|
34 |
% |
|
|
34 |
% |
| Effect
of reduced tax brackets on current tax |
|
|
0 |
% |
|
|
(14 |
)% |
|
Permanent
differences
|
|
|
0 |
% |
|
|
8 |
% |
|
Change
in valuation allowance
|
|
|
6 |
% |
|
|
0 |
% |
|
State
income tax net of federal benefit
|
|
|
3 |
% |
|
|
5 |
% |
| Other |
|
|
(1 |
)% |
|
|
5 |
% |
|
Effective
tax rate
|
|
|
42 |
% |
|
|
39 |
% |
The
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. The Company
has recorded a valuation allowance against a portion of
its state and local deferred tax asset because it believes that based on current
operations at December 31, 2008, it will not be able to fully utilize this
asset.
There have been no audits of the Company's tax returns since
inception and 2007 and 2008 remain open to examination.
Note
11- Fair Value of Financial Instruments
Effective
January 1, 2008 the Company adopted Statement No. 157, Fair Value
Measurements. Statement No. 157 applies to all assets and
liabilities that are being measured and reported on a fair value
basis. Statement No. 157 requires new disclosure that establishes a
framework for measuring fair value in GAAP, and expands disclosure about fair
value measurements. This statement enables the reader of the
financial statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The statement requires
that assets and liabilities carried at fair value will be classified and
disclosed in one of the following three categories:
|
|
Level
1:
|
Quoted
market prices in active markets for identical assets or
liabilities.
|
|
|
Level
2:
|
Observable
market based inputs or unobservable inputs that are corroborated by market
data.
|
|
|
Level
3:
|
Unobservable
inputs that are not corroborated by market
data.
|
In
determining the appropriate levels, the Company performs a detailed analysis of
the assets and liabilities that are subject to Statement No. 157. At
each reporting period, all assets and liabilities for which the fair value
measurement is based on significant unobservable inputs are classified as Level
3.
The table
below presents the balances of assets and liabilities measured at fair value on
a recurring basis by level within the hierarchy.
|
|
|
December
31, 2008
|
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
Held in Trust
|
|
$ |
53,034,322 |
|
|
$ |
53,034,322 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
53,034,322 |
|
|
$ |
53,034,322 |
|
|
$ |
— |
|
|
$ |
— |
|
The
Company’s restricted funds held in trust include are invested in an
institutional liquidity fund invested in U.S. treasuries and repurchase
agreements collateralized by U.S. treasuries that are considered to be highly
liquid and easily tradable.
Exhibits.
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
|
|
Underwriting
Agreement. (1)
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation. (2)
|
|
3.2
|
|
By-laws.
|
|
4.1
|
|
Specimen
Unit Certificate. (3)
|
|
4.2
|
|
Specimen
Common Stock Certificate.(3)
|
|
4.3
|
|
Specimen
Warrant Certificate. (3)
|
|
4.4
|
|
Warrant
Agreement between Continental Stock Transfer and Trust Company and the
Registrant.(2)
|
|
4.5
|
|
Form
of Unit Option Purchase Agreement between the Registrant and Morgan Joseph
& Co. Inc. (2)
|
|
10.1.1
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and Camden
Learning, LLC. (2)
|
|
10.1.2
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and Jack L.
Brozman. (3)
|
|
10.1.3
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and Therese
Kreig Crane, Ed.D. (3)
|
|
10.1.4
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and Ronald
Tomalis. (3)
|
|
10.1.6
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc. and William
Jews.(3)
|
|
10.2
|
|
Investment
Management Trust Agreement between Continental Stock Transfer and Trust
Company and the Registrant. (2)
|
|
10.3
|
|
Stock
Escrow Agreement between the Registrant, Continental Stock Transfer &
Trust Company and the Initial Stockholders. (2)
|
|
10.4
|
|
Registration
Rights Agreement among the Registrant and the Initial Stockholders.
(2)
|
|
10.5
|
|
Lease/Office
Services Agreement dated November 20, 2007 by and among the Registrant and
Camden Partners Holdings, LLC. (2)
|
|
10.6
|
|
Amended
and Restated Subscription Agreement between the Registrant and certain
officers and directors of the Registrant.(4)
|
|
10.7
|
|
Promissory
Note in the amount of $200,000 dated April 26, 2007 issued in favor of
Camden Learning, LLC.(4)
|
|
10.8
|
|
Right
of First Refusal Agreement by and among Camden Learning LLC, Camden
Partners Strategic Fund III, L.P. and Camden Partners Strategic Fund
III-A, L.P. (4)
|
|
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.
|
|
|
(1)
|
Previously
filed with the SEC on Form 8-K on December 5,
2007.
|
|
|
(2)
|
Previously filed with the SEC on
Form S-1/A on November 27,
2007.
|
|
|
(3)
|
Previously filed with the SEC on
Form S-1/A on August 17,
2007.
|
|
|
(4)
|
Previously filed with the SEC on
Form S-1/A on July 27, 2007.
|
|
|
(5)
|
Previously filed with the SEC on
Form 8-K on December 5,
2007.
|
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
|
|
|
|
President,
Chief Executive Officer
|
|
|
|
|
|
and
Chairman
|
|
March
24, 2009
|
|
David
L. Warnock
|
|
(principal
executive officer)
|
|
|
| |
|
|
|
|
|
|
|
Chief
Financial Officer and
|
|
|
|
|
|
Secretary
|
|
March
24, 2009
|
|
Donald
W. Hughes
|
|
(principal
financial and accounting
|
|
|
|
|
|
officer)
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
24, 2009
|
|
Therese
Kreig Crane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
24, 2009
|
|
Ronald
Tomalis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
24, 2009
|
|
William
Jews
|
|
|
|
|