As filed with the Securities and Exchange Commission on November 16, 2007

Registration No. 333-146597       

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

Form S-1

 

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

HCM Acquisition Company

(Exact name of registrant as specified in its charter)

 

 

HCM Acquisition Company

13455 Noel Road, Suite 800

Dallas, TX 75240

(972) 628-4100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

James D. Dondero

Chairman

HCM Acquisition Company

13455 Noel Road, Suite 800

Dallas, TX 75240

(972) 628-4100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

CALCULATION OF REGISTRATION FEE

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

SUBJECT TO COMPLETION, DATED          , 2007

 

PROSPECTUS

 

$250,000,000

HCM Acquisition Company

 

25,000,000 Units

 

 

HCM Acquisition Company is a newly organized blank check company formed for the purpose of acquiring, or acquiring control of, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination, one or more businesses or assets, which we refer to as our initial business combination. Our efforts in identifying a prospective target business will not be limited to a particular industry. Instead, we will focus on industries and target businesses in the United States and Europe that may provide significant opportunity for growth. To date our efforts have been limited to organizational activities as well as activities related to this offering. We do not have any specific initial business combination under consideration. We have not, nor has anyone on our behalf, contacted any prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction.

This is an initial public offering of our securities. We are offering 25,000,000 units. Each unit has an offering price of $10.00 and consists of one share of our common stock and one warrant. Each warrant entitles the holder to purchase one share of our common stock at a price of $7.50, subject to adjustment as described herein. The warrants will become exercisable on the later of the completion of our initial business combination or one year from the date of this prospectus, provided in each case that we have an effective registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available, and will expire five years from the date of this prospectus, unless earlier redeemed.

We have also granted the underwriters a 30-day option to purchase up to 3,750,000 additional units to cover over-allotments, if any.

HCM Acquisition Holdings, LLC, a Delaware limited liability company formed for the purposes of investing in our company, which we refer to as our founding stockholder, has agreed to use its own funds to purchase 5,000,000 warrants, which we refer to as the private placement warrants, at a price of $1.00 per warrant ($5.0 million in the aggregate) in a private placement that will occur simultaneously with the consummation of this offering. The proceeds from the sale of the private placement warrants will be deposited into a trust account and be subject to a trust agreement, described below, and will be part of the funds distributed to our public stockholders in the event we are unable to complete an initial business combination as described in this prospectus. The private placement warrants are identical to the warrants included in the units to be sold in this offering except that, so long as they are held by our founding stockholder or its permitted transferees, the private placement warrants will not be redeemable by us and may be exercised for cash or on a cashless basis, as described in this prospectus. Our founding stockholder has agreed not to transfer, assign or sell any of these private placement warrants until after we consummate our initial business combination except to permitted transferees.

In addition, our founding stockholder intends to enter into an agreement with Citigroup Global Markets Inc., pursuant to which it will place limit orders for up to $25.0 million of our common stock, commencing on the later of 10 business days after we file a Current Report on Form 8-K with the SEC announcing our execution of a definitive agreement for an initial business combination and 60 days after termination of the “restricted period” in connection with this offering under Regulation M of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and ending on the business day immediately preceding the record date for the meeting of stockholders at which our initial business combination is to be approved. We refer to this period throughout this prospectus as the buyback period. This limit order will require our founding stockholder to purchase any of our shares of common stock offered for sale (and not purchased by another investor) at or below a price equal to the per share amount held in our trust account as reported in such Form 8-K, until the earlier of the expiration of the buyback period or until such purchases reach $25.0 million in total. Highland Capital Management, L.P., a Delaware limited partnership and sole member of our founding stockholder, has agreed to purchase such securities in the event that our founding stockholder is unable to satisfy its obligations under this agreement. Each of our founding stockholder and Highland has agreed to vote any shares of common stock acquired in this offering or the secondary market, including those purchased pursuant to the limit order, in favor of our initial business combination. As a result, it may be able to influence the outcome of the vote on our initial business combination.

Currently, there is no public market for our units, common stock or warrants. We have applied to have the units listed on the American Stock Exchange under the symbol “HQA.U” on or promptly after the date of this prospectus. The common stock and warrants comprising the units will begin separate trading on the 35th day following the date of this prospectus unless Citigroup Global Markets Inc. informs us of its decision to allow earlier separate trading, subject to our filing a current report on Form 8-K with the Securities and Exchange Commission containing an audited balance sheet reflecting our receipt of the gross proceeds of this offering and issuing a press release announcing when such separate trading will begin. We have applied to have the common stock and warrants listed on the American Stock Exchange under the symbols “HQA” and “HQA.WS,” respectively. We cannot assure you that our securities will be, or will continue to be, listed on the American Stock Exchange.

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 24 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

The underwriters are offering the units on a firm commitment basis. The underwriters expect to deliver the units to purchasers on or about          , 2007. Of the proceeds we receive from this offering and the sale of the private placement warrants as described in this prospectus, $9.77 per unit, or $244,150,000 in the aggregate (approximately $9.74 per unit or $280,150,000 if the underwriters’ over-allotment option is exercised in full) will be deposited into a trust account at JPMorgan Chase Bank, N.A., maintained by American Stock Transfer & Trust Company, acting as trustee.

 

 

Citi

 

 

The date of this prospectus is          , 2007

 

TABLE OF CONTENTS

 

	•	hedge funds;
	•	separate accounts;
	•	structured investment vehicles including collateralized debt obligations or CDOs, and collateralized loan obligations or CLOs;
	•	NYSE-listed closed-end funds; and
	•	other structures, including but not limited to mutual funds.

	•	61 analysts and portfolio managers aligned by industry, primarily focused on par and near-par investments in structured vehicles and closed end funds, which we refer to as the Industry Specialist Group;
	•	21 professionals dedicated to private equity investments, which we refer to as the Private Equity Group;
	•	12 professionals dedicated to distressed investments, which we refer to as the Distressed Investments Group; and
	•	a 10-person capital markets desk.

	•	Established companies with positive cash flow.  We will target established businesses with solid historical financial performance. We will focus on companies with a history of profitability on an operating cash flow basis. We do not intend to acquire start-up companies, companies with speculative business plans or companies that are excessively leveraged.
	•	Ability for the Highland Group to add value.  We will target businesses where we believe the Highland Group can add value by bringing resources to bear over and above a company’s existing capabilities. Often middle market companies lack the depth of expertise across non-core functional areas.
	•	Sound business fundamentals.  We will target businesses with dominant market positions, unique franchises, secure market niches or distinctive products or services.
	•	Experienced management team.  We will target businesses that have experienced management teams with a proven track record for delivering top line growth and bottom line profits through strategic business management and effective team building.
	•	Diversified customer and supplier base.  We will target businesses that have a diversified customer and supplier base. Companies with a diversified customer and supplier base are generally better able to endure economic downturns, industry consolidation, changing business preferences and other factors that may negatively impact their customers, suppliers and competitors.
	•	Forecast performance under sensitized assumptions.  We will target businesses whose projected financial performance justifies its acquisition value under sensitized assumptions. Also, by introducing variables to a company’s financial projections, we may be able to determine their reasonableness, as well as gain comfort in the business’ ability to weather industry or economic downturns.
	•	Downside protection through asset values.  We will target businesses with assets that have historically held value in downturns, thereby providing protection to our stockholders. Companies with such assets tend to find a “floor” in value and may provide a more stable market valuation as a result.

	•	Opportunity for “spin off” opportunities in target companies.   We will target businesses that may present an opportunity to create value by selling or spinning-off business units which the market may not be fully valuing as a part of the larger entity. The value “created” as a result of the sale or spin-off can then be used for various initiatives that benefit our stockholders, including (i) stock repurchases, (ii) acquisitions, (iii) debt repayment and (iv) capital improvements.
	•	Opportunity for future “bolt-on” acquisitions.  We will target businesses that provide opportunities for future “bolt-on” acquisitions as a means to deliver enhanced value. Through the use of strategic bolt-on acquisitions, we believe we may be able to create value in several ways, including (i) reducing operating costs and driving operational efficiencies; (ii) improving economies of scale; (iii) increasing valuation of the aggregate enterprise; (iv) complementing capabilities and/or management; (v) filling strategic gaps and diversifying the business; (vi) complementing organic growth initiatives and/or reducing time constraints of growing organically; (vii) improving competitive position; and (viii) applying best practices across combined entities.

	•	any investment opportunities in respect of companies in bankruptcy, or financially or operationally distressed companies;
	•	companies targeted for acquisition by any company in which an investment vehicle managed or advised by the Highland Group has an investment; and
	•	any entity in which any of our initial stockholders, officers, directors or the Highland Group or its affiliates has a financial interest.

Securities offered		25,000,000 units, at $10.00 per unit, each unit consisting of:

		• one share of common stock; and
		• one warrant.

Trading commencement and separation of common stock and warrants		The units will begin trading on or promptly after the date of this prospectus. The common stock and warrants comprising the units will begin separate trading on the 35th day following the date of this prospectus unless Citigroup Global Markets Inc. informs us of its decision to allow earlier separate trading, subject to our having filed the current report on Form 8-K described below and having issued a press release announcing when such separate trading will begin.

Separate trading of the common stock and warrants is prohibited until		In no event will the common stock and warrants be traded separately until we have filed a current report on Form 8-K with the SEC containing an audited balance sheet reflecting our receipt of the gross proceeds of this offering and issued a press release announcing when such separate trading will begin. We will file the Form 8-K promptly after the consummation of this offering, which is anticipated to take place four business days from the date of this prospectus. The audited balance sheet will include proceeds we receive from the exercise of the over-allotment option if such option is exercised prior to the filing of the Form 8-K. If the over-allotment option is exercised following the initial filing of such Form 8-K, we will file a second or amended Form 8-K to provide updated financial information to reflect the exercise of the over-allotment option.

Units

Number outstanding before this offering		7,187,5001

Number to be outstanding after this offering		31,250,0002

Common stock:

Number outstanding before this offering		7,187,500 shares1

Number to be outstanding after this offering		31,250,000 shares2

		Of the 31,250,000 shares to be outstanding after this offering, 6,250,000 shares (20%) are contained in the units held by our initial stockholders, and 25,000,000 shares (80%) are contained in the units being offered by this prospectus.
Warrants:

Number outstanding before this offering		7,187,500 warrants1

Number to be sold privately simultaneously with the closing of this offering		5,000,000

Number to be outstanding after this offering		36,250,000 warrants2

		Of the 36,250,000 warrants to be outstanding after this offering, 6,250,000 warrants are contained in the units held by our initial stockholders, 5,000,000 warrants are to be purchased by our founding stockholder in a private placement that will occur simultaneously with the closing of this offering and 25,000,000 warrants are contained in the units being offered by this prospectus.

Exercisability		Each warrant is exercisable for one share of common stock, subject to adjustment as described herein.

Exercise price		$7.50. Except as described below with respect to redemption of the warrants, holders of the warrants must pay the exercise price in full upon exercise of the warrants and will receive one share of common stock, subject to adjustment as described herein, per warrant. Holders will not be entitled to receive a net cash settlement upon exercise of the warrants.

Exercise period for the warrants included in the units sold in this offering		The warrants included in the units sold in this offering will become exercisable on the later of:

		• the completion of our initial business combination; or
		• one year from the date of this prospectus,

		provided in each case that we have an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the warrants.
		We have agreed to use our best efforts to have an effective registration statement covering shares of common stock issuable upon exercise of the warrants from the date the warrants become exercisable and to maintain a current prospectus relating to that common stock until the warrants expire or are redeemed. The warrants will expire at 5:00 p.m., New York time, on the date that is five years from the date of this prospectus or earlier upon redemption or liquidation of the trust account.

Redemption		At any time while the warrants are exercisable and there is an effective registration statement covering the shares of common stock issuable upon exercise of the warrants available and current, we may redeem the outstanding warrants (except as described below with respect to the founders’ warrants and private placement warrants):

		• 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; and
		• if, and only if, the last sale price of our common stock equals or exceeds $13.75 per share for any 20 trading days within a 30-trading day period ending three business days before we send the notice of redemption.
		We will not redeem the warrants, unless on the date we give notice of redemption and during the entire period thereafter until the time we redeem the warrants, we have an effective registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available. If we call the warrants for redemption as described above, our management will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.

Reasons for redemption limitations		We have established the above conditions to our exercise of redemption rights with the intent of:

		• providing warrant holders with adequate notice of redemption, and allowing them to exercise their warrants prior to

		redemption at a time when there is a reasonable premium to the warrant exercise price; and
		• providing a sufficient differential between the then-prevailing common stock price and the warrant exercise price so there is a buffer to absorb any negative market reaction to our redemption of the warrants.
		If the foregoing conditions are satisfied and we issue a notice of redemption, warrant holders can exercise their warrants at any time prior to the scheduled redemption date. However, the price of the common stock may fall below the $13.75 trigger price as well as the warrant exercise price after the redemption notice is issued.

Founders’ units		On October 4, 2007 our founding stockholder purchased an aggregate of 7,187,500 founders’ units for an aggregate purchase price of $25,000, or approximately $0.003 per unit. This includes an aggregate of 937,500 founders’ units subject to forfeiture to the extent that the underwriters’ over-allotment option is not exercised in full so that our initial stockholders will own 20% of our issued and outstanding common stock after this offering (excluding any units that they may purchase in or after this offering). Subsequent to the purchase of these founders’ units, our founding stockholder transferred at cost an aggregate of 34,500 of these founders’ units to Timothy K. Hui, Scott F. Kavanaugh, James F. Leary and Bryan A. Ward, each of whom is a director. Each founders’ unit consists of one founders’ share and one founders’ warrant.

		If the number of units we offer to the public is increased or decreased from the number shown in this prospectus prior to the conclusion of the offering, then the founders’ units, including the number of founders’ units subject to forfeiture, will be adjusted in the same proportion as the increase or decrease in the units offered hereby in order to maintain our initial stockholders’ 20% percentage ownership. We will not make or receive any cash payment in respect of any such adjustment.

Founders’ shares		The founders’ shares are identical to the shares of common stock included in the units being sold in this offering, except that our initial stockholders have agreed:

		• that the founders’ shares are subject to the transfer restrictions described below;

		• that the founders’ shares are subject to the voting agreement described below; and

		• to waive their rights to participate in any liquidation distribution with respect to the founders’ shares if we fail to consummate an initial business combination.

Founders’ warrants		The founders’ warrants are identical to those included in the units being sold in this offering, except that:

		• the founders’ warrants, including the common stock issuable upon exercise of these warrants, are subject to the transfer restrictions described below;
		• the founders’ warrants will become exercisable after the consummation of our initial business combination if and when (i) the last sales price of our common stock equals or exceeds $13.75 per share for any 20 trading days within any 30-trading day period beginning 90 days after such business combination and (ii) there is an effective registration statement covering the shares of common stock issuable upon exercise of the warrants contained in the units included in this offering;
		• the founders’ warrants will not be redeemable by us so long as they are held by the initial stockholders or their permitted transferees; and
		• the founders’ warrants may be exercised by our initial stockholders or their permitted transferees on a cashless basis.

		Although the shares of common stock issuable pursuant to the founders’ warrants will not be issued pursuant to a registration statement so long as they are held by our initial stockholders and their permitted transferees, the warrant agreement provides that the founders’ warrants may not be exercised unless a registration statement relating to the common stock issuable upon exercise of the warrants purchased in this offering is effective and a related current prospectus is available.

Limit order agreement		Our founding stockholder intends to enter into an agreement with Citigroup Global Markets Inc. in accordance with the guidelines of Rule 10b5-1 of the Exchange Act, pursuant to which it will place limit orders for up to $25.0 million of our common stock, commencing on the later of 10 business days after we file our current report on Form 8-K with the SEC announcing the execution of a definitive agreement for our initial business combination and 60 days after termination of the “restricted period” in connection with this offering under Regulation M of the Exchange Act and ending on the business day immediately preceding the record date for the meeting of stockholders at which our initial business combination is to be approved. The limit order will require our founding stockholder to purchase any of our shares of common stock offered for sale (and not purchased by another investor) at or below a price equal to the per share amount held in our trust account as reported in such Form 8-K, until the earlier of the expiration of the buyback period or until such purchases reach $25.0 million in total. Highland has agreed to purchase such securities in the event that our founding stockholder is unable to satisfy its obligations under this agreement. Neither our founding stockholder nor Highland will have any discretion or influence with respect to such purchases. The purchase of shares will be made by Citigroup Global Markets Inc. or another broker dealer mutually agreed upon by Citigroup Global Markets Inc. and our founding stockholder. It is intended that purchases pursuant to the limit order will be in accordance with

		Rule 10b-18 under the Exchange Act, and the broker’s purchase obligation will otherwise be subject to applicable law. The shares of common stock purchased pursuant to the limit order are subject to the transfer restrictions and voting agreement described below.

Private placement warrants		Our founding stockholder has agreed to use its own funds to purchase 5,000,000 warrants at a price of $1.00 per warrant, simultaneously with the closing of this offering. We refer to these warrants as the private placement warrants throughout this prospectus. The private placement warrants will be purchased separately and not in combination with common stock or in the form of units. The purchase price of the private placement warrants will be added to the proceeds from this offering to be held in the trust account at JPMorgan Chase Bank, N.A., to be maintained by American Stock Transfer & Trust Company pending our completion of an initial business combination. If we do not complete an initial business combination that meets the criteria described in this prospectus, then the $5.0 million purchase price of the private placement warrants will become part of the liquidation distribution to our public stockholders and the private placement warrants will expire worthless.

		The private placement warrants are identical to those included in the units being sold in this offering, except that:
		• the private placement warrants, including the common stock issuable upon exercise of these warrants, are subject to the transfer restrictions described below;
		• the private placement warrants will not be redeemable by us so long as they are held by the initial stockholders or their permitted transferees; and
		• the private placement warrants may be exercised by our initial stockholders or their permitted transferees on a cashless basis.

		Although the shares of common stock issuable pursuant to the private placement warrants will not be issued pursuant to a registration statement so long as they are held by our founding stockholder or its permitted transferees, the warrant agreement provides that the private placement warrants may not be exercised unless a registration statement relating to the common stock issuable upon exercise of the warrants purchased in this offering is effective and a related current prospectus is available.

Voting agreements		Our initial stockholders have agreed, in connection with the stockholder vote required to approve our initial business combination, to vote the founders’ shares in accordance with the majority of the shares of common stock voted by the public stockholders and to vote in favor of an amendment to our amended and restated certificate of incorporation to provide for our perpetual existence. Our initial stockholders, Highland and each of our officers and directors have also agreed that if it or he acquires shares of common stock in or following this offering, including shares of common stock acquired by our founding stockholder or Highland

		pursuant to the limit order described above, it or he will vote all such acquired shares in favor of our initial business combination and in favor of an amendment to our amended and restated certificate of incorporation to provide for our perpetual existence. As a result, our initial stockholders, Highland or any of our officers and directors may be able to influence the outcome of the vote on our initial business combination, but will not be able to exercise conversion rights with respect to any shares of our common stock purchased in this offering or the secondary market, including those purchased pursuant to the limit order. However, it or he will participate in any liquidation distributions with respect to any such shares of common stock in the event we fail to complete an initial business combination.

Transfer restrictions		Our initial stockholders have agreed not to sell or transfer the founders’ units, founders’ shares or founders’ warrants, including the common stock issuable upon exercise of these warrants, until 180 days after the consummation of our initial business combination except to certain permitted transferees as described below under the heading “Principal Stockholders — Transfer Restrictions,” who must agree to be bound by the same transfer restrictions and voting, waiver and forfeiture provisions. All of the founders’ units, founders’ common stock and founders’ warrants and underlying shares will cease to be subject to the transfer restrictions if, subsequent to our initial business combination, (i) the last sales price of our common stock equals or exceeds $13.75 per share for any 20 trading days within any 30-trading day period beginning 90 days after our initial business combination or (ii) we consummate a subsequent liquidation, merger, stock exchange or other similar transaction that results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property. Our founding stockholder has agreed not to sell or transfer the private placement warrants, until after we complete our initial business combination except to certain permitted transferees as described below under the heading “Principal Stockholders — Transfer Restrictions,” who must agree to be bound by these same transfer restrictions. Each of our founding stockholder and Highland has agreed that it will not sell or transfer any shares of common stock purchased by it pursuant to the limit order until 180 days after we have completed our initial business combination.

Registration rights		Concurrently with the issuance and sale of the securities in this offering, we will enter into an agreement with our initial stockholders with respect to securities held by them from time to time, including the founders’ units, founders’ shares, founders’ warrants, private placement warrants, and underlying shares, and any shares purchased pursuant to the limit order described above, granting them and their permitted transferees the right to demand that we register the resale of any of our securities held by them on a registration statement filed under the Securities Act. The registration rights will be exercisable with respect to the securities at any time commencing 30 days after the consummation of our initial business combination, provided that such registration statement would

		not become effective until after the lock-up period applicable to the securities being registered. We will bear the expenses incurred in connection with the filing of any such registration statements. Please see “Description of Securities — Securities Eligible for Future Sale — Registration rights” for more information.

Right of first review		We have entered into a business opportunity right of first review agreement with Highland, which provides that from the effective date of the registration statement of which this prospectus forms a part until the earlier of the filing by us of a current report on Form 8-K with the SEC announcing the execution of a definitive agreement for our initial business combination, or our liquidation, we will have a right of first review with respect to business combination opportunities of the Highland Group with a fair market value of $200 million or more that the Highland Group first becomes aware of after the effective date. The Highland Group will first offer any such business opportunity to us (subject to fiduciary obligations it has to its clients as a registered investment advisor) and will not, and will cause each other business entity within the Highland Group and each fund and other investment vehicle managed or advised by the Highland Group not to, pursue such business opportunity unless and until our board of directors has determined for any reason that we will not pursue such opportunity. Decisions by us to release the Highland Group to pursue any specific business opportunity will be made solely by a majority of our disinterested directors. This right of first review will not include:

		• any investment opportunities in respect of companies in bankruptcy, or financially or operationally distressed companies;
		• companies targeted for acquisition by any company in which an investment vehicle managed by the Highland Group has an investment; and
		• any entity in which any of our initial stockholders, officers, directors or the Highland Group or its affiliates has a financial interest.
Proposed American Stock Exchange symbols for our:

Units		HQA.U

Common stock		HQA

Warrants		HQA.WS

Offering and private placement warrants; private placement proceeds to be held in trust account; amounts payable prior to trust account distribution or liquidation		$244,150,000, or $9.77 per unit (or approximately $9.74 per unit or $280,150,000, if the over-allotment option is exercised in full) of the proceeds of this offering and the sale of the private placement warrants will be placed in a trust account at JPMorgan Chase Bank, N.A., pursuant to the trust agreement we will enter

		into with the trustee on the date of this prospectus. These proceeds include $7.5 million in deferred underwriting discounts and commissions (or approximately $8.63 million if the underwriters’ over-allotment option is exercised in full). We believe that the inclusion in the trust account of the purchase price of the private placement warrants and the deferred underwriting discounts and commissions is a benefit to our stockholders because additional proceeds will be available for distribution to investors if a liquidation of our company occurs prior to our completing an initial business combination. Proceeds in the trust account will not be released until the earlier of completion of an initial business combination or our liquidation. Unless and until our initial business combination is consummated, proceeds held in the trust account will not be available for our use for any purpose, including the payment of expenses related to this offering or the investigation, selection and negotiation of an agreement with one or more target businesses, except that there may be released to us from the trust account (i) interest income earned on the trust account balance to pay any income taxes on such interest and (ii) interest income earned of up to $3.0 million on the trust account balance, subject to adjustment, to fund our working capital requirements. If the size of this offering is increased, the amount of interest income earned on the trust account that can be released to us to fund our working capital will be increased proportionately. In addition, the amount of such interest will be increased proportionately to the extent the over-allotment option is exercised. With these exceptions, expenses incurred by us while seeking a business combination may be paid prior to an initial business combination only from $100,000 of the net proceeds of this offering not held in the trust account.

		Please see “Use of Proceeds” for additional information concerning the allocation of the proceeds of this offering.

Warrant proceeds potentially paid to us		None of the warrants, founders’ warrants or private placement warrants may be exercised until after the consummation of our initial business combination and, thus, after the proceeds of the trust account have been disbursed. Accordingly, the warrant exercise price, if any, for the warrants, founders’ warrants and private placement warrants will be paid directly to us and not placed in the trust account. However, if we call the warrants for redemption as described herein, our management will have the option to require all holders that wish to exercise the warrants to do so on a “cashless basis.” In addition, the founders’ warrants and private placement warrants may be exercised by our initial stockholders or their permitted transferees on a cashless basis. For these reasons, although the exercise of the warrants, founders’ warrants or private placement warrants may provide an additional source of liquidity for us, there can be no assurance when the warrants, founders’ warrants or private placement warrants will be exercised, if at all, and whether they will be exercised on a cash basis.

Limited payments to insiders		There will be no finder’s fees, reimbursements or cash payments made to our initial stockholders, officers, directors, the Highland Group or our or their affiliates for services rendered to us prior to or in connection with the consummation of an initial business combination, other than:

		• repayment of advances of $200,000 made to us by Highland to cover offering-related and organizational expenses;

		• a payment of an aggregate of $10,000 per month to Highland for office space, secretarial and administrative services;

		• customary fees in connection with any financing that the Highland Group may arrange or originate in connection with our initial business combination, provided that any such financing is on arm’s length terms and is described in the proxy materials we send to our stockholders in connection with our initial business combination; and

		• reimbursement for any out-of-pocket expenses related to this offering and identifying, investigating and consummating an initial business combination.

		Our audit committee will review and approve all payments made to our initial stockholders, officers, directors, the Highland Group or our or their affiliates, other than the repayment of the advances of $200,000 and the $10,000 per month payment described above, and any payments made to members of our audit committee will be reviewed and approved by our board of directors, with any interested director abstaining from such review and approval.

Release of amounts held in trust account at close of initial business combination		At the time we complete an initial business combination, following the distribution of (i) amounts due to any public stockholders who duly exercise their conversion rights (as described below) and (ii) deferred underwriting discounts and commissions that are equal to 3% of the gross proceeds of this offering, or $7.5 million (approximately $8.63 million if the over-allotment option is exercised in full), to the underwriters, the balance of the funds in the trust account will be released to us and may be used to pay all or a portion of the purchase price of our initial business combination. We may apply any funds released to us from the trust account not used to pay the purchase price — for example, because we paid all or a portion of the purchase price of our initial business combination using stock or debt securities — for general corporate purposes, including for maintenance or expansion of the operations of acquired businesses, the payment of principal or interest due on indebtedness incurred in consummating our initial business combination or to fund the purchase of other companies or for working capital.

Amended and restated certificate of incorporation		As discussed below, there are specific provisions of our amended and restated certificate of incorporation that may not be amended

		prior to the consummation of our initial business combination without the unanimous consent of our stockholders, including requirements to seek stockholder approval of an initial business combination and to allow our stockholders to seek conversion of their shares if they do not approve an initial business combination. While we have been advised that the validity of unanimous consent provisions under the Delaware General Corporation Law has not been settled, we view these provisions as obligations to our stockholders and will not take any action to amend or waive these provisions.

		Our amended and restated certificate of incorporation will provide that we will continue in existence only until 24 months after the date of this prospectus. If we have not completed an initial 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). In connection with any proposed initial 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 this limitation on our corporate life. We view this provision terminating our corporate life 24 months after the date of this prospectus as an obligation to our stockholders and will not take any action to amend or waive this provision to allow us to survive for a longer period of time except in connection with the consummation of an initial business combination.

Stockholders must approve our initial business combination		We will seek stockholder approval before effecting our initial business combination, even if the business combination would not ordinarily require stockholder approval under the Delaware General Corporation Law. In connection with the vote required for our initial business combination, a majority of our issued and outstanding common stock (whether or not held by public stockholders), present in person or by proxy, will constitute a quorum. We will consummate our initial business combination only if (i) a majority of the shares of common stock voted by the public stockholders present in person or by proxy at a duly held stockholders meeting are voted in favor of our initial business combination, (ii) a majority of the outstanding shares of our common stock are voted in favor of the amendment to our amended and restated certificate of incorporation to provide for our perpetual existence and (iii) not more than 30% of the shares (minus one

		share) sold in this offering are voted against the initial business combination and exercise their conversion rights described below. It is important to note that voting against our initial business combination alone will not result in a conversion of your shares into a pro rata share of the trust account, which will only occur when you exercise your conversion rights as described in this prospectus.

Conditions to consummating our initial business combination		Our initial business combination must occur with one or more target businesses that have an aggregate fair market value of at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions of $7.5 million or approximately $8.63 million if the over-allotment option is exercised in full) at the time of such business combination. If we acquire less than 100% of one or more target businesses in our initial business combination, the aggregate fair market value of the portion or portions we acquire must equal at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions as described above) at the time of such initial business combination. We will only consummate a business combination in which we become the controlling stockholder of the target. The key factor that we will rely on in determining controlling stockholder status would be our acquisition of at least 50.1% of the voting equity interests of the target company. We will not consider any transaction that does not meet such criteria.

Conversion rights for public stockholders voting to reject our initial business combination		Public stockholders voting against our initial business combination will be entitled to convert their shares of common stock into a pro rata share of the aggregate amount then on deposit in the trust account (before payment of deferred underwriting discounts and commissions and including interest earned on their pro rata portion of the trust account, net of income taxes payable on such interest and net of interest income of up to $3.0 million, subject to adjustment, on the trust account balance previously released to us to fund our working capital requirements) only if our initial business combination is approved and completed. If a vote on an initial business combination is held and the initial business combination is not approved, we may continue to try to consummate a business combination with a different target until 24 months after the date of this prospectus. The initial stockholders, Highland and our officers and directors will not be able to exercise conversion rights with respect to any of our shares that they may acquire prior to, in or after this offering.

		A public stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” will be restricted from seeking conversion rights with respect to more than 10% of the shares sold in this offering. Such a public stockholder would still be entitled to vote against a proposed business combination with respect to all shares owned by him or his affiliates. We believe this restriction will prevent stockholders

		from accumulating large blocks of stock before the vote held to approve a proposed business combination and attempt to use the conversion right as a means to force us or our management to purchase their stock at a significant premium to the then current market price. Absent this provision, for example, a public stockholder who owns 15% of the shares sold in this offering could threaten to vote against a proposed business combination and seek conversion, regardless of the merits of the transaction, if his shares are not purchased by us or our management at a premium to the then current market price (or if management refuses to transfer to him some of their shares). By limiting each stockholder’s ability to convert only up to 10% of the shares sold in this offering, we believe we have limited the ability of a small group of stockholders to unreasonably attempt to block a transaction which is favored by our other public stockholders. However, we are not restricting the stockholders’ ability to vote all of their shares against the transaction.

		Public stockholders who convert their common stock into a pro rata share of the trust account will be paid the conversion price on the closing date of our initial business combination and will continue to have the right to exercise any warrants they own. The initial per-share conversion price is expected to be $9.77 per share (or approximately $9.74 per share if the over-allotment option is exercised in full). Since this amount is less than the $10.00 per unit price in this offering and may be lower than the market price of the common stock on the date of conversion, there may be a disincentive on the part of public stockholders to exercise their conversion rights. Because converting stockholders will receive their proportionate share of the deferred underwriting compensation and the underwriters will be paid the full amount of the deferred underwriting compensation at the time of closing of our initial business combination, the non-converting stockholders will bear the financial effect of such payments to both the converting stockholders and the underwriters. This could have the effect of reducing the amount distributed to us from the trust account by up to approximately $73,274,990 (assuming conversion of the maximum of 7,499,999 shares of common stock).

		An eligible public stockholder who wishes to exercise its conversion rights will be required to notify us of its election to convert in accordance with the procedures described in this prospectus. Such election to convert will not be valid unless the public stockholder votes against our initial business combination, the initial business combination is approved and completed, the public stockholder holds its shares through the closing of the initial business combination and the public stockholder follows the specific procedures for conversion that will be set forth in the proxy statement relating to the proposed initial business combination. We may require public stockholders to tender their certificates to our transfer agent prior to the meeting or to deliver their shares to the transfer agent electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System. We will notify investors on a current report on Form 8-K and in our

		proxy statement related to the initial business combination if we impose this requirement. The foregoing is different from the procedures used by many blank check companies. Traditionally, in order to perfect conversion rights in connection with a blank check company’s business combination, a stockholder could simply vote against a proposed initial business combination and check a box on the proxy card indicating such stockholder was seeking to exercise its conversion rights. After the initial business combination was approved, the company would contact such stockholder to arrange for him, her or it to deliver his, her or its certificate to verify ownership. As a result, the stockholder then had an “option window” after the consummation of the initial business combination during which he, she or it could monitor the price of the stock in the market. If the price rose above the conversion price, the stockholder could sell his, her or its shares in the open market before actually delivering his, her or its shares to the company for cancellation in consideration for the conversion price.
		Thus, the conversion right, to which stockholders were aware they needed to commit to before the stockholder meeting, would become a “put” right surviving past the consummation of the business combination until the converting holder delivered his certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a converting holder’s election to convert is irrevocable once the business combination is approved.
		In connection with a vote on our initial business combination, public stockholders may elect to vote a portion of their shares for and a portion of their shares against the initial business combination. If the initial business combination is approved and consummated, public stockholders who elected to convert the portion of their shares voted against the initial business combination will receive the conversion price with respect to those shares and may retain any other shares they own.

Liquidation if no business combination		If we are unable to complete a business combination within 24 months after the date of this prospectus, our existence will cease except for the purposes of winding up our affairs and liquidating pursuant to Section 278 of the Delaware General Corporation Law, in which case we will as promptly as practicable thereafter adopt a plan of distribution that makes reasonable provision for claims against us in accordance with Section 281(b) of the Delaware General Corporation Law. Upon adoption of our plan of distribution, the trustee will commence liquidating the investments constituting the trust account and distribute the proceeds to our public stockholders.

		Section 278 of the Delaware General Corporation Law provides that even after we cease our business activities and distribute the balance of the trust account to our public stockholders, our existence will continue for at least three years after our expiration for the purpose of prosecuting and defending suits, whether civil, criminal or administrative, by or against us, and of enabling us

		gradually to settle and close our business, to dispose of and convey our property, to discharge our liabilities and to distribute to our stockholders any remaining assets, but not for the purpose of continuing the business for which we were organized. Our existence will continue automatically even beyond the three-year period for the purpose of completing the prosecution or defense of suits begun prior to the expiration of the three-year period, until such time as any judgments, orders or decrees resulting from such suits are fully executed. Section 281(b) will require us to pay or make reasonable provision for all then-existing claims and obligations, including all contingent, conditional, or unmatured contractual claims known to us, and to make such provision as will be reasonably likely to be sufficient to provide compensation for any then-pending claims and for claims that have not been made known to us or that have not arisen but that, based on facts known to us at the time, are likely to arise or to become known to us within 10 years after the date of cessation of our business activities.

		Under Section 281(b), the plan of distribution must provide for all of such claims to be paid in full or make provision for payments to be made in full, as applicable, if there are sufficient assets. If there are insufficient assets to provide for all such claims, the plan must provide that such claims and obligations be paid or provided for according to their priority and, among claims of equal priority, ratably to the extent of legally available assets. Under Delaware law, absent a valid and enforceable waiver or other special circumstances, creditors of a corporation have a superior right to stockholders in the distribution of assets upon liquidation. These claims must be paid or provided for before we make any distribution of our remaining assets to our stockholders. While we intend to pay such amounts, if any, from the $100,000 of proceeds held outside the trust account and from the $3.0 million of interest income, subject to adjustment, earned on the trust account available to us for working capital, we cannot assure you those funds will be sufficient to pay or provide for all creditors’ claims. Although we will seek to have all third parties (including any vendors and any other entities with which we enter into a contractual relationship following consummation of this offering) and prospective target businesses enter into valid and enforceable agreements with us waiving any right, title, interest or claim of any kind in or to any assets held in the trust account, there is no guarantee that they will execute such agreements. We have not engaged any such third parties or asked for or obtained any such waiver agreements at this time. It is also possible that such waiver agreements would be held unenforceable, and there is no guarantee that the third parties would not otherwise challenge the agreements and later bring claims against the trust account for amounts owed them. In addition, there is no guarantee that these third parties will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Our founding stockholder and Highland

		have agreed that they will be liable to us if and to the extent claims by third parties reduce the amounts in the trust account available for payment to our stockholders in the event of a liquidation and the claims are made by a vendor for services rendered or products sold to us, by a third party with which we entered into a contractual relationship following consummation of this offering or by a prospective target business, except (1) as to any claimed amounts owed to a third party who executed a valid and enforceable waiver, or (2) as to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act.
		We expect that all costs and expenses associated with implementing our plan of distribution, as well as payments to any creditors, will be funded from amounts remaining out of the $100,000 of proceeds held outside the trust account and from the $3.0 million in interest income, subject to adjustment, on the balance of the trust account that will be released to us to fund our working capital requirements. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of distribution, to the extent that there is any interest accrued in the trust account not required to pay income taxes on interest income earned on the trust account balance, we may request that the trustee release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses.

		Our initial stockholders have waived their rights to participate in any liquidation distribution with respect to the founders’ shares if we do not consummate our initial business combination. Additionally, if we do not complete an initial business combination and the trustee must distribute the balance of the trust account, the underwriters have agreed to forfeit any rights or claims to their deferred underwriting discounts and commissions then in the trust account, and those funds will be included in the pro rata liquidation distribution to the public stockholders. There will be no distribution from the trust account with respect to any of our warrants, which will expire worthless if we are liquidated, and as a result purchasers of our units will have paid the full unit purchase price solely for the share of common stock included in each unit.

		If we are unable to conclude an initial business combination and we expend all of the net proceeds of this offering and the initial stockholders’ investment other than the proceeds deposited in the trust account, without taking into account any interest earned on the trust account, we expect that the initial per-share liquidation price will be $9.77 (or approximately $9.74 per share if the over-allotment option is exercised in full), or approximately $0.23 less than the per-unit offering price of $10.00 (approximately $0.26 less if the over-allotment is exercised in full). The proceeds deposited in the trust account could, however, become subject to claims of our creditors that are in preference to the claims of our stockholders. In addition, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us that is not dismissed, the proceeds held in the trust account could be

		subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. Therefore, we cannot assure you that the actual per-share liquidation price will not be less than $9.77 (or approximately $9.74 per share if the over-allotment option is exercised in full).

Highland and Mr. Dondero, our Chairman and Chief Executive Officer, have entered into non-compete agreements with us		Until the earlier of the filing by us of a current report Form 8-K with the SEC announcing the execution of a definitive agreement for our initial business combination, or our liquidation, neither the Highland Group nor Mr. Dondero, our Chairman and Chief Executive Officer, will become a sponsor, promoter, officer, director or stockholder of any other blank check company.

Audit committee to monitor compliance		Effective upon consummation of this offering, we will establish and will maintain an audit committee to, among other things, monitor compliance on a quarterly basis with the terms of this offering and, if any noncompliance is identified, the audit committee is charged with the immediate responsibility to take all action necessary to rectify such noncompliance or otherwise cause compliance with the terms of this offering.

Determination of offering amount		In determining the size of this offering, our management concluded, based on their collective experience in financing, structuring and otherwise capitalizing target businesses, that an offering of this size, together with the proceeds of the private placement warrants, would provide us with sufficient equity capital to execute our business plan. In making such determination, our management also considered what size offering we believed would be successfully received given market conditions, our management, and the size of initial public offerings of other similarly structured blank check companies. We believe that this amount of equity capital, plus our ability to finance an acquisition using stock or debt in addition to the cash held in the trust account, will give us substantial flexibility in selecting an acquisition target and structuring our initial business combination. This belief is not based on any research, analysis, evaluations, discussions, or compilations of information with respect to any particular investment or any such action undertaken in connection with our organization. We cannot assure you that our belief is correct, that we will be able to successfully identify acquisition candidates, that we will be able to obtain any necessary financing or that we will be able to consummate a transaction with one or more target businesses whose fair market value, collectively, is equal to at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions of approximately $7.5 million or approximately $8.63 million if the over-allotment option is exercised in full) at the time of the initial business combination.

		October 5, 2007
		Actual				As Adjusted(1)
Balance Sheet Data:
Working capital (deficiency)		$	(106,748	)		$	236,754,036
Total assets			335,784				236,754,036
Total liabilities			331,748				—
Value of common stock which may be converted to cash (approximately $9.77 per share)(2)			—				73,274,990
Stockholders’ equity			4,036				163,479,046

(1)		The “as adjusted” information gives effect to the sale of units in this offering including the application of the related gross proceeds and the payment of expenses and the receipt of $5.0 million from the sale of the private placement warrants. The “as adjusted” working capital and total assets exclude $7.5 million being held in the trust account (approximately $8.63 million if the underwriters’ over-allotment option is exercised in full) representing deferred underwriting discounts and commissions.
(2)		Assumes no exercise of the over-allotment option. Assuming the over-allotment option is exercised in full, the value of common stock which may be converted to cash is approximately $84,007,490.

 

RISK FACTORS

 

An investment in our securities involves a high degree of risk. You should consider carefully all of the material risks described below, together with the other information contained in this prospectus before making a decision to invest in our units. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described below.

 

Risks associated with our business

 

We are a development stage company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.

 

We are a recently incorporated development stage company with no operating results, and we will not commence operations until we obtain funding through this offering. Because we lack an operating history, you have no basis on which to evaluate our ability to achieve our business objective of completing an initial business combination with one or more target businesses. We have no plans, arrangements or understandings with any prospective target businesses concerning an initial business combination and may be unable to complete an initial business combination. We will not generate any revenues from operating activities until, at the earliest, after completing an initial business combination. We cannot assure you as to when, or if, an initial business combination will occur. If we expend all of the $100,000 in proceeds from this offering not held in the trust account and interest income earned of up to $3.0 million, subject to adjustment, on the balance of the trust account that may be released to us to fund our working capital requirements in seeking an initial business combination, but fail to complete such an initial combination, we may never generate any operating revenues.

 

The report of PricewaterhouseCoopers LLP, our independent registered public accounting firm, says that we may be unable to continue as a going concern.

 

We have no revenues from our operations and our viability as a going concern depends on our ability to consummate this offering successfully. The report of PricewaterhouseCoopers LLP, our independent registered public accountants, on our financial statements includes an explanatory paragraph stating that our business plan is dependent upon our obtaining adequate financing which raises substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from our inability to consummate this offering or our ability to continue as a going concern.

 

We may not be able to consummate our initial business combination within the required time frame, in which case our corporate existence would cease and we would liquidate our assets.

 

We must complete our initial business combination with one or more target businesses that have a fair market value of at least 80% of the amount held in our trust account at the time of the initial business combination (excluding deferred underwriting discounts and commissions of $7.5 million, or approximately $8.63 million if the over-allotment option is exercised in full) within 24 months after the date of this prospectus. If we fail to consummate a business combination within the required time frame, our corporate existence will cease and we will liquidate our assets. The foregoing requirements are set forth in our amended and restated certificate of incorporation and, until the consummation of our initial business combination, may not be eliminated without the vote of our board of directors and the vote of 100% of the shares of our outstanding voting stock cast at a meeting of the stockholders at which a quorum is present. We may not be able to find suitable target businesses within the required time frame.

 

Because we will not use information relating to specific target businesses known by the Highland Group prior to the completion of this offering, we may not be presented with certain target businesses appropriate for us, which could increase the difficulty of consummating an initial business combination.

 

We do not have any specific initial business combination under consideration and we have not, nor has anyone on our behalf, contacted any prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction. Additionally, we have not sought, nor have we engaged or

retained any agent or other representative, to identify or locate any suitable acquisition candidate, conduct any research or take any measures, directly or indirectly, to locate or contact a target business. In addition, because of the nature of the Highland Group business, executives associated with the Highland Group, including Messrs. Dondero, Dougherty, McGovern and Okada, occasionally receive unsolicited inquiries that identify companies that are potentially for sale. Management has not and will not respond to any such inquiries, nor will it pursue any potential targets that such unsolicited inquiries have identified prior to the completion of this offering. Other than such inquiries, management has not received any inquiries regarding potential target businesses. Further, after completion of this offering, we will not use information relating to specific target businesses that was known by the Highland Group’s investment professionals or any other affiliates prior to the completion of this offering, consequently we may not be presented with certain target businesses that would be appropriate for us, which could increase the difficulty of consummating an initial business combination.

 

If we liquidate before concluding an initial business combination, our public stockholders will receive less than $10.00 per share on distribution of trust account funds and our warrants will expire worthless.

 

If we are unable to complete an initial business combination within the required time period and must liquidate our assets, the per-share liquidation distribution will be less than $10.00 because of the expenses of this offering, our general and administrative expenses and the costs of seeking an initial business combination. Furthermore, our outstanding warrants are not entitled to participate in a liquidation distribution and the warrants will therefore expire worthless if we liquidate before completing an initial business combination; and as a result purchasers of our units will have paid the full unit purchase price solely for the share of common stock included in each unit, will realize less than $10.00 for each such share, and will not receive any money for such warrant. For a more complete discussion of the effects on our stockholders if we are unable to complete an initial business combination, please see “Proposed Business — Effecting a Business Combination — Liquidation if no business combination.”

 

If we are unable to consummate our initial business combination, our public stockholders will be forced to wait, at a minimum, the full 24 months before receiving liquidation distributions.

 

We have 24 months after the date of this prospectus to consummate our initial business combination. If we do not consummate our initial business combination during such time period, our corporate existence will automatically cease without the need of a stockholder vote and we will liquidate in accordance with our amended and restated certificate of incorporation. We have no obligation to return funds to public stockholders prior to such date unless we consummate our initial business combination prior thereto and only then in cases where public stockholders have sought conversion of their shares. Only after the expiration of this full time period will public stockholders be entitled to liquidation distributions if we are unable to complete our initial business combination. Further, we may not be able to disburse the funds in our trust account immediately following the expiration of such 24-month period until we have commenced the liquidation process in accordance with our amended and restated certificate of incorporation and the Delaware General Corporation Law.

 

Public stockholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group,” will be restricted from seeking conversion rights with respect to more than 10% of the shares sold in this offering.

 

When we seek stockholder approval of any business combination, we will offer each public stockholder (but not our initial stockholders) the right to have his, her, or its shares of common stock converted to cash if the stockholder votes against the business combination and the business combination is approved and completed. Notwithstanding the foregoing, a public stockholder, together with any affiliate of his, hers or it or any other person with whom he, she or it is acting in concert or as a “group” will be restricted from seeking conversion rights with respect to more than 10% of the shares sold in this offering. Accordingly, if you purchase more than 10% of the shares sold in this offering, vote all of your shares against a proposed business combination and such proposed business combination is approved, you will not be able to seek conversion rights with respect to the full amount of your shares and may be forced to hold such additional shares or sell them in the open market. We cannot assure you that the value of such additional shares will

appreciate over time following a business combination or that the market price of the common stock will exceed the per-share conversion price.

 

We may require public stockholders who wish to convert their shares to comply with specific requirements for conversion that may make it more difficult for them to exercise their conversion rights prior to the deadline for exercising conversion rights.

 

We may require public stockholders who wish to convert their shares to tender their certificates to our transfer agent prior to the stockholder meeting or to deliver their shares to the transfer agent electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System. 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 convert may be unable to obtain physical certificates by the deadline for exercising their conversion rights and thus will be unable to convert their shares.

 

We may proceed with an initial business combination even if public stockholders owning 7,499,999 of the shares sold in this offering exercise their conversion rights. This requirement may make it easier for us to have an initial business combination approved over stockholder dissent.

 

We may proceed with an initial business combination as long as public stockholders owning less than 30% of the shares sold in this offering both vote against the business combination and exercise their conversion rights, provided that a public stockholder, together with any affiliate of his, hers or it or any other person with whom he, she or it is acting in concert or as a “group,” will be restricted from seeking conversion rights with respect to more than 10% of the shares sold in this offering. Accordingly, public stockholders holding up to 7,499,999 shares of our common stock may both vote against the initial business combination and exercise their conversion rights and we could still consummate a proposed initial business combination. We have set the conversion percentage at 30% and limited the percentage of shares that a public stockholder, together with any of his, her or its affiliates or other persons with whom he, she or it is acting in concert or as a “group,” can convert in order to reduce the likelihood that a small group of investors holding a block of our stock will be able to stop us from completing an initial business combination that is otherwise approved by a large majority of our public stockholders. However, this may have the effect of making it easier for us to have an initial business combination approved over a stockholder dissent. While there are several other offerings similar to ours that include conversion provisions greater than 20%, the 20% threshold has generally been common for offerings similar to ours. Because we permit a larger number of public stockholders to exercise their conversion rights and have limited the percentage of shares that they, together with any of their affiliates or other persons with whom they are acting in concert or as a “group,” can convert, it will make it easier for us to have an initial business combination approved over stockholder dissent.

 

An effective registration statement must be in place in order for a warrant holder to be able to exercise the warrants, otherwise the warrants will expire worthless.

 

No warrants will be exercisable and we will not be obligated to issue shares of common stock upon exercise of warrants by a holder unless, at the time of such exercise, we have an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the warrants purchased in this offering and a current prospectus relating to them is available. Although we have undertaken in the warrant agreement, and therefore have a contractual obligation, to use our best efforts to have an effective registration statement covering shares of common stock issuable upon exercise of the warrants from the date the warrants become exercisable and to maintain a current prospectus relating to that common stock until the warrants expire or are redeemed, and we intend to comply with our undertaking, we cannot assure you that we will be able to do so or that we will be able to prevent the warrants from expiring worthless. Holders of warrants may not be able to exercise their warrants, the market for the warrants may be limited and the warrants may be deprived of any value if there is no

effective registration statement covering the shares of common stock issuable upon exercise of the warrants purchased in this offering or the prospectus relating to the common stock issuable upon the exercise of the warrants purchased in this offering is not current. In such event, the holder of a unit will have paid the entire unit purchase price for the common stock contained in the unit as the warrant will be worthless. Holders of warrants will not be entitled to a cash settlement for their warrants if we fail to have an effective registration statement or a current prospectus available relating to the common stock issuable upon exercise of the warrants, and holders’ only remedies in such event will be those available if we are found by a court of law to have breached our contractual obligation to them to use our best efforts to do so.

 

You will not be entitled to protections normally afforded to investors in blank check companies.

 

Since the net proceeds of this offering are intended to be used to complete an initial business combination with a target business that has not been identified, we may be deemed a “blank check” company under the U.S. securities laws. However, since we expect our securities will be listed on the American Stock Exchange, a national securities exchange, and we will have net tangible assets in excess of $5 million upon the successful consummation of this offering and will file a Current Report on Form 8-K including an audited balance sheet demonstrating this fact, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, investors in this offering will not receive the benefits or protections of Rule 419. Among other things, this means our units will be immediately tradable and we will have a longer period of time to complete a business combination in some circumstances than do companies subject to Rule 419. Moreover, offerings subject to Rule 419 would prohibit the release of any interest earned on funds held in the trust account to us unless and until the funds in the trust account were released to us in connection with our consummation of an initial business combination. For a more detailed comparison of our offering to offerings that comply with Rule 419, please see “Proposed Business — Comparison of This Offering to Those of Blank Check Companies Subject to Rule 419.”

 

Under the Delaware General Corporation Law, a court could invalidate the requirement that certain provisions of our amended and restated certificate of incorporation be amended only by unanimous consent of our stockholders; amendment of those provisions could reduce or eliminate the protections they afford to our stockholders.

 

Our amended and restated certificate of incorporation will contain certain requirements and restrictions relating to this offering that will apply to us until the consummation of our initial business combination. Specifically, our amended and restated certificate of incorporation will provide, among other things, that:

 

 

 

 

 

 

 

Our amended and restated certificate of incorporation will require that prior to the consummation of our initial business combination we obtain unanimous consent of our stockholders to amend these provisions. However, the validity of unanimous consent provisions under the Delaware General Corporation Law has not been settled. Section 242(b) of the Delaware General Corporation Law provides in relevant part that permitted amendments to a company’s certificate of incorporation may be effected by the holders of a majority of the outstanding stock entitled to vote thereon. A court could conclude that the unanimous consent requirement constitutes a practical prohibition on amendment in violation of the stockholders’ statutory rights to amend the corporate charter. In that case, these provisions could be amended without unanimous consent, and any such amendment could reduce or eliminate the protection these provisions afford to our stockholders. However, we view all of the foregoing provisions as obligations to our stockholders. Neither we nor our board of directors will propose any amendment to these provisions, or support, endorse or recommend any proposal that stockholders amend any of these provisions at any time prior to the consummation of our initial business combination (subject to any fiduciary obligations our management or board of directors may have). In addition, we believe we have an obligation in every case to structure our initial business combination so that not less than 30% of the shares sold in this offering (minus one share) have the ability to be converted to cash by public stockholders exercising their conversion rights and the business combination will still go forward.

If third parties bring claims against us, or if we go bankrupt, the proceeds held in trust could be reduced and the per-share liquidation price received by you will be less than $9.77 per share (or approximately $9.74 per share if the over-allotment option is exercised in full).

 

Our placing of funds in the trust account may not protect those funds from third-party claims against us. Although prior to completion of our initial business combination, we will seek to have all third parties (including any vendors and any other entities with which we enter into a contractual relationship following consummation of this offering) or any prospective target businesses enter into valid and enforceable agreements with us waiving any right, title, interest or claim of any kind in or to any assets held in the trust account, there is no guarantee that they will execute such agreements. It is also possible that such waiver agreements would be held unenforceable and there is no guarantee that the third parties would not otherwise challenge the agreements and later bring claims against the trust account for amounts owed them. In addition, there is no guarantee that these third parties will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Further, we could be subject to claims from parties not in contract with us who have not executed a waiver, such as a third party claiming tortious interference as a result of our initial business combination. Under Delaware law, absent a valid and enforceable waiver or other special circumstances, creditors of a corporation have a superior right in the distribution of assets upon liquidation. Accordingly, the proceeds held in trust could be subject to claims that would take priority over the claims of our public stockholders and, as a result, the per-share liquidation price could be less than $9.77 (or $9.74 per share if the over-allotment option is exercised in full). Our founding stockholder and Highland have agreed that they will be liable to us if and to the extent claims by third parties reduce the amounts in the trust account available for payment to our stockholders in the event of a liquidation and the claims are made by a vendor for services rendered or products sold to us, by a third party with which we entered into a contractual relationship following consummation of this offering or by a prospective target business. However, the agreement entered into by our founding stockholder and Highland specifically provides for two exceptions to the indemnity given: there will be no liability (1) as to any claimed amounts owed to a third party who executed a valid and enforceable waiver, or (2) as to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. Furthermore, there could be claims from parties other than vendors, third parties with which we entered into a contractual relationship or target businesses that would not be covered by the indemnity from our founding stockholder and Highland, such as stockholders and other claimants who are not parties in contract with us who file a claim for damages against us. Based on representations as to their status as accredited investors (as such term is defined in Regulation D under the Securities Act), we currently believe that our founding stockholder and Highland are capable of funding their indemnity obligations, even though we have not asked them to reserve for such an eventuality. We cannot assure you, however, that our founding stockholder and Highland would be able to satisfy those obligations.

 

In addition, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you that we will be able to return at least $9.77 per share (or approximately $9.74 per share if the over-allotment option is exercised in full) to our public stockholders.

 

Because we have not yet selected a particular industry or any target business with which to complete our initial business combination, you will be unable to currently ascertain the merits or risks of the industry or business in which we may ultimately operate.

 

We may consummate an initial business combination with a company in any industry we choose and we are not limited to any particular industry or type of business. Accordingly, there is no current basis for you to evaluate the possible merits or risks of the particular industry in which we may ultimately operate or the target business or businesses with which we may ultimately enter an initial business combination. Although the members of our management team will evaluate the risks inherent in a particular target

business, we cannot assure you that we will properly ascertain or assess all of the significant risks present in that target business. Even if we properly assess those risks, some of them may be outside of our control or ability to affect. For a more complete discussion of our selection of a target business, please see “Proposed Business — Effecting a Business Combination.”

 

If our reserves for claims and liabilities to third parties are insufficient, our stockholders may be held liable for third parties’ claims against us to the extent of distributions received by them upon liquidation.

 

Our amended and restated certificate of incorporation will provide that we will continue in existence only until 24 months after the date of this prospectus. If we consummate our initial business combination prior to that date, we will seek to amend this provision to permit our continued existence. If we have not completed our initial business combination by that date, our corporate existence will cease except for the purposes of winding up our affairs and liquidating pursuant to Section 278 of the Delaware General Corporation Law. Under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by those stockholders upon liquidation. However, if the corporation complies with certain procedures intended to ensure that it makes reasonable provision for all claims against it, the liability of stockholders with respect to any claim against the corporation is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder. In addition, if the corporation undertakes additional specified procedures, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidation distributions are made to stockholders, any liability of stockholders would be barred with respect to any claim on which an action, suit or proceeding is not brought by the third anniversary of the termination of our corporate existence (or such longer period directed by the Delaware Court of Chancery). While we intend to adopt a plan of distribution making reasonable provision for claims against the company in compliance with the Delaware General Corporation Law, we do not intend to comply with these additional procedures, as we instead intend to distribute the balance in the trust account to our public stockholders as promptly as practicable following termination of our corporate existence. Accordingly, any liability our stockholders may have could extend beyond the third anniversary of our termination. We cannot assure you that any reserves for claims and liabilities that we believe to be reasonably adequate when we adopt our plan of distribution will suffice. If such reserves are insufficient, stockholders who receive liquidation distributions may subsequently be held liable for claims by creditors of the company to the extent of such distributions.

 

A decline in interest rates could limit the amount available to fund our search for a target business or businesses since we will depend on interest earned on the trust account to fund our search, to pay our taxes and to fund our working capital requirements.

 

Of the net proceeds of this offering, only $100,000 will be available to us initially outside the trust account to fund our working capital requirements. We will depend on sufficient interest being earned on the proceeds held in the trust account to provide us with up to $3.0 million, subject to adjustment, of additional working capital we may need to identify one or more target businesses, to negotiate and obtain approval of our initial business combination, as well as to pay any taxes that we may owe. A substantial decline in interest rates may result in our having insufficient funds available with which to structure, negotiate or obtain approval of our initial business combination. In such event, we may be required to seek loans or additional investments from our founding stockholder, officers or directors or from third parties or be forced to liquidate. However, none of our founding stockholder, officers or directors or any third parties is under any obligation to advance funds to us or invest in us in such circumstances.

 

An increase in the size of this offering or exercise by the underwriters of their over-allotment option may reduce the amount of interest income held in the trust account and the amount payable to our public stockholders upon our liquidation or their exercise of conversion rights.

 

If the size of this offering is increased or the underwriters elect to exercise the over-allotment option, the amount of interest we may withdraw from the trust account to fund our working capital will be increased proportionately. If the underwriters exercise their over-allotment option in full, the amount per

share held in trust reduces from $9.77 to $9.74. In addition, assuming a 20% increase in the size of this offering, the per-share conversion or liquidation price could decrease by as much as approximately $0.03.

 

Because of our limited resources and the significant competition for business combination opportunities we may not be able to consummate an attractive initial business combination.

 

We expect to encounter intense competition from other entities having a business objective similar to ours, including venture capital funds, leveraged buyout funds, private equity funds and public and private companies (including blank check companies like ours). Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential target businesses that we could acquire, our ability to compete in acquiring certain sizable target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. In addition, the fact that only a limited number of blank check companies have completed a business combination may be an indication that there are only a limited number of attractive target businesses available to such entities or that many potential target businesses may not be inclined to enter into business combinations with publicly held blank check companies like ours. Further:

 

 

Any of these obligations may place us at a competitive disadvantage in successfully negotiating a business combination. We cannot assure you that we will be able to successfully compete for an attractive business combination. Additionally, because of these factors, we cannot assure you that we will be able to effectuate a business combination within the required time periods. If we are unable to find a suitable target business within the required time period, our corporate existence will automatically cease and we will be forced to liquidate.

 

We may be unable to obtain additional financing if necessary to complete our initial business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination.

 

Because we have no oral or written agreements or letters of intent to engage in a business combination with any entity, we cannot assure you that we will be able to complete our initial business combination or that we will have sufficient capital with which to complete a combination with a particular target business. If the net proceeds of this offering and the private placement warrants are not sufficient to facilitate a particular business combination because:

 

 

we will be required to seek additional financing. We cannot assure you that such financing will be available on acceptable terms, if at all. If additional financing is unavailable to consummate a particular business combination, we would be compelled to restructure or abandon the combination and seek an alternative target business.

In addition, it is possible that we could use a portion of the funds not in the trust account (including amounts we borrowed, if any) to make a deposit, down payment or fund a “no-shop” provision with respect to a particular proposed business combination, although we do not have any current intention to do so. In the event that we were ultimately required to forfeit such funds, and we had already used up the funds allocated to due diligence and related expenses in connection with the aborted transaction, we could be left with insufficient funds to continue searching for, or conduct due diligence with respect to, other potential target businesses.

 

Even if we do not need additional financing to consummate a business combination, we may require additional capital — in the form of debt, equity, or a combination of both — to operate or grow any potential business we may acquire. There can be no assurance that we will be able to obtain such additional capital if it is required. If we fail to secure such financing, this failure could have a material adverse effect on the operations or growth of the target business. None of our officers or directors or any other party is required to provide any financing to us in connection with, or following, our initial business combination.

 

If we issue capital stock or convertible debt securities to complete our initial business combination, your equity interest in us could be reduced or there may be a change in control of our company.

 

Our amended and restated certificate of incorporation will authorize the issuance of up to 200,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. Immediately after this offering (assuming no exercise of the underwriters’ over-allotment option), there will be 132,500,000 authorized but unissued shares of our common stock available for issuance (after appropriate reservation for the issuance of shares upon full exercise of our outstanding warrants, including the founders’ warrants and private placement warrants), and all of the shares of preferred stock available for issuance. We have no commitments as of the date of this offering to issue any additional securities. We may issue a substantial number of additional shares of our common stock or may issue preferred stock, or a combination of both, including through convertible debt securities, to complete a business combination. Our issuance of additional shares of common stock or any preferred stock:

 

 

The value of your investment in us may decline if any of these events occur.

 

If we issue debt securities to acquire or finance a target business, our liquidity may be adversely affected and the combined business may face significant interest expense.

 

We may elect to enter into a business combination that requires us to issue debt securities as part of the purchase price for a target business. If we issue debt securities, such issuances may result in an increase in interest expense for the post-combination business and may adversely affect our liquidity in the event of:

 

 

 

For a more complete discussion of alternative structures for a business combination and the possibility that we may incur debt to finance our initial business combination, please see “Proposed Business — Effecting a Business Combination — Selection of a target business and structuring of our initial business combination.”

 

We may not obtain an opinion from an unaffiliated third party as to the fair market value of acquisition candidates or the fairness of the transaction to our stockholders.

 

We are not required to obtain an opinion from an unaffiliated third party that the price we are paying is fair to our public stockholders. In addition, we are not required to obtain an opinion from an unaffiliated third party that any initial business combination we select has a fair market value of at least 80% of the amount held in the trust account (less deferred underwriting discounts and commissions), the threshold value to constitute our initial business combination.

 

If our board of directors is not able to independently determine the fair market value of our initial business combination, we will obtain an opinion from an unaffiliated, independent investment banking firm which is subject to oversight by the Financial Industry Regulatory Authority, or FINRA, as to the fair market value. If no opinion is obtained, our public stockholders will be relying solely on the judgment of our board of directors.

 

Our initial stockholders control a substantial interest in us and thus may influence certain actions requiring a stockholder vote, including the vote on our initial business combination.

 

Our initial stockholders will own approximately 20% of our issued and outstanding shares of common stock, assuming they do not purchase our securities in this offering, when this offering is completed. In addition, our founding stockholder intends to enter into an agreement with Citigroup Global Markets Inc. in accordance with the guidelines of Rule 10b5-1 of the Exchange Act, pursuant to which it will place limit orders for up to $25.0 million of our common stock, commencing on the later of 10 business days after we file our current report on Form 8-K with the SEC announcing the execution of a definitive agreement for our initial business combination and 60 days after termination of the “restricted period” in connection with this offering under Regulation M of the Exchange Act and ending on the business day immediately preceding the record date for the meeting of stockholders at which our initial business combination is to be approved.

 

Our initial stockholders have agreed, in connection with the stockholder vote required to approve our initial business combination, to vote the founders’ shares in accordance with the majority of the shares of common stock voted by the public stockholders and to vote in favor of an amendment to our amended and restated certificate of incorporation to provide for our perpetual existence. Our initial stockholders, Highland and each of our officers and directors have also agreed that if it, he or she acquires shares of common stock in or following this offering, including pursuant to the limited order described above, it, he or she will vote all such acquired shares in favor of our initial business combination and in favor of an amendment to our amended and restated certificate of incorporation to provide for our perpetual existence. Assuming that the limit order is completed in full at a purchase price equal to $9.77 per share (the amount per share to be placed in the trust account upon the consummation of this offering) and that no other shares of our common stock are purchased by our initial stockholders, officers or directors or Highland, at the time the limit order is completed, our initial stockholders, officers and directors and Highland will hold approximately 28% of our issued and outstanding shares of common stock (assuming no exercise of the over-allotment option) prior to the stockholder vote relating to an initial business combination. Consequently our initial stockholders may exert substantial influence in connection with the vote on our initial business combination. While our founding stockholder does not intend to purchase units in this offering, it is not prohibited from purchasing units in this offering or our common stock in the secondary market in addition to those that may be purchased pursuant to the limit order. If it does so, our initial stockholders will have an even greater influence on the vote taken in connection with our initial business combination.

Upon the consummation of this offering, our board of directors will be divided into three classes, each of which will generally serve for a term of three years, with only one class of directors being elected in each year. We may consummate an initial business combination before there is an annual meeting of stockholders to elect new directors, in which case all of the current directors will continue in office at least until the consummation of our initial business combination. If there is an annual meeting of stockholders, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election and our initial stockholders will have considerable influence on the outcome of that election. Accordingly, our initial stockholders will continue to exert control at least until the consummation of the initial business combination.

 

Our founding stockholder’s purchase of common stock in the open market pursuant to the limit order may support the market price of the common stock and/or warrants during the buyback period.

 

Our founding stockholder intends to enter into an agreement with Citigroup Global Markets Inc. in accordance with the guidelines of Rule 10b5-1 of the Exchange Act, pursuant to which it will place limit orders for up to $25.0 million of our common stock, commencing on the later of 10 business days after we file a Current Report on Form 8-K with the SEC announcing our execution of a definitive agreement for an initial business combination and 60 days after termination of the “restricted period” in connection with this offering under Regulation M of the Exchange Act, and ending on the business day immediately preceding the record date for the meeting of stockholders at which our initial business combination is to be approved. This limit order will require our founding stockholder to purchase any of our shares of common stock offered for sale (and not purchased by another investor) at or below a price equal to the per share amount held in our trust account as reported in such Form 8-K, until the earlier of the expiration of the buyback period or until such purchases reach $25.0 million in total. Highland has agreed to purchase such securities in the event that our founding stockholder is unable to satisfy its obligations under this agreement. Neither our founding stockholder nor Highland will have any discretion or influence with respect to such purchases and will not be able to sell or transfer any common stock purchased in the open market pursuant to such agreement until 180 days following the consummation of our initial business combination. Consequently, if the market does not view our initial business combination positively, these purchases may have the effect of counteracting the market’s view of the initial business combination, which would otherwise be reflected in a decline in the market price of our securities. The termination of the support provided by these purchases may materially adversely affect the market price of our securities.

 

If our current directors remain after our initial business combination they may have conflicts of interest.

 

Our ability to effect our initial business combination successfully will be largely dependent upon the efforts of our officers and directors. Messrs. Dondero and Dougherty may remain as directors of the combined entity. Because it is possible that a director may remain after a business combination, a director may have a conflict of interest if such director is more likely to remain as a director or receive an attractive compensation arrangement in connection with a combination with one potential target business versus another. Such interests, if any, may influence the selection of the ultimate target for our initial business combination.

 

We may have only limited ability to evaluate the management of the target business and can not assure you that our assessment will prove correct.

 

We may have only limited ability to evaluate the management of the target business. Although we intend to closely scrutinize the management of a prospective target business in connection with evaluating the desirability of effecting a business combination, we cannot assure you that our assessment of management will prove to be correct, and the process to replace any member of the management of the target business with which we consummate our initial business combination could involve significant time and expense.

We may seek to effect our initial business combination with one or more privately held companies, which may present certain challenges to us, including the lack of available information about these companies.

 

In pursuing our acquisition strategy, we may seek to effect our initial business combination with one or more privately held companies. By definition, very little public information exists about these companies, and we could be required to make our decision on whether to pursue a potential initial business combination on the basis of limited information.

 

We may compete with investment vehicles of the Highland Group for access to the Highland Group.

 

The Highland Group has sponsored and currently manages various investment vehicles, and may in the future sponsor or manage additional investment vehicles which, in each case, could result in us competing for access to the benefits that we expect our relationship with the Highland Group to provide to us.

 

Upon completion of our initial business combination we may compete with one or more businesses in which the Highland Group, its affiliates and/or our management have an interest, which could result in a conflict of interest that may adversely affect us.

 

The Highland Group entities acquire, hold and sell investments in businesses across a broad range of industries on behalf of managed funds and other investment vehicles. Upon completion of our initial business combination, if consummated, we may compete with one or more of these businesses in which the Highland Group or its affiliates have an investment or other pecuniary interest, resulting in conflicts of interest. Conflicts of interest may also arise where our directors or other members of our management have affiliations with our competitors. In the case of any such conflicts, your interests may differ from those of the Highland Group entity or individual with the conflict, as such entity or individual may have a greater economic interest in our competitor than in us, or may believe that our competitor has better prospects than us. In such event, that entity or individual may devote more resources, including time and attention, to our competitor than to us, which may adversely affect our operations and financial condition and, ultimately, the value of your investment in us.

 

Because we expect to rely upon our access to the Highland Group investment professionals in completing an initial business combination, the departure of any significant number of these professionals or the failure by them to devote time to our affairs could have a material adverse effect on our ability to do so.

 

We expect that we will depend, to a significant extent, on our access to the investment professionals of the Highland Group and the information and deal flow generated by the Highland Group’s investment professionals in the course of their investment and portfolio management activities to identify and complete our initial business combination. Although the Highland Group has agreed to make its investment professionals available to us, at no cost, to actively source and structure an acquisition, none of these professionals, other than those serving as our officers or directors, will owe us any fiduciary duty and none of them, including those serving as our officers or directors, are required to commit their full time to our affairs. In addition, we cannot assure you that they will commit any minimum amount of time to our affairs. Consequently, the departure of a significant number of these professionals or the failure by them to devote time to our affairs could have a material adverse effect on our ability to consummate an initial business combination.

 

The fiduciary obligations to which Highland, as an investment advisor, is subject pursuant to the Investment Advisers Act of 1940, or the Investment Act, may require it to present acquisition opportunities to its clients, including the funds and investment vehicles it manages, rather than presenting them to us.

 

The Investment Act imposes on Highland, as an investment advisor, a fiduciary obligation with respect to dealings with its clients. This fiduciary obligation includes a duty to make suitable recommendations to clients in light of their needs and investment criteria. Accordingly, a conflict of interest may arise if Highland determines that a potential business combination opportunity is suitable for one or more of its clients, either individually or as a group. Under these circumstances, Highland would be permitted to pursue and complete the business combination on behalf of its client or clients rather than present it to us.

Consequently, certain business opportunities of the Highland Group that may be appropriate for us may not be presented to us for our consideration.

 

Members of our management team and our directors are, and may in the future become, affiliated with entities engaged in business activities similar to those intended to be conducted by us, and may have conflicts of interest in allocating their time and business opportunities.

 

Although Highland and Mr. Dondero, our Chairman and Chief Executive Officer, have entered into non-compete agreements with us providing that until the earlier of the filing by us of a current report on Form 8-K with the SEC announcing the execution of a definitive agreement for our initial business combination, or our liquidation, neither the Highland Group nor Mr. Dondero, will become a sponsor, promoter, officer, director or stockholder of any other blank check company, other members of our management and our directors may in the future become affiliated with other entities engaged in business activities similar to those intended to be conducted by us. As a result, members of our management team may become aware of business opportunities that may be appropriate for presentation to us as well as the other entities with which they are or may be affiliated. While we have entered into a business opportunity right of first review agreement with Highland, which provides that from the effective date of the registration statement which includes this prospectus until the earlier of the filing by us of a current report on Form 8-K with the SEC announcing the execution of a definitive agreement for our initial business combination, or our liquidation, we will have a right of first review (subject to fiduciary obligations it has to its clients as a registered investment advisor) with respect to business combination opportunities of the Highland Group with a fair market value of $200 million or more that the Highland Group first becomes aware of after the effective date (other than any investment opportunities in respect of companies in bankruptcy, or financially or operationally distressed companies; companies targeted for acquisition by any company in which an investment vehicle managed by the Highland Group has an equity investment; and any entity in which any of our initial stockholders, officers, directors or the Highland Group or its affiliates has a financial interest), due to those existing and future affiliations, members of our management team and our directors may have fiduciary obligations to present potential business opportunities to those entities prior to presenting them to us which could cause additional conflicts of interest. Accordingly, members of our management team may have conflicts of interest in determining to which entity a particular business opportunity should be presented.

 

For a complete discussion of our management team’s business affiliations and the potential conflicts of interest that you should be aware of, please see “Management — Directors and Executive Officers,” “Management — Conflicts of Interest” and “Certain Relationships and Related Transactions.” We cannot assure you that these conflicts will be resolved in our favor.

 

We may use resources in researching acquisitions that are not consummated, which could materially and adversely affect subsequent attempts to effect our initial business combination.

 

We expect that the investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys, and others. If a decision is made not to complete a specific business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target business, we may fail to consummate the transaction for any number of reasons, including reasons beyond our control, such as that 30% or more of our public stockholders vote against the transaction and opt to convert their stock into a pro rata share of the trust account even if a majority of our stockholders approve the transaction. Any such event will result in a loss to us of the related costs incurred, which could materially and adversely affect subsequent attempts to consummate an initial business combination.

Interest income from the trust account may not be sufficient to pay for our winding up and liquidation of the trust.

 

We expect that all costs and expenses associated with implementing any plan of distribution, as well as payments to any creditors, would be funded from amounts remaining out of the $100,000 of proceeds held outside the trust account and from the $3.0 million, subject to adjustment, in interest income on the balance of the trust account that may be released to us to fund our working capital requirements. However, if those funds were not sufficient to cover the costs and expenses associated with implementing any plan of distribution, to the extent that there was any interest accrued in the trust account not required to pay income taxes on interest income earned on the trust account balance, we could request that the trustee release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses. Additional interest may not be available, or if available, may not be sufficient to cover the costs of our liquidation.

 

Because the founders’ shares will not participate in liquidation distributions by us, our officers and directors may have a conflict of interest in deciding if a particular target business is a good candidate for a business combination.

 

Our initial stockholders have waived their right to receive distributions with respect to the founders’ shares if we liquidate because we fail to complete a business combination. Those shares of common stock and all of the warrants owned by our initial stockholders will be worthless if we do not consummate our initial business combination. Thus, our initial stockholders, and Messrs. Dondero, Dougherty, McGovern and Okada who have an indirect ownership interest in our founding stockholder and consequently an indirect ownership interest in us, may have a conflict of interest in determining whether a particular target business is appropriate for us and our stockholders. These ownership interests may influence their motivation in identifying and selecting a target business and timely completing an initial business combination. The exercise of discretion by our officers and directors in identifying and selecting one or more suitable target businesses may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our stockholders’ best interest.

 

Our initial stockholders’, officers’ and directors’ interests in obtaining reimbursement for any out-of-pocket expenses incurred by them may lead to a conflict of interest in determining whether a particular target business is appropriate for an initial business combination and in the public stockholders’ best interest.

 

Unless we consummate our initial business combination, our initial stockholders, officers and directors and the Highland Group and its employees will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account and the amount of interest income from the trust account up to a maximum of $3.0 million, subject to adjustment, that may be released to us as working capital. These amounts are based on management’s estimates of the funds needed to finance our operations for the next 24 months and to pay expenses in identifying and consummating our initial business combination. Those estimates may prove to be inaccurate, especially if a portion of the available proceeds is used to make a down payment in connection with our initial business combination or pay exclusivity or similar fees or if we expend a significant portion in pursuit of an initial business combination that is not consummated. Our initial stockholders, officers and directors and the Highland Group may, as part of any business combination, negotiate the repayment of some or all of any such expenses. If the target business’s owners do not agree to such repayment, this could cause our management to view such potential business combination unfavorably, thereby resulting in a conflict of interest. The financial interest of our initial stockholders, officers, directors or the Highland Group or its affiliates could influence our officers’ and directors’ motivation in selecting a target business and therefore there may be a conflict of interest when determining whether a particular business combination is in the stockholders’ best interest.

We will probably complete only one business combination, if any, with the proceeds of this offering and the private placement warrants, meaning our operations would then depend on a single business.

 

The net proceeds from this offering and the sale of the private placement warrants will provide us with approximately $236,650,000 that we may use to complete a business combination. Our initial business combination must involve a target business or businesses with a fair market value of at least 80% of the amount held in our trust account at the time of such business combination (excluding deferred underwriting discounts and commissions of $7.5 million, or approximately $8.63 million if the over-allotment option is exercised in full). We may not be able to acquire more than one target business, if any, because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. Additionally, we may encounter numerous logistical issues if we pursue multiple target businesses, including the difficulty of coordinating the timing of negotiations, proxy statement disclosure and closings. We may also be exposed to the risk that our inability to satisfy conditions to closing with one or more target businesses would reduce the fair market value of the remaining target businesses in the combination below the required threshold of 80% of the amount held in our trust account (excluding deferred underwriting discounts and commissions of $7.5 million, or approximately $8.63 million if the over-allotment option is exercised in full). Due to these added risks, we are more likely to choose a single target business with which to pursue a business combination than multiple target businesses. Unless we combine with a target business in a transaction in which the purchase price consists substantially of common stock and/or preferred stock, it is likely we will complete only our initial business combination with the proceeds of this offering and the sale of the private placement warrants. Accordingly, the prospects for our success may depend solely on the performance of a single business. If this occurs, our operations will be highly concentrated and we will be exposed to higher risk than other entities that have the resources to complete several business combinations, or that operate in diversified industries or industry segments.

 

If we do not conduct an adequate due diligence investigation of a target business with which we combine, we may face increased risks of subsequent write-downs or write-offs, restructuring, and impairments or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.

 

In order to meet our disclosure and financial reporting obligations under the federal securities laws, and in order to develop and seek to execute strategic plans for how we can increase the profitability of a target business, realize operating synergies or capitalize on market opportunities, we must conduct a due diligence investigation of one or more target businesses. Intensive due diligence is time consuming and expensive due to the operations, accounting, finance and legal professionals who must be involved in the due diligence process. We may have limited time to conduct such due diligence due to the requirement that we complete our initial business combination within 24 months after the date of this prospectus. In addition, our negotiating position and our ability to conduct adequate due diligence on any potential target business may be reduced as we approach the deadline for the consummation of an initial business combination. Even if we conduct extensive due diligence on a target business with which we combine, this diligence may not uncover all material issues relating to a particular target business, and factors outside of the target business and outside of our control may later arise. If our diligence fails to identify issues specific to a target business or the environment in which the target business operates, we may be forced to write down or write off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, if we report charges of this nature, negative market perceptions about us or our common stock may arise. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining post-combination debt financing.

You will experience immediate and substantial dilution from the purchase of our common stock.

 

The difference between the public offering price per share of our common stock (assuming we allocate all of the unit purchase price to the common stock and none to the warrant included in the unit) and the pro forma net tangible book value per share of our common stock after this offering, constitutes dilution to you and other investors in this offering. Our initial stockholders’ acquisition of the founders’ units at a significantly lower price than the price of the units being sold in this offering contributed to this dilution. Our initial stockholders acquired an aggregate of 7,187,500 founders’ units for an aggregate purchase price of $25,000, equivalent to a per-share price of approximately $.003, assuming no value is ascribed to the founders’ warrants. Assuming this offering is completed and no value is attributed to the warrants included in the units being sold to the public, you and the other new investors will incur an immediate and substantial dilution of approximately 33.8%, or $3.38 per share (the difference between the pro forma net tangible book value per share after this offering of $6.62, and the initial offering price of $10.00 per unit). Please see “Dilution” for additional information.

 

Our management’s ability to require holders of our warrants to exercise such warrants on a cashless basis will cause holders to receive fewer shares of common stock upon their exercise of the warrants than they would have received had they been able to exercise their warrants for cash.

 

If we call our warrants for redemption after the redemption criteria described elsewhere in this prospectus have been satisfied, our management will have the option to require any holder that wishes to exercise his warrant to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” by (y) the fair market value. The “fair market value” means the average reported last sales price of our common stock for the 10 trading days ending on the third trading day prior to the date on which notice of redemption is sent to the holders of the warrants. If our management chooses to require holders to exercise their warrants on a cashless basis, the number of shares of common stock received by a holder upon exercise will be fewer than it would have received if such holder exercised his warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s investment in us.

 

Our outstanding warrants may adversely affect the market price of our common stock and make it more difficult to effect our initial business combination.

 

The units being sold in this offering include warrants to purchase 25,000,000 shares of common stock (or 28,750,000 shares of common stock if the over-allotment option is exercised in full), and our initial stockholders hold founders’ warrants to purchase 6,250,000 shares of common stock (7,187,500 if the over-allotment option is exercised in full). We will also sell to our founding stockholder private placement warrants to purchase an aggregate of 5,000,000 shares of our common stock, prior to the closing of this offering. Such purchase will be a condition to the completion of this offering pursuant to the underwriting agreement to be entered into between the underwriters and us. If we issue common stock to complete our initial business combination, the potential issuance of additional shares of common stock on exercise of these warrants could make us a less attractive acquisition vehicle to some target businesses. This is because exercise of any warrants will increase the number of issued and outstanding shares of our common stock and reduce the value of the shares issued to complete our initial business combination. Our warrants may make it more difficult to complete our initial business combination or increase the purchase price sought by one or more target businesses. Additionally, the sale or possibility of the sale of the shares underlying the warrants could have an adverse effect on the market price for our common stock or our units, or on our ability to obtain other financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.

The grant of registration rights to our initial stockholders may make it more difficult to complete our initial business combination, and the future exercise of such rights may adversely affect the market price of our common stock.

 

If our initial stockholders exercise their registration rights with respect to the founders’ units and private placement warrants in full, there will be an additional 17,500,000 shares of common stock (19,375,000 if the over-allotment option is exercised in full), including 11,250,000 shares of common stock (12,187,500 if the overallotment option is exercised in full) issuable on exercise of the founders’ warrants and private placement warrants’ eligible for trading in the public market. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our common stock. In addition, the existence of the registration rights may make our initial business combination more costly or difficult to conclude. This is because the stockholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our common stock that is expected when the securities owned by our initial stockholders are registered.

 

There is currently no market for our securities and a market for our securities may not develop, which would adversely affect the liquidity and price of our securities.

 

There is currently no market for our securities. Investors therefore have no access to information about prior market history on which to base their investment decision. Following this offering, the price of our securities may vary significantly due to our reports of operating losses, one or more potential business combinations, the filing of periodic reports with the SEC, and general market or economic conditions. Furthermore, an active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established and sustained.

 

If we are deemed to be an investment company, we must meet burdensome compliance requirements and restrictions on our activities, which would increase our operating expenses and may increase the difficulty of completing a business combination.

 

If we are deemed to be an investment company under the Investment Company Act of 1940 (the “Investment Company Act”), the nature of our investments and the issuance of our securities may be subject to various restrictions. These restrictions may make it difficult for us to complete our initial business combination. In addition, we may be subject to burdensome compliance requirements and may have to:

 

 

We do not believe that our planned principal activities will subject us to the Investment Company Act. In this regard, our agreement with the trustee states that proceeds in the trust account will be invested only in “government securities” and one or more money market funds, selected by us, which invest principally in either short-term securities issued or guaranteed by the U.S. having a rating in the highest investment category granted thereby by a recognized credit rating agency at the time of acquisition or tax exempt municipal bonds issued by governmental entities located within the U.S. or otherwise meeting certain requirements of the Investment Company Act. This investment restriction is intended to facilitate our not being considered an investment company under the Investment Company Act. If we are deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would increase our operating expenses and could make our initial business combination more difficult to complete.

 

The loss of Mr. Dondero could adversely affect our ability to complete our initial business combination.

 

Our ability to consummate a business combination is dependent to a large degree upon Mr. Dondero. We believe that our success depends on his continued service to us, at least until we have consummated a business combination. As Managing Partner and President of Highland, Mr. Dondero has incentives to remain with us. Nevertheless, we do not have an employment agreement with him, or key-man insurance

on his life. He may choose to devote his time to other affairs, or may become unavailable to us for reasons beyond his control, such as death or disability. The unexpected loss of his services for any reason could have a detrimental effect on our ability to consummate our initial business combination.

 

An investor will only be able to exercise a warrant if the issuance of common stock upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.

 

No warrants will be exercisable and we will not be obligated to issue shares of common stock unless the common stock issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Because the exemptions from qualification in certain states for resales of warrants and for issuances of common stock by the issuer upon exercise of a warrant may be different, a warrant may be held by a holder in a state where an exemption is not available for issuance of common stock upon an exercise and the holder will be precluded from exercise of the warrant. At the time that the warrants become exercisable (following our completion of an initial business combination), we expect to either continue to be listed on a national securities exchange, which would provide an exemption from registration in every state, or we would register the warrants in every state (or seek another exemption from registration in such states). Accordingly, we believe holders in every state will be able to exercise their warrants as long as our prospectus relating to the common stock issuable upon exercise of the warrants is current. However, we cannot assure you of this fact. As a result, the warrants may be deprived of any value, the market for the warrants may be limited and the holders of warrants may not be able to exercise their warrants and they may expire worthless if the common stock issuable upon such exercise is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside.

 

The American Stock Exchange may not list our securities or may subsequently delist our securities, which could have adverse consequences for us and our stockholders.

 

We will seek to have our securities approved for listing on the American Stock Exchange upon consummation of this offering. We cannot assure you that our securities will be listed and, if listed, will continue to be listed on the American Stock Exchange. Additionally, it is likely that the American Stock Exchange would require us to file a new initial listing application and meet its initial listing requirements, as opposed to its more lenient continued listing requirements, at the time of our initial business combination. We cannot assure you that we will be able to meet those initial listing requirements at that time.

 

If the American Stock Exchange does not list our securities, or subsequently delists our securities from trading on its exchanges, and we are unable to list our securities on another national securities exchange, we expect our securities could be quoted on the OTC Bulletin Board, or the “pink sheets.” As a result, we could face significant consequences, including:

 

 

 

In addition, we would no longer be subject to American Stock Exchange rules, including rules requiring us to have a certain number of independent directors and to meet other corporate governance standards intended to protect our stockholders.

The determination of the offering price of our units is arbitrary.

 

Prior to this offering, there was no public market for any of our securities. The public offering price of the units, the terms of the warrants, the aggregate proceeds we are raising and the amount to be placed in the trust account were the results of a negotiation between the underwriters and us.

 

The determination of our per-unit offering price and aggregate proceeds was more arbitrary than would typically be the case if we were an operating company. In addition, because we have not identified any potential target businesses, management’s assessment of the financial requirements necessary to complete our initial business combination may prove to be inaccurate, in which case we may not have sufficient funds to consummate our initial business combination and we would be forced to either find additional financing or liquidate, or we may have too great an amount in the trust account to identify a prospect having a fair market value of at least 80% of the amount held in our trust account.

 

Because we must furnish our stockholders with target business financial statements prepared in accordance with and reconciled to U.S. generally accepted accounting principles, we will not be able to complete an initial business combination with prospective target businesses unless their financial statements are first prepared in accordance with or, reconciled to, U.S. generally accepted accounting principles.

 

The federal securities laws require that a business combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports and proxy materials submitted to stockholders. Our initial business combination must be with a target business that has a fair market value of at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions of $7.5 million or approximately $8.63 million if the over-allotment option is exercised in full) at the time of our initial business combination. We will be required to provide historical and/or pro forma financial information to our stockholders when seeking approval of a business combination with one or more target businesses. These financial statements must be prepared in accordance with, or be reconciled to, U.S. generally accepted accounting principles, or GAAP, and the historical financial statements must be audited in accordance with the standards of the Public Company Accounting Oversight Board (U.S.), or PCAOB. If a proposed target business, including one located outside of the U.S., does not have financial statements that have been prepared in accordance with, or that can be reconciled to, U.S. GAAP and audited in accordance with the standards of the PCAOB, we will not be able to acquire that proposed target business. These financial statement requirements may limit the pool of potential target businesses with which we may combine.

 

 

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information. We are not, and the underwriters are not, making an offer of the securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

The statements contained in this prospectus that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about our:

 

 

The forward-looking statements contained in this prospectus are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

USE OF PROCEEDS

 

The net proceeds of this offering, together with our founding stockholder’s $5.0 million investment in the private placement warrants that will be held in the trust account, will be used as set forth in the following table:

 

 

 

 

 

 

 

A total of approximately $244,150,000 (or approximately $280,150,000 if the underwriters’ over-allotment option is exercised in full), including $236,650,000 of the net proceeds from this offering and the sale of the private placement warrants (or $271,525,000 if the underwriters’ over-allotment option is exercised in full) and $7.5 million (or approximately $8.63 million if the underwriters’ over-allotment option is exercised in full) of deferred underwriting discounts and commissions will be placed in a trust account at JPMorgan Chase Bank, N.A., with American Stock Transfer & Trust Company as trustee. Except for a portion of the interest income to be released to us, the proceeds held in trust will not be released from the trust account until the earlier of the completion of our initial business combination or our liquidation. In the event that we consummate an initial business combination, all amounts held in the trust account (excluding deferred underwriting discounts and commissions of $7.5 million (or approximately $8.63 million if the over-allotment option is exercised in full), which will be paid to the underwriters) that are not (i) paid to public stockholders exercising their conversion rights or (ii) previously released to us as described below to pay income taxes or as working capital, will be released to us upon the closing of our initial business combination, which must involve one or more target businesses with a fair market value of at least 80% of the balance in the trust account at the time of such business combination. The funds released to us may be used to pay all or a portion of the purchase price of our initial business combination. We may apply any funds released to us from the trust account not used to pay the purchase price — for example, because we paid all or a portion of the purchase price for our initial business combination using stock or debt securities — for general corporate purposes, including for maintenance or expansion of operations of an acquired business or businesses, the payment of principal or interest due on indebtedness incurred in consummating our initial business combination, to fund the purchase of other companies, or for working capital.

 

We have allocated $100,000 of the offering proceeds to fund a portion of our working capital. We intend to fund the majority of our working capital requirements from a portion of the interest earned on the proceeds being held in the trust account. Under the terms of the investment management trust agreement, up to $3.0 million of interest, subject to adjustment, may be released to us in such amounts and at such intervals as we request, subject to availability and to the maximum cap of $3.0 million, subject to adjustment. Although we do not know the rate of interest to be earned on the trust account and are unable to predict an exact amount of time it will take to complete an initial business combination, we believe that following the completion of this offering, it will take some time to find a prospective target and take all of the steps necessary to complete an initial business combination. We anticipate that, even at an interest rate

of 3% per annum, the interest that will accrue on the trust account during the time it will take to identify a target and complete an acquisition will be sufficient to fund our working capital requirements. However, if interest payments are not sufficient to fund these requirements, or are not available to fund the expenses at the time we incur them, we may be required to seek loans or additional investments from our founding stockholder, officers or directors or from third parties. However, none of our founding stockholder, officers or directors or any third party is under any obligation to advance funds to us or to invest in us in such circumstances.

 

If the size of this offering is increased or the underwriters elect to exercise the over-allotment option, the amount of interest we may withdraw from the trust account to fund our working capital will be increased proportionately. If the underwriters exercise their over-allotment option in full, the amount per share held in trust reduces from $9.77 to $9.74. In addition, assuming a 20% increase in the size of this offering, the per-share conversion or liquidation price could decrease by as much as approximately $0.03.

 

We expect that due diligence of prospective target businesses will be performed by some or all of our officers and directors, and the Highland Group professionals, and also that it may include engaging market research firms or third-party consultants. No compensation of any kind (including finder’s and consulting fees) will be paid to any of our initial stockholders, officers or directors, the Highland Group or any of our or their affiliates, for services rendered to us prior to or in connection with the consummation of our initial business combination, including in connection with such due diligence activities. However, (i) our initial stockholders, officers and directors and the Highland Group and its employees will receive reimbursement for any out-of-pocket expenses (such as travel expenses) incurred by them in connection with activities on our behalf, such as identifying potential target businesses and performing due diligence on a suitable initial business combination, (ii) the Highland Group will be entitled to receive customary fees in connection with any financing that the Highland Group may arrange or originate in connection with our initial business combination, provided that any such financing is on arm’s length terms and is described in the proxy materials we send to our stockholders in connection with our initial business combination, and (iii) Highland will be entitled to receive repayment of advances of $200,000 it made to us to cover offering-related and organizational expenses and payments of an aggregate of $10,000 per month for office space, secretarial and administrative services. Our audit committee will review and approve all payments made to our initial stockholders, officers, directors, the Highland Group or our or their affiliates, other than the $200,000 of advances and the $10,000 per month payment described above, and any payments made to members of our audit committee will be reviewed and approved by our board of directors, with the interested director or directors abstaining from such review and approval.

 

In addition, it is also possible that we could use a portion of the funds not in the trust account to pay finder’s fees, consulting fees or other similar compensation, or make a deposit, down payment or fund a “no-shop” provision with respect to a particular proposed initial business combination, although we do not have any current intention to do so. In the event that we were ultimately required to forfeit such funds (whether as a result of our breach of the agreement relating to such payment or otherwise), if the amount were large enough and we had already used up the other funds available to us, we could be left with insufficient funds to continue searching for other potential target businesses or otherwise fund our business. In such case, if we were unable to secure additional financing, we would most likely fail to consummate an initial business combination in the allotted time and be forced to liquidate.

 

We believe that amounts not held in trust as well as the interest income of up to $3.0 million, subject to adjustment, earned on the trust account balance that may be released to us will be sufficient to pay the costs and expenses for which such proceeds have been allocated. This belief is based on the fact that in-depth due diligence will most likely be undertaken only after we have negotiated and signed a letter of intent or other preliminary agreement that addresses the terms of our initial business combination. However, if our estimate of the costs of undertaking in-depth due diligence and negotiating our initial business combination is less than the actual amount of such costs, we may be required to raise additional capital, the amount, availability and cost of which is currently unascertainable. To the extent that such expenses exceed the amounts not held in the trust account and the interest income of up to $3.0 million, subject to adjustment, that may be released to us from the trust account, such out-of-pocket expenses could not be

reimbursed by us unless we consummate an initial business combination. Since the role of present management after an initial business combination is uncertain, we have no current ability to determine what remuneration, if any, will be paid to present management after our initial business combination. Our officers and directors may, as part of any such combination, negotiate the repayment of some or all of the out-of- pocket expenses incurred by them that have not been reimbursed prior to the initial business combination’s closing. If the target business’s owners do not agree to such repayment, this could cause our officers and directors to view such potential initial business combination unfavorably and result in a conflict of interest.

 

As of October 4, 2007, Highland had advanced on our behalf a total of $200,000, which amount was used to pay a portion of the expenses of this offering referenced in the line items above including certain organizational expenses. This advance is non-interest bearing and unsecured and is due at the earlier of September 30, 2008, or the consummation of this offering. The advance will be repaid out of the proceeds of this offering not being placed in the trust account.

 

We have agreed to pay Highland a total of $10,000 per month for office space, administrative services and secretarial support. We believe that such fees are at least as favorable as we could have obtained from an unaffiliated person.

 

To the extent that our capital stock or debt financing is used in whole or in part as consideration to effect our initial business combination, any proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the combined business.

 

The net proceeds of this offering not held in the trust account and not immediately required for the purposes set forth above will be invested only in U.S. “government securities” (as such term is defined in the Investment Company Act) and one or more money market funds, selected by us, which invest principally in either short-term securities issued or guaranteed by the U.S. having a rating in the highest investment category granted thereby by a recognized credit rating agency at the time of acquisition or tax exempt municipal bonds issued by governmental entities located within the U.S., so that we are not deemed to be an investment company under the Investment Company Act.

 

A public stockholder will be entitled to receive funds from the trust account only in the event of our liquidation if we fail to complete our initial business combination within the allotted time or if the public stockholder converts such shares into cash in connection with an initial business combination that the public stockholder voted against and that we actually complete. In no other circumstances will a public stockholder have any right or interest of any kind in or to funds in the trust account. The funds a public stockholder will be entitled to receive from the trust account would include interest earned on his, her or its portion of the trust account, net of taxes payable with respect to such interest, and less interest income released to us from the trust account in the manner described above and, in the event of our liquidation for failure to consummate an initial business combination within the allotted time, interest of up to $100,000 that may be released to us should we have no or insufficient working capital to fund the costs and expenses of our dissolution and liquidation.

 

On completion of an initial business combination, the underwriters will receive the deferred underwriters’ discounts and commissions held in the trust account. If we do not complete an initial business combination and the trustee must therefore distribute the balance in the trust account on our liquidation, the underwriters have agreed (i) to forfeit any rights or claims to the deferred underwriting discounts and commissions, together with any accrued interest thereon, in the trust account, and (ii) that the trustee is authorized to distribute the deferred underwriting discounts and commissions, together with any accrued interest thereon, net of income taxes payable on such interest, on a pro rata basis to the public stockholders.

 

DIVIDEND POLICY

 

We have not paid any dividends on our common stock to date and will not pay cash dividends prior to the completion of our initial business combination. After we complete our initial business combination, the payment of dividends will depend on our revenues and earnings, if any, our capital requirements and our general financial condition. The payment of dividends after our initial business combination will be within the discretion of our board of directors at that time. Our board of directors currently intends to retain any earnings for use in our business operations and, accordingly, we do not anticipate that our board of directors will declare any dividends in the foreseeable future.

 

DILUTION

 

The difference between the public offering price per share of common stock, assuming no value is attributed to the warrants included in the units, and the pro forma net tangible book value per share of our common stock after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities (including the value of common stock which may be converted into cash), by the number of outstanding shares of our common stock. The information below assumes the payment in full of the underwriters’ discounts and commissions, including amounts held in the trust account, and no exercise of the over-allotment option.

 

At October 5, 2007, our net tangible book value was a deficiency of ($106,748), or approximately $(0.01) per share of common stock. After giving effect to the sale of 25,000,000 shares of common stock included in the units offered hereby (but excluding shares underlying the warrants included in the units) (including deferred underwriting discounts and commissions), after deduction of estimated expenses paid in advance of this offering, our pro forma net tangible book value (as decreased by the value of 7,499,999 shares of common stock which may be converted into cash) at October 5, 2007, would have been $163,479,046, or approximately $6.62 per share, representing an immediate increase in net tangible book value of approximately $6.64 per share to the holders of the founders’ shares, and an immediate dilution of approximately $3.38 per share, or 33.8%, to new investors not exercising their conversion rights. For purposes of presentation, our pro forma net tangible book value after this offering is approximately $73,274,990 less than it otherwise would have been because if we effect our initial business combination, the conversion rights of the public stockholders may result in the conversion into cash of not more than 30% of the aggregate number of the shares sold in this offering (minus one share) at a per-share conversion price equal to the amount in the trust account as of two business days prior to the proposed consummation of our initial business combination, inclusive of any interest, net of any taxes due on such interest and net of up to $3.0 million in interest income on the trust account balance previously released to us to fund working capital requirements, divided by the number of shares sold in this offering.

 

The following table illustrates the dilution to the new investors on a per-share basis, assuming no value is attributed to the warrants included in the units:

 

 

The following table sets forth information with respect to our initial stockholders and the new investors:

 

The pro forma net tangible book value per share after the offering is calculated as follows:

 

 

CAPITALIZATION

 

The following table sets forth our capitalization at October 5, 2007 and as adjusted to give effect to the sale of our units in this offering and the private placement warrants and the application of the estimated net proceeds derived from the sale of such securities:

 

 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

We are a blank check company organized under the laws of the State of Delaware on September 24, 2007. We were formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition or other similar business combination, one or more businesses or assets, which we refer to as our “initial business combination.” To date, our efforts have been limited to organizational activities as well as activities related to this offering. We have not, nor has anyone on our behalf, contacted any prospective target business or had any substantive discussion, formal or otherwise, with respect to such a transaction. Additionally, we have not sought, nor have we engaged or retained any agent or other representative, to identify or locate any suitable acquisition candidate, conduct any research or take any measures, directly or indirectly, to locate or contact a target business. We intend to utilize cash derived from the proceeds of this offering, our capital stock, debt or a combination of cash, capital stock and debt, in effecting a business combination. The issuance of additional shares of our capital stock:

 

 

Similarly, if we issue debt securities, it could result in:

 

 

Results of Operations and Known Trends or Future Events

 

We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for this offering including organizing our company, receiving $25,000 in unit subscriptions from our founding stockholder and $200,000 in advances from Highland as more fully described below, identifying an underwriter, and engaging a law firm and accountants in connection with this offering. Following this offering, we will not generate any operating revenues until after completion of our initial business combination, at the earliest. We will generate non-operating income in the form of interest income on cash and cash equivalents after this offering. After this offering, we expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses as described below in “— Liquidity and Capital Resources.”

 

Liquidity and Capital Resources

 

Our liquidity needs have been satisfied to date through the receipt of $25,000 in stock subscriptions from our founding stockholder and advances from Highland as described more fully below.

 

We estimate that the net proceeds from the sale of the units in this offering, after deducting offering expenses of approximately $750,000 and underwriting discounts and commissions of approximately

$17,500,000, or $20,125,000 if the underwriters’ over-allotment option is exercised in full, together with $5.0 million from our founding stockholder’s investment in the private placement warrants that will be held in the trust account, will be approximately $244,250,000 (or $280,250,000 if the underwriters’ over-allotment option is exercised in full). Of this amount, $244,150,000 (or $280,150,000 if the underwriters’ over-allotment option is exercised in full) will be held in the trust account and the remaining $100,000, in either case, will not be held in the trust. Of the amount held in the trust account, an amount equal to 3.0% of the gross proceeds of this offering, or $7.5 million (approximately $8.63 million, if the underwriters’ over-allotment option is exercised in full), will be used to pay the underwriters a deferred fee upon the consummation of our initial business combination, and will not be available for our use to effect our initial business combination. We expect that most of the proceeds held in the trust account will be used as consideration to pay the sellers of a target business or businesses with which we ultimately complete our initial business combination. We expect to use substantially all of the net proceeds of this offering not in the trust account to pay expenses in locating and acquiring a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating our initial business combination. To the extent that our capital stock or debt financing is used in whole or in part as consideration to effect our initial business combination, any proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the target business.

 

As of October 4, 2007, Highland had advanced on our behalf a total of $200,000, which amount was used to pay a portion of the expenses of this offering referenced in the line items above including certain organizational expenses. This advance is non-interest bearing and unsecured and is due at the earlier of September 30, 2008, or the consummation of this offering. The advance will be repaid out of the proceeds of this offering not being placed in the trust account.

 

We believe that, upon consummation of this offering, the funds available to us outside of the trust account, together with interest income of up to $3.0 million, subject to adjustment, on the balance of the trust account which may be released to us for working capital requirements, will be sufficient to allow us to operate for at least the next 24 months, assuming that our initial business combination is not consummated during that time. This belief is based on the fact that in-depth due diligence will most likely be undertaken only after we have negotiated and signed a letter of intent or other preliminary agreement that addresses the terms of our initial business combination and that payment of finder’s fees is customarily tied to the completion of a transaction. Over this time period, we anticipate making the following expenditures:

 

 

 

We do not believe we will need additional financing following this offering in order to meet the expenditures required for operating our business prior to our initial business combination. However, we will rely on interest earned of up to $3.0 million, subject to adjustment, on the trust account to fund such expenditures and, to the extent that the interest earned is below our expectation, or our estimate of costs is less than the actual amount of such costs, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing either to consummate our initial business combination or because we become obligated to convert into cash a significant number of shares of public stockholders voting against our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination.

Following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.

 

Controls and Procedures

 

We are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act of 2002. We will be required to comply with the internal control requirements of the Sarbanes-Oxley Act for the fiscal year ending December 31, 2009. As of the date of this prospectus, we have not completed an assessment, nor have our auditors tested our systems, of internal controls. We expect to assess the internal controls of our target business or businesses prior to the completion of our initial business combination and, if necessary, to implement and test additional controls as we may determine are necessary in order to state that we maintain an effective system of internal controls. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls. Many small and mid-sized target businesses we may consider for a business combination may have internal controls that need improvement in areas such as:

 

 

Because it will take time, management involvement and perhaps outside resources to determine what internal control improvements are necessary for us to meet regulatory requirements and market expectations for our operation of a target business, we may incur significant expense in meeting our public reporting responsibilities, particularly in the areas of designing, enhancing, or remediating internal and disclosure controls. Doing so effectively may also take longer than we expect, thus increasing our exposure to financial fraud or erroneous financing reporting.

 

Once our management’s report on internal controls is complete, we will retain our independent auditors to audit and render an opinion on such report when required by Section 404. The independent auditors may identify additional issues concerning a target business’s internal controls while performing their audit of internal control over financial reporting.

 

Quantitative and Qualitative Disclosures about Market Risk

 

The net proceeds of this offering, including amounts in the trust account, will be invested in U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.

 

Related Party Transactions

 

As of October 4, 2007, Highland had advanced on our behalf a total of $200,000 for the payment of offering-related and organizational expenses. These advances are non-interest bearing and unsecured and are due at the earlier of September 30, 2008 or the consummation of this offering. The advances will be repaid out of the proceeds of this offering not being placed in the trust account. See also “Certain Relationships and Related Transactions” for information on these advances.

 

We have agreed to pay Highland a monthly fee of $10,000 for general and administrative services, including office space and secretarial support. We believe that such fees are at least as favorable as we could have obtained from an unaffiliated third party.

 

On October 4, 2007, our founding stockholder agreed to purchase 5,000,000 private placement warrants at $1.00 per warrant (for a total purchase price of $5.0 million) from us on a private placement basis simultaneously with the consummation of the offering. The purchase price of the private placement warrants has been determined to be the fair value of such warrants as of the subscription date. However, if it is determined, at the time of the offering, that the fair value of the private placement warrants exceeds the $1.00 purchase price, we would record compensation expense for the excess of the fair value of the private placement warrants on the day of purchase over the $1.00 purchase price in accordance with SFAS 123(R).

 

Off-Balance Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results

 

As of October 5, 2007, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. No unaudited quarterly operating data is included in this prospectus as we have conducted no operations to date.

 

PROPOSED BUSINESS

 

Introduction

 

We are a blank check company organized under the laws of the State of Delaware on September 24, 2007. We were formed for the purpose of acquiring, or acquiring control of, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination, one or more businesses or assets, which we refer to as our “initial business combination.” To date, our efforts have been limited to organizational activities as well as activities related to this offering, including organizing our company, receiving $25,000 in unit subscriptions from our founding stockholder and $200,000 in advances from Highland as more fully described in this prospectus, identifying an underwriter, engaging a law firm and accountants in connection with this offering, preparing and filing a listing application and related documents with the American Stock Exchange and preparing and filing this prospectus. We have not, nor has anyone on our behalf, contacted any prospective target business or had any substantive discussion, formal or otherwise, with respect to such a transaction. Additionally, we have not sought, nor have we engaged or retained any agent or other representative, to identify or locate any suitable acquisition candidate, conduct any research or take any measures, directly or indirectly, to locate or contact a target business.

 

Our efforts in identifying a prospective target business will not be limited to a particular industry. Instead, we will focus on industries and target businesses in the U.S. and Europe that may provide significant opportunity for growth. We do not currently have any specific initial business combination under consideration.

 

We will seek to capitalize on the significant investing experience and contacts of our Chairman and Chief Executive Officer, James D. Dondero, and our other executive officers. Mr. Dondero has over 20 years of experience investing in private equity, distressed debt and mezzanine lending. In addition, Mark Okada, our President, has more than 20 years of experience in sourcing, evaluating, structuring and negotiating control investments and in owning businesses. Mr. Dondero and Mr. Okada will have access to and be supported by the Highland Group’s investment team, comprised of over 100 professionals, in identifying a target business.

 

Mr. Dondero founded Highland Capital Management, L.P., which is the sole member of our founding stockholder, HCM Acquisition Holdings, LLC, in 1993 and serves as Highland’s President and Managing Partner. Highland is a manager of assets in niche markets and complex areas including distressed investing (predominantly control-oriented), corporate credit, real estate and equities. The Highland Group has over 250 employees and operates through a number of business entities substantially owned by their management and employees. Highland is a registered investment advisor with approximately $40 billion of assets under management as of September 30, 2007. The Highland Group has its headquarters in Dallas, Texas and maintains offices in New York, New York and London, England. Highland’s partners, senior officers, including our executive officers, and advisors are in many cases long-time colleagues who have worked together extensively at Highland and at other institutions, including private equity, distressed debt and investment banking firms.

 

Highland manages assets invested in over 1,100 buyout, or acquisition related, debt offerings as of September 30, 2007. Since 1997, Highland has invested with approximately 400 financial sponsors and committed over $30 billion to financing private and public companies through:

 

 

Highland also manages European alternative investments through its wholly-owned subsidiary, Highland Capital Management Europe, Ltd. Additionally, as one of the largest providers of debt capital to the leveraged buyout sponsor community, the Highland Group is very active in private equity transactions.

 

The investment management team of the Highland Group is led by Messrs. Dondero and Okada, who have worked together for over 15 years and collectively have over 40 years of corporate finance experience. The Highland Group’s investment team consists of over 100 professionals, including:

 

 

The Highland Group has a dedicated in-house Business Development Group, which focuses on sourcing, analyzing and executing acquisitions.

 

The Highland Group also has a staff of over 120 professionals in legal/compliance, information technology, accounting/finance, marketing, human resources and administration who provide significant support to its investment and business development groups.

 

The Highland Group has agreed to make its investments team and professionals available to us at no cost, to actively source and structure an acquisition. Through their various investment activities, the Highland Group’s professionals have an extensive network of lender, private equity sponsor and other institutional investor relationships, both in the U.S. and Europe, as a result of the Highland Group’s investments in leveraged buyouts involving leveraged loans, subordinated debt and equity investments. The Private Equity Group works actively with the Industry Specialist Group to identify potential investments. We intend to utilize the Highland Group’s leading presence in the leveraged finance market, and its relationships with commercial banks, investment banks and broker/dealers to source acquisition opportunities.

 

The Highland Group has been investing in control or shared control situations since 1993. As such, we believe we will benefit from the substantial transaction experience of the Highland Group’s employees, which will help us analyze, evaluate, structure and execute an initial business combination. This experience includes active participation on boards of directors, particularly in the areas of financial management, management oversight and compensation, and acquisitions and dispositions. The Highland Group’s principals, including our executive officers, have extensive experience serving on the boards of directors of companies in which the Highland Group has had substantial equity positions. The Highland Group has a broad network of experienced operational executives and has developed a network of experts in diverse industries as well as those with varied functional knowledge. In functional areas, the Highland Group has retained professional services firms as well as executives with specific expertise to further support its portfolio companies. Additionally, the Highland Group maintains active relationships with its portfolio company management teams, which we believe can help provide additional insights on a wide variety of companies and industries.

 

Our investment philosophy will be based on the strategies employed by the Highland Group which reflect the private equity and control distressed investing experience of its senior management. While we do not intend to pursue an initial business combination with a distressed company, we believe that we can benefit from the Highland Group’s experience in control distressed investing, which involves buying controlling equity positions in companies through the purchase of distressed debt and the subsequent conversion of such interests to equity. We believe that the skills needed to make a successful control distressed debt investment — identification, due diligence and valuation of potential target businesses, structuring and negotiation of control investments in the target businesses, board participation, management assessment and oversight, financial monitoring, performance tracking and plan implementation with respect

to the controlled target businesses — are skills that the Company will need in order to consummate and operate an initial business combination. Additionally, we will be able to utilize the significant resources of the 61 industry specialists in the Industry Specialist Group who follow over 30 industries (fewer than one per professional). We believe that having access to this level of specialization will assist us in tailoring our due diligence process for specific industries as well as identifying target businesses. Additionally, this team of industry specialists will be further enhanced by the 21 Private Equity Group professionals who have experience ranging from target identification and due diligence to strategy development and implementation as well as day-to-day operations management. While none of the investment professionals of the Highland Group has prior experience with blank check companies, we believe that these teams, and their scale, are a key strength in our ability to identify and consummate an acquisition.

 

Although the Highland Group has agreed to make its investment professionals available to us, at no cost, to actively source and structure an acquisition, none of these professionals, other than those serving as our officers or directors, will owe us any fiduciary duty and none of them, including those serving as our officers or directors, are required to commit their full time to our affairs. We cannot assure you that they will commit any minimum amount of time to our affairs. Consequently, the departure of a significant number of these professionals or the failure by them to devote time to our affairs could have a material adverse effect on our ability to consummate an initial business combination.

 

We have identified certain criteria and guidelines that we believe are important in evaluating prospective target businesses. A company’s ability to demonstrate stable and predictable cash flow will be a fundamental investment criterion. Below are the criteria and guidelines that we intend to use in evaluating initial business combination opportunities. These criteria and guidelines are subject to the requirement that our initial business combination must occur with one or more target businesses that have an aggregate fair market value of at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions) at the time of such business combination. However, we may decide to enter into an initial business combination with a target business or businesses that do not meet some of these criteria and guidelines:

 

 

 

We have entered into a business opportunity right of first review agreement with Highland, which provides that from the effective date of the registration statement of which this prospectus forms a part until the earlier of the filing by us of a current report on Form 8-K with the SEC announcing the execution of a definitive agreement for our initial business combination, or our liquidation, we will have a right of first review with respect to business combination opportunities of the Highland Group with a fair market value of $200 million or more that the Highland Group first becomes aware of after the effective date. The Highland Group will first offer any such business opportunity to us (subject to fiduciary obligations it has to its clients as a registered investment advisor) and will not, and will cause each other business entity within the Highland Group and each fund and other investment vehicle managed or advised by the Highland Group not to, pursue such business opportunity unless and until our board of directors has determined for any reason that we will not pursue such opportunity. Decisions by us to release the Highland Group to pursue any specific business opportunity will be made solely by a majority of our disinterested directors. This right of first review will not include:

 

 

While we may seek to acquire or acquire control of more than one business or asset, which we refer to as our “target business” or “target businesses,” our initial business combination must involve one or more target businesses having a fair market value, individually or collectively, equal to at least 80% of the balance in the trust account at the time of such initial business combination (excluding deferred underwriting discounts and commissions of $7.5 million, or approximately $8.63 million if the underwriters’ over-allotment option is exercised in full). We will only consummate a business combination in which we become the controlling stockholder of the target. The key factor that we will rely on in determining controlling stockholder status would be our acquisition of at least 50.1% of the voting equity interests of the target company. We will not consider any transaction that does not meet such criteria. In addition, we will not enter into our initial business combination with any entity in which any of our initial stockholders, officers, directors or the Highland Group or its affiliates has a financial interest.

 

If we are unable to consummate a business combination within the allotted time period set forth in this prospectus, our corporate existence will cease and we will implement our liquidation plan, which will include the distribution of the proceeds held in the trust account to our public stockholders in an amount we expect

to be $9.77 per share of common stock held by them (or approximately $9.74 per share if the underwriters exercise their over-allotment option).

 

Highland

 

We expect to benefit from our access to the Highland Group’s investment team, which operates in four main groups or teams:

 

Industry Specialist Group

 

The Industry Specialist Group is comprised of 61 investment professionals who manage assets in approximately 30 industries across several types of funds, including mutual funds, hedge funds and CDO funds in both the U.S. and Europe. Professionals in this group focus their time on investments in one particular industry (fewer than one industry per professional). We believe that having a staff to support this level of specialization allows its professionals to optimize their knowledge of a specific industry or industry segment, and its participants, which allows the Highland Group to identify better risk return opportunities within each industry. The size of the team in this group is designed to allow the professional to dedicate more time on identifying and evaluating opportunities. In addition, this group conducts extensive analysis across a diverse range of industries, which we believe will assist us in evaluating the attractiveness of target businesses.

 

As a result of its size and specialization, the Industry Specialist Group has built and maintains significant relationships in both the U.S. and European financial sponsor communities, having made loans and other investments in support of hundreds of leveraged buyouts, recapitalizations, and growth financings.

 

Private Equity Group

 

The Private Equity Group is comprised of 21 investment professionals. The Private Equity Group works to source potential investments in conjunction with the Distressed Investments Group and/or Industry Specialist Group. In addition to sourcing investments, the Private Equity Group focuses on post-investment management of private equity investments, leveraging the backgrounds of its investment professionals in operations, law, mergers and acquisitions, turnarounds and consulting. The Private Equity Group is divided into four main functions:

 

 

Distressed Investments Group

 

The Distressed Investing Group oversees three control distressed investment funds. In addition to traditional trading strategies, the Distressed Investments Group seeks to acquire control or shared-control equity positions in middle market companies by purchasing securities of companies that it believes are

operationally sound, but are overburdened with high levels of debt. The Highland Group seeks to restore the companies’ balance sheets to health through bankruptcy or consensual financial restructuring. The Distressed Investments Group is comprised of 12 investment professionals and had over $4.0 billion of assets under management as of September 30, 2007.

 

Business Development Group

 

The Highland Group has a dedicated in-house Business Development Group, which focuses on sourcing, analyzing and executing acquisitions. Established in 2003, the group consists of a team of highly experienced investment bankers who have over 50 years of experience in mergers and acquisitions and leveraged finance. Since 2003, the Business Development Group has analyzed numerous complementary acquisition opportunities for the Highland Group.

 

The Business Development Group uses a multi-strategy approach to sourcing acquisition opportunities including relationships with leading merger and acquisition groups, industry specialized and regional merger and acquisition boutiques, direct dialogue with the private equity community regarding portfolio company sales, and direct company screening and solicitation.

 

The Business Development Group uses a consistently applied, rigorous process for the screening, due diligence and valuation of potential acquisitions. Members of the team have significant experience negotiating the structure, terms and documentation for acquisitions. Potential acquisitions are evaluated on both strategic and financial merits, and approved by Messrs. Dondero and Okada.

 

Industry overview

 

Since 2004, and as of October 23, 2007, based upon publicly available information, approximately 126 similarly structured blank check companies have completed initial public offerings in the United States. Of these companies, only 34 companies have consummated an initial business combination, while 29 companies have announced they have entered into a definitive agreement for an initial business combination, but have not consummated such business combination, and five companies have failed to complete business combinations and have either dissolved or announced their intention to dissolve and return their trust account proceeds to their stockholders. Accordingly, there are approximately 58 blank check companies with more than $7.5 billion in trust accounts that are seeking to carry out a business plan similar to our business plan. Furthermore, there are a number of additional offerings for blank check companies that are still in the registration process but have not completed initial public offerings and there are likely to be more blank check companies filing registration statements for initial public offerings from the date of this prospectus and prior to our completion of our initial business combination. While some of those companies must complete an initial business combination in specific industries, a number of them may consummate an initial business combination in any industry they choose.

 

Strengths

 

We believe that we have the following strengths:

 

Experienced management.

 

We will seek to capitalize on the significant investing experience and contacts of our Chairman and Chief Executive Officer, James D. Dondero, and our other executive officers. Mr. Dondero has over 20 years of experience investing in private equity, distressed debt and mezzanine lending. In addition, Mark Okada, our President, has more than 20 years of experience in sourcing, evaluating, structuring and negotiating control investments and in owning businesses.

 

Access to the Highland Group’s investment platform.

 

The investment professionals of the Highland Group have extensive experience investing in par and distressed debt, high-yield bonds, mezzanine debt and public and private equity. Highland manages over

$40 billion of assets as of September 30, 2007. We will have access to the broad capabilities of the Highland Group and its investments team.

 

Established deal sourcing network.

 

We expect to be well positioned to source an initial business combination as a result of our access to the Highland Group’s extensive infrastructure, which includes three offices in the U.S. and Europe and over 100 investment professionals, including 16 Partners. We intend to capitalize on the diverse deal-sourcing opportunities in both the U.S. and Europe that we believe the Highland Group will bring to us as a result of its investment experience, track record and network of contacts including financial sponsors, executives of public and private companies, merger and acquisition advisory firms, investment banks, capital markets desks, lenders and other financial intermediaries and sponsors. The Highland Group’s investment professionals will be available to assist us in connection with sourcing an acquisition.

 

Disciplined investment process.

 

In identifying potential target businesses, we will apply the Highland Group’s rigorous and consistent investment process. This includes analysis of: (i) the acquisition multiple; (ii) the fundamental soundness and viability of the business; (iii) historic and projected financials; (iv) the key drivers of revenues and cost components; (v) forecasted performance under sensitized assumptions; (vi) capital expenditures; (vii) working capital needs; (viii) the level of downside protection through asset values; (ix) micro and macroeconomic trends that impact the business and the industry; (x) the business’s products and sales channels; (xi) qualitative analysis of company management; (xii) the competitive dynamics of the industry and the target company’s position; (xiii) input from third-party advisors; and (xiv) other factors based on the specific opportunity.

 

Post-acquisition experience.

 

We will have access to the Highland Group’s professionals who have extensive experience serving on the boards of directors of companies in which the Highland Group has substantial equity positions or management oversight. To supplement the Highland Group’s “in-house” expertise, it has developed and maintained a network of experts in various industries that it utilizes on a case-by-case basis. Additionally, the Highland Group utilizes, and makes available to its affiliated companies, the opportunity to reduce overhead by grouping common expenses. Examples of such groups include, among others (i) general insurance; (ii) health benefits; (iii) direct and indirect materials (i.e. purchasing); (iv) 401k and pension plan administration; and (v) human resources management.

 

Experience with middle market companies.

 

We expect to benefit from the Highland Group’s experience, which has historically been focused on investments in private middle market companies. We will use the Highland Group’s network of relationships with investment professionals, bankers, private equity firms and others focused on private middle market companies to attract well-positioned prospective business combinations. The various groups within the Highland Group oversee a portfolio of investments in more than 1,500 companies, most of which are middle market, and maintain an extensive network of relationships.

 

Access to the Highland Group’s infrastructure.

 

The Highland Group has over 250 employees, including over 100 investment professionals, who will be available to support our operations. This includes access to the Highland Group’s “back-office” functions which address legal, compliance, and operational matters. We will also have the benefit of the experience of the Highland Group’s senior professionals and third party advisory relationships, many of whom have served on public and private company boards of directors and/or have served in other senior management roles.

Highland Senior Management

 

The following members of Highland senior management will be involved in helping us to source, analyze and execute a business combination.

 

James D. Dondero, Managing Partner, President — Mr. Dondero is a founder of Highland and has served as its President and Managing Partner since 1993. Prior to founding Highland, Mr. Dondero served as Chief Investment Officer of Protective Life Corporation’s Guaranteed Investment Contract, or GIC, subsidiary, an issuer of guaranteed investment contracts to private pension plans, where he helped grow the business from its inception in 1989 to over $2 billion of assets in 1993. His portfolio management experience includes mortgage-backed securities, investment grade corporate debt instruments, leveraged bank loans, emerging markets, derivatives, control distressed private equity, preferred stocks and common stocks. From 1985 to 1989, Mr. Dondero managed approximately $1 billion in fixed income funds for American Express, a diversified financial services company. Mr. Dondero is a Beta Gamma Sigma graduate of the University of Virginia with Bachelor of Science degrees in Accounting and Finance. He completed financial training at Morgan Guaranty Trust Company. Mr. Dondero is a Certified Public Accountant and a Certified Management Accountant. He has earned the right to use the Chartered Financial Analyst designation.

 

Mark Okada, Managing Partner, Chief Investment Officer — Mr. Okada is a founder of Highland and has served as its Chief Investment Officer since 1993. Mr. Okada is responsible for overseeing the Highland Group’s investment activities for its various funds and managed accounts and has over 20 years of experience in the leveraged finance market. Prior to founding Highland, Mr. Okada served as Manager of Fixed Income for Protective Life Corporation’s GIC subsidiary, an issuer of guaranteed investment contracts to private pension plans, from 1990 to 1993. He was primarily responsible for the bank loan portfolio and other risk assets. Protective Life Corporation, an insurance company and issuer of guaranteed investment contracts to private pension plans, was one of the first non-bank entrants into the syndicated loan market. From 1986 to 1990, Mr. Okada served as Vice President for Hibernia National Bank, a banking institution, managing over $1 billion of high-yield bank loans. Mr. Okada is Chairman of the Board of Directors of Common Grace Ministries, Inc. Mr. Okada is an honors graduate of the University of California Los Angeles with degrees in Economics and Psychology. He completed his credit training at Mitsui and he has earned the right to use the Chartered Financial Analyst designation.

 

John Honis, Partner, Head of Private Equity Group & Portfolio Company Management — Mr. Honis has been Head of the Private Equity Group and Head of Portfolio Company Management at Highland since May 2006. He has more than 25 years of business experience as chief executive officer, chief restructuring officer and board-level advisor to high-growth and distressed companies in a wide range of manufacturing, high-tech and service industries. Prior to joining Highland in 2006, Mr. Honis co-founded Barrier Advisors, L.P., or Barriers, a boutique financial advisory firm, in 2001. Barrier is a leading provider of strategic, operational and financial advice to portfolio companies owned by private equity, venture capital and money management institutions. Barrier’s specialties include advising on corporate restructurings and turnarounds for distressed middle market companies and their financial sponsors or owners. During his tenure at Barrier, Mr. Honis led many turnarounds and strategic growth initiatives; Barrier was sold to an affiliate of Highland in 2006. Prior to founding Barrier in 2001, Mr. Honis served as president, chief executive officer and chief restructuring officer of five telecommunications firms. His experiences in all aspects of growth management, strategic/operational turnarounds, financial restructuring, mergers and acquisitions and capital markets in high-tech industries were the foundational elements of Barrier’s charter. Mr. Honis’s career started at J.P. Morgan, a financial services firm in New York, where he was a member of the firm’s global consulting practice, specializing in the design and implementation of worldwide corporate finance processes and systems. Mr. Honis is a graduate of Syracuse University with degrees in Economics, Business Administration and Marketing.

Jack Yang, Partner, Head of Business Development Group — Mr. Yang has managed the Highland Group’s hedge fund business since May 2003, and is responsible for the Highland Group’s product development, fundraising, and investor relations activities. Mr. Yang has served as the head of the Highland Group’s New York office since 2003, and has been a member of the Board of Directors of Highland Capital Management Europe, Ltd since April 2006. Prior to joining Highland, Mr. Yang was Managing Director and Global Head of Leveraged Finance Products at Merrill Lynch, a wealth management, capital markets and advisory company. He joined Merrill Lynch in 1994 to establish the firm’s syndicated loan business and co-headed the firm’s Global Leveraged Finance Division from 1999 to 2001. In addition to heading the syndicated loan activities of the firm, while at Merrill Lynch he had significant responsibility for establishing and managing the $1.5 billion ML Bridge Loan Fund, the $1.1 billion ML Mezzanine Fund, and the European Leveraged Finance Group. He was a senior member of the firm’s Debt Markets Commitment Committee and Mezzanine Investment Committee. Prior to joining Merrill Lynch, Mr. Yang spent 11 years at Chemical Securities, Inc., a securities subsidiary of Chemical Banking Corporation, a bank holding company, and was a founding member of the Global Syndicated Finance Division. Mr. Yang is Vice Chairman of the Board of Directors of The Loan Syndications and Trading Association and is a member of the Finance Committee. He is a graduate of Cornell University and earned a Masters degree in Business Administration from Columbia Business School.

 

Joseph Dougherty, Partner, Head of Retail Products — Mr. Dougherty has been Head of Retail Products and a Senior Portfolio Manager at Highland since February 2004. Mr. Dougherty has served as Portfolio Manager, Senior Vice President and/or Director of Highland’s NYSE-listed funds and 1940 Act registered funds since 2000. He has also served as Portfolio Manager for the Highland Group’s sub-advised closed-end and retail funds since 2004. In this capacity, Mr. Dougherty oversees investment decisions and day-to-day operations for these funds. Mr. Dougherty served as Portfolio Analyst for Highland from 1998 to 1999. As a Portfolio Analyst, Mr. Dougherty helped follow companies within the chemical, retail, supermarket, wireless and restaurant sectors. Prior to joining the Highland Group in March 1998, Mr. Dougherty served as an Investment Analyst with Sandera Capital Management, a private investment firm, from 1997 to 1998. He was a Business Development Manager at Akzo Nobel, a company based in the Netherlands, from 1994 to 1996 and a Senior Accountant at Deloitte & Touche, LLP, from 1992 to 1994. He received a Masters degree in Business Administration from Southern Methodist University, and a Bachelor of Science degree in Accounting from Villanova University. Mr. Dougherty is a Certified Public Accountant, and has earned the right to use the Chartered Financial Analyst designation.

 

Eugene Miao, Managing Director, Business Development Group — Mr. Miao has managed the Highland Group’s relationships with the private equity community since April 2007. Mr. Miao has over 20 years of experience and broad relationships in financial sponsor coverage and leveraged finance. Prior to joining Highland, from 2005 to 2007, he was a Managing Director at CIBC World Markets, the investment banking subsidiary of Canadian Imperial Bank of Commerce Corp., in the Financial Sponsors/Acquisition Finance Group managing the firm’s relationships with private equity sponsors for a full range of investment banking products. Prior to joining CIBC, from 2003 to 2004, Mr. Miao was a Managing Director at CRT Capital Group, LLC, an institutional securities and investment firm. From 1998 to 2003, Mr. Miao was a Managing Director in the Financial Sponsor Coverage Group of Merrill Lynch, a wealth management, capital markets and advisory company, where he also was a member of the firm’s Debt Commitment Committee and Equity Commitment Committee. Prior to joining Merrill Lynch, Mr. Miao spent 10 years in the Sponsor Coverage, High Yield, and Corporate Finance Groups of Morgan Stanley, a financial services firm. Mr. Miao is an honors graduate of Harvard College and received his Masters in Business Administration from Harvard Business School.

 

Kenneth McGovern, Chief Financial Officer — Mr. McGovern has been the Chief Financial Officer of Highland since July 2007. From August 2005 to July 2007, Mr. McGovern was the Chief Investment Officer at Flagstone Reinsurance Holdings, a Bermuda-based reinsurance company. Prior to joining Flagstone, Mr. McGovern was Director of Capital Markets at Wal-Mart Stores, Inc., or Wal-Mart, where he started in 1992. Prior to his role in Corporate Finance at Wal-Mart, he spent eight years as an independent technology consultant. Mr. McGovern has a Master of Arts degree in Mathematical Finance

from Columbia University, a Master of Science degree in Industrial Administration from Purdue University, and a Bachelor of Science degree from the University of Maryland.

 

Michael Colvin, General Counsel — Mr. Colvin has been General Counsel of Highland since June 2007. From January 2007 to June 2007, Mr. Colvin was a Shareholder in the Corporate and Securities Group at Greenberg Traurig, LLP. While at Greenberg Traurig, LLP, Mr. Colvin was responsible for corporate practices, emphasizing mergers and acquisitions, private equity investments, financings and restructurings, and corporate counseling. Prior to working at Greenberg Traurig, LLP, Mr. Colvin was a Partner in the Private Equity Practice Group at Weil, Gotshal & Manges, LLP, where he started in 1995. He received his Juris Doctor degree, with high distinction, from the University of Kentucky College of Law and his Bachelor of Science degree in Finance, summa cum laude, from Western Kentucky University. Mr. Colvin’s professional certifications include membership in the New York State and Texas Bar Associations.

 

Thomas J. Surgent, Assistant General Counsel — Mr. Surgent has been Assistant General Counsel of Highland since September 2007. From August 2004 to September 2007, Mr. Surgent practiced in the Corporate and Securities Group at Greenberg Traurig, LLP. Prior to working at Greenberg Traurig, from July 1999 to August 2004, Mr. Surgent practiced in the Corporate and Securities Group at Weil, Gotshal & Manges, LLP in London and Dallas, Texas. Mr. Surgent’s practice has consisted of advising funds, sponsors, underwriters, corporations and other issuers with respect to corporate finance, mergers and acquisitions, private equity, joint ventures, corporate governance and restructurings with respect to both domestic and cross-border transactions. Since 2005, Mr. Surgent has dedicated a significant portion of his practice to initial public offerings of “special purpose acquisition companies” and related business combinations issues. Mr. Surgent received his Juris Doctor degree, magna cum laude, from the Florida State University College of Law and a Bachelor of Science degree in Finance from Florida State University. Mr. Surgent’s professional certifications include membership in the Texas and Florida Bar Associations.

 

Effecting a Business Combination

 

General

 

We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time following this offering. While substantially all of the net proceeds of this offering are allocated to completing an initial business combination, the proceeds are not otherwise designated for more specific purposes. Accordingly, you will not be provided an opportunity to evaluate the specific merits or risks of one or more target businesses at the time of your investment. If we engage in an initial business combination with a target business using our capital stock or debt financing to fund the combination, proceeds from this offering and the sale of the private placement warrants will then be used to undertake additional acquisitions or to fund the operations of the target business on a post-combination basis. We may engage in an initial business combination with a company that does not require significant additional capital but is seeking a public trading market for its shares, and which wants to merge with an already public company to avoid the uncertainties associated with undertaking its own public offering. These uncertainties include time delays, compliance and governance issues, significant expense, a possible loss of voting control, and the risk that market conditions will not be favorable for an initial public offering at the time the offering is ready to be commenced. We may seek to effect a business combination with more than one target business, although our limited resources may serve as a practical limitation on our ability to do so.

 

We have not identified a target business

 

We do not have any specific initial business combination under consideration or contemplation and we have not, nor has anyone on our behalf, contacted any prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction. Additionally, we have not sought, nor have we have engaged or retained any agent or other representative, to identify or locate any suitable acquisition candidate, conduct any research or take any measures, directly or indirectly, to locate or contact a target business. In addition, because of the nature of the Highland Group’s business, executives associated with the Highland Group occasionally receive unsolicited inquiries that identify companies that are

potentially for sale. Management has not and will not respond to any such inquiries, nor will it pursue any potential targets that such unsolicited inquiries have identified prior to the completion of this offering. Other than such inquiries, management has not received any inquiries regarding potential target businesses. Further, after completion of this offering, we will not use information relating to specific target businesses that was known by the Highland Group’s investment professionals or any other affiliates prior to the completion of this offering. Accordingly, there is no current basis for investors in this offering to evaluate the possible merits or risks of the target business with which we may ultimately complete our initial business combination. Although our management will assess the risks inherent in a particular target business with which we may combine, we cannot assure you that this assessment will result in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do nothing to control or reduce the chances that those risks will adversely impact a target business.

 

Sources of target businesses

 

We expect that our principal means of identifying potential target businesses will be through the extensive contacts and relationships of the Highland Group, with which we have entered into a business opportunity right of first review agreement, and our officers and directors. While our officers are not required to commit to our business on a full-time basis and our directors have no commitment to spend any time in identifying or performing due diligence on potential target businesses, our officers and directors believe that the relationships they have developed over their careers and their access to the Highland Group professionals will generate a number of potential business combination opportunities that will warrant further investigation. Various unaffiliated parties, such as investment banking firms, venture capital funds, private equity funds, leveraged buyout funds and similar sources, may also bring potential target businesses to our attention. We believe this based on our expectation that these unaffiliated sources will become aware of our search through our mutual professional relationships and as a result of any media coverage we may receive.

 

We may pay fees or compensation to third parties for their efforts in introducing us to potential target businesses that we have not previously identified. Such fees or compensation may be calculated as a percentage of the dollar value of the transaction and/or may involve monthly retainer payments. We will seek to negotiate the lowest reasonable percentage fee consistent with the attractiveness of the opportunity and the alternatives, if any, that are then available to us. Payment of finder’s fees is customarily tied to completion of a transaction. Although it is possible that we may pay finder’s fees in the case of an uncompleted transaction, we consider this possibility to be extremely remote. In no event will we pay any of our initial stockholders, officers or directors or any entity with which they or we are affiliated, including the Highland Group, any finder’s fee, reimbursements, cash payments or other compensation for services rendered to us prior to or in connection with the consummation of an initial business combination, other than (i) repayment of advances of $200,000 made to us by Highland to cover offering-related and organizational expenses; (ii) payment of an aggregate of $10,000 per month to Highland for office space, secretarial and administrative services; (iii) payment of customary fees in connection with any financing that the Highland Group may arrange or originate in connection with our initial business combination, provided that any such financing is on arm’s length terms and is described in the proxy materials we send to our stockholders in connection with our initial business combination; and (iv) reimbursement for any out-of-pocket expenses related to this offering and identifying, investigating and consummating an initial business combination. In addition, none of our initial stockholders, officers or directors, the Highland Group or any of our or their affiliates will receive any finder’s fee, consulting fees or any similar fees from any person or entity in connection with any initial business combination involving us other than any compensation or fees that may be received for any services provided following such initial business combination. Our audit committee will review and approve all payments made to our initial stockholders officers, directors, the Highland Group or our or their affiliates, other than the repayment of advances of $200,000 and the $10,000 per month payment described above, and any payments made to members of our audit committee will be reviewed and approved by our board of directors, with the interested director or directors abstaining from such review and approval.

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 with a fair market value that is at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions of $7.5 million, or approximately $8.63 million if the over-allotment option is exercised in full) at the time of such initial business combination, our management will have virtually unrestricted flexibility in identifying and selecting a prospective target business. However, we will only consummate a business combination in which we become the controlling stockholder of the target. The key factor that we will rely on in determining controlling stockholder status would be our acquisition of at least 50.1% of the voting equity interests of the target company. We will not consider any transaction that does not meet such criteria. In addition, we will not enter into our initial business combination with any entity in which any of our initial stockholders, officers, directors or the Highland Group or ours or their affiliates has a financial interest.

 

In evaluating a prospective target business, our management will consider a variety of criteria and guidelines, including the following:

 

 

These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our management to our business objective. In evaluating a prospective target business, we expect to conduct an extensive due diligence review which will encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspection of facilities, as well as review of financial and other information which will be made available to us.

 

The time required to select and evaluate a target business and to structure and complete the initial business combination, and the costs associated with this process, are not currently ascertainable with any

degree of certainty. We expect that due diligence of prospective target businesses will be performed by some or all of our officers, directors and the Highland Group investment professionals. We may engage market research firms or third-party consultants to assist us with performing due diligence and valuations of the target company. Any costs incurred with respect to the identification and evaluation of a prospective target business with which a potential or initial business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete an initial business combination.

 

Fair market value of target business or businesses and determination of offering amount

 

The initial target business or businesses with which we combine must have a collective fair market value equal to at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions of $7.5 million, or approximately $8.63 million if the over-allotment option is exercised in full) at the time of such initial business combination. If we acquire less than 100% of one or more target businesses in our initial business combination, the aggregate fair market value of the portion or portions we acquire must equal at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions as described above) at the time of such initial business combination. We may seek to consummate our initial business combination with a target business or businesses with a collective fair market value in excess of the balance in the trust account. However, we would need to obtain additional financing to consummate such an initial business combination, and there is no assurance we would be able to obtain such financing.

 

In determining the size of this offering, our management concluded, based on their collective experience in financing, structuring and otherwise capitalizing target businesses, that an offering of this size, together with the proceeds of the private placement of the private placement warrants, would provide us with sufficient equity capital to execute our business plan. In making such determination, our management also considered what size offering we believed would be successfully received given market conditions, our management, and the size of initial public offerings of other similarly structured blank check companies. We believe that this amount of equity capital, plus our ability to finance an acquisition using stock or debt in addition to the cash held in the trust account, will give us substantial flexibility in selecting an acquisition target and structuring our initial business combination. This belief is not based on any research, analysis, evaluations, discussions, or compilations of information with respect to any particular investment or any such action undertaken in connection with our organization. We cannot assure you that our belief is correct, that we will be able to successfully identify acquisition candidates, that we will be able to obtain any necessary financing or that we will be able to consummate a transaction with one or more target businesses whose fair market value, collectively, is equal to at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions of approximately $7.5 million or approximately $8.63 million if the over-allotment option is exercised in full) at the time of the initial business combination.

 

In contrast to many other blank check companies that must combine with one or more target businesses that have a fair market value equal to 80% or more of the acquiring company’s net assets, we will not combine with a target business or businesses unless the fair market value of such entity or entities meets a minimum valuation threshold of 80% of the amount in the trust account (excluding deferred underwriting discounts and commissions of $7.5 million, or approximately $8.63 million if the over-allotment option is exercised in full). We have used this criterion to provide investors and our officers and directors with greater certainty as to the fair market value that a target business or businesses must have in order to qualify for our initial business combination. The determination of net assets requires an acquiring company to have deducted all liabilities from total assets to arrive at the balance of net assets. Given the ongoing nature of legal, accounting, stockholder meeting and other expenses that will be incurred immediately before and at the time of an initial business combination, the balance of an acquiring company’s total liabilities may be difficult to ascertain at a particular point in time with a high degree of certainty. By using a minimum threshold valuation of 80% of the trust amount, if we incur significant liabilities and expend most of the funds outside of the trust, the “balance in trust” calculation would result

in a figure that is greater than the “net assets” calculation, with a result that the fair market value of a target business that we could acquire would have to be higher. Accordingly, we have determined to use the valuation threshold of 80% of the amount in the trust account (excluding deferred underwriting discounts and commissions of $7.5 million or approximately $8.63 million if the over-allotment option is exercised in full) for the fair market value of the target business or businesses with which we combine so that our officers and directors will have greater certainty when selecting, and our investors will have greater certainty when voting to approve or disapprove, a proposed initial business combination with a target business or businesses that such target business or businesses will meet the minimum valuation criterion for our initial business combination.

 

In connection with seeking stockholder approval of a business combination, we will furnish our stockholders with proxy solicitation materials prepared in accordance with the Exchange Act, which, among other matters, will include a description of the operations of the target business and audited historical financial statements of the business. Our board of directors will perform its own valuations and analyses in seeking to determine that the target has a fair market value of at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions of $7.5 million or approximately $8.63 million if the over-allotment option is exercised in full) at the time of the proposed business combination. Whether or not the fair market value of a target business is in excess of 80% of the proceeds in the trust account or businesses will be determined by our board of directors based upon standards generally accepted by the financial community as applicable and appropriate in the valuation of target businesses in the industry of any target business considered by us, such as the following: comparative company analysis, including without limitation, earnings before interest, taxes, depreciation, and amortization, revenue, equity, and assets; industry analysis based upon then current trends, historical growth, and other relevant industry statistics; forecasted financial data, such as sales, earnings and cash flow; and other relevant indicia of value. The board of directors will make its valuation assessment based on all relevant information available at the time, and in accordance with its obligations under Delaware law, which may differ on a case-by-case basis depending on the specific nature of the target and the structure of the transaction, including the projected performance of the target based on its potential under our business plan (as determined based upon standards generally accepted by the financial community, as well as the criteria discussed under “Selection of a target business and structuring of a business combination” above). Accordingly, we cannot predict at this time the precise information that the board of directors intends to provide to stockholders regarding the valuation of a particular target, other than whether it meets the 80% threshold criterion.

 

If our board of directors is not able to determine independently that the target business has a sufficient fair market value to meet the threshold criterion, we will obtain an opinion in that regard from an unaffiliated, independent investment banking firm which is a member of the Financial Industry Regulatory Authority, or FINRA. We expect that any such opinion would be included in our proxy soliciting materials furnished to our stockholders in connection with the stockholder vote on our initial business combination, and that such independent investment banking firm will be a consenting expert. We will not be required to obtain an opinion from an investment banking firm as to the fair market value of the business if our board of directors independently determines that the target business or businesses has sufficient fair market value to meet the threshold criterion. In addition, if our board of directors has informed stockholders that it believes that a target business meets the 80% threshold criterion, our board of directors will not be otherwise required to provide stockholders with valuations and analyses or quantify the value of any target. Further, in the event that we issue shares in order to acquire a target and such issuance causes the investors in this offering to collectively become minority stockholders, we will not be required to obtain an opinion or independently opine on whether the transaction is fair to our stockholders. However, any such issuance shall not affect the requirement that a majority of the shares of common stock voted by our public stockholders must approve any initial business combination.

 

Competition

 

We believe that potential target businesses may favor us over some other potential purchasers of their businesses, which may include private equity funds, public and private operating businesses and other entities and individuals, both foreign and domestic, for the following reasons:

 

 

 

Nonetheless, in identifying, evaluating and pursuing potential target businesses, we may encounter intense competition from other entities having a business objective similar to ours. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Many of these entities possess greater financial, marketing, technical, human and other resources than we. Our ability to compete in acquiring a target business will be limited by our available resources. Further:

 

 

 

 

Any of these factors may place us at a competitive disadvantage in identifying and successfully negotiating our initial business combination, particularly against a competitor that does not need stockholder approval.

 

If we succeed in effecting our initial business combination, there will, in all likelihood, be intense competition from competitors of the initial target business and we may not have the resources to compete effectively.

 

Lack of business diversification

 

While we may seek to effect business combinations with more than one target business, our initial business combination must involve one or more target businesses whose collective fair market value meets the criteria discussed above at the time of such initial business combination. Consequently, we expect to complete only a single initial business combination, although this may entail a simultaneous combination with several operating businesses. At the time of our initial business combination, we may not be able to acquire more than one target business because of various factors, including complex accounting or financial reporting issues. For example, we may need to present pro forma financial statements reflecting the operations of several target businesses as if they had been combined historically.

 

A simultaneous combination with several target businesses also presents logistical issues, such as the need to coordinate the timing of negotiations, proxy statement disclosure and closings. In addition, if conditions to closings with respect to one or more of the target businesses are not satisfied, the fair market value of the businesses could fall below the required fair market value threshold described above.

 

Accordingly, while it is possible that our initial business combination may involve more than one target business, we are more likely to choose a single target business if all other factors appear equal. This means

that for an indefinite period of time, the prospects for our success may depend entirely on the future performance of a single target business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business. By consummating our initial business combination with only a single entity, our lack of diversification may subject us to negative economic, competitive and regulatory developments, in the particular industry in which we operate after our initial business combination.

 

If we complete our initial business combination structured as a merger in which the consideration is our stock, we could have a significant amount of cash available to make subsequent add-on acquisitions.

 

Limited ability to evaluate the target business’s management

 

We will independently evaluate the quality and experience of the existing management of a target business and will make an assessment as to whether or not they should be replaced on a case-by-case basis. As an example, a company in weak financial condition may be experiencing difficulties because of its capitalization and not because of its operations, in which case operating management may not need to be replaced.

 

Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting an initial business combination with that business, we cannot assure you that our assessment of the target business’s management will prove to be correct. In addition, we cannot assure you that management of the target business will have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of our officers and directors, if any, in the target business cannot presently be stated with any certainty. While it is possible that one or more of our officers and directors will remain associated in some capacity with us following our initial business combination, a final determination of their continued involvement with the business upon completion of an initial business combination will be made jointly with our board of directors and based on the facts and circumstances at the time. The goal of our board of directors will be to ensure that they select the best management team to pursue our business strategy. If they determine that the incumbent management of an acquired business should be replaced and that one or more of our officers and directors is the best available replacement, it is possible that some of our officers or directors will devote some or all of their efforts to our affairs subsequent to our initial business combination.

 

Following our initial 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 additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.

 

Opportunity for stockholder approval of business combination

 

Prior to the completion of our initial business combination, we will submit the transaction to our stockholders for approval, even if the nature of the transaction is such as would not ordinarily require stockholder approval under the Delaware General Corporation Law. At the same time, we will submit to our stockholders for approval a proposal to amend our amended and restated certificate of incorporation to provide for our perpetual existence if the initial business combination is approved and consummated. The quorum required to constitute this meeting, as for all meetings of our stockholders in accordance with our bylaws, is a majority of our issued and outstanding common stock (whether or not held by public stockholders). We will consummate our initial business combination only if (i) the initial business combination is approved by a majority of votes cast by our public stockholders in person or by proxy at a duly held stockholders meeting, (ii) an amendment to our amended and restated certificate of incorporation to provide for our perpetual existence is approved by holders of a majority of our outstanding shares of common stock and (iii) public stockholders owning no more than 30% (minus one share) of our outstanding shares of common stock sold in the offering both vote against the business combination and exercise their conversion rights. This may have the effect of making it easier for us to have an initial business combination approved over stockholder dissent than other blank check companies with a business

purpose similar to ours. Similar blank check companies generally will not consummate an initial business combination if public stockholders holding more than 20% of their outstanding shares of common stock exercise their conversion rights.

 

Under the terms of our amended and restated certificate of incorporation, this provision may not be amended without the unanimous consent of our stockholders prior to consummation of an initial business combination. However, these unanimous consent provisions may not be enforceable under Delaware law. Section 242(b) of the Delaware General Corporation Law provides in relevant part that permitted amendments to a company’s certificate of incorporation may be effected by the holders of a majority of the outstanding stock entitled to vote thereon. Even though the validity of unanimous consent provisions under Delaware law has not been settled, neither we nor our board of directors will propose any amendment to this 30% threshold, or support, endorse or recommend any proposal that stockholders amend this threshold (subject to any fiduciary obligations our management or board of directors may have). In addition, we believe we have an obligation in every case to structure our initial business combination so that not less than 30% of the shares sold in this offering (minus one share) have the ability to be converted to cash by public stockholders exercising their conversion rights and the initial business combination will still go forward. Provided that a quorum is in attendance at the meeting, in person or by proxy, a failure to vote on the initial business combination at the stockholders’ meeting will have no outcome on the transaction. Voting against our initial business combination alone will not result in conversion of a stockholder’s shares into a pro rata share of the trust account. In order to convert its shares, a stockholder must have also exercised the conversion rights described below.

 

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, we may continue to seek other target businesses with which to effect our initial business combination that meet the criteria set forth in this prospectus until the expiration of 24 months after the date of this prospectus. In connection with seeking stockholder approval of our initial business combination, we will furnish our stockholders with proxy solicitation materials prepared in accordance with the Exchange Act, which, among other matters, will include a description of the operations of the target business and audited historical financial statements of the target business based on U.S. generally accepted accounting principles.

 

Our initial stockholders have agreed, in connection with the stockholder vote required to approve our initial business combination, to vote the founders’ shares in accordance with the majority of the shares of common stock voted by the public stockholders and to vote in favor of an amendment to our amended and restated certificate of incorporation to provide for our perpetual existence. Our initial stockholders, Highland and each of our officers and directors have also agreed that if it, he or she acquires shares of common stock in or following this offering, including shares purchased pursuant to the limit order described below, it, he or she will vote all such acquired shares in favor of our initial business combination. As a result, none of our initial stockholders, officers or directors or Highland will be able to exercise conversion rights with respect to any of our shares that it, he or she may acquire prior to, in or after this offering.

 

Conversion rights

 

At the time we seek stockholder approval of our initial business combination, we will offer our public stockholders the right to have their shares of common stock converted to cash if they vote against the business combination and the business combination is approved and completed. Notwithstanding the foregoing, a public stockholder, together with any affiliate of his, hers or it or any other person with whom he, she or it is acting in concert or as a “group,” will be restricted from seeking conversion rights with respect to more than 10% of the shares sold in this offering. Such a public stockholder would still be entitled to vote against a proposed business combination with respect to all shares owned by him, her or it or his, her or its affiliates. We believe this restriction will prevent stockholders from accumulating large blocks of stock before the vote held to approve a proposed business combination and attempt to use the conversion right as a means to force us or our management to purchase their stock at a significant premium to the then current market price. Absent this provision, for example, a public stockholder who owns 15% of the shares sold in this offering could threaten to vote against a proposed business combination and seek

conversion, regardless of the merits of the transaction, if his, her or its shares are not purchased by us or our management at a premium to the then current market price (or if management refuses to transfer to him some of their shares). By limiting each stockholder’s ability to convert only up to 10% of the shares sold in this offering, we believe we have limited the ability of a small group of stockholders to unreasonably attempt to block a transaction which is favored by our other public stockholders. However, we are not restricting the stockholders’ ability to vote all of their shares against the transaction.

 

The actual per-share conversion price will be equal to the aggregate amount then on deposit in the trust account (before payment of deferred underwriting discounts and commissions and including accrued interest, net of any income taxes payable on such interest, which shall be paid from the trust account, and net of interest income previously released to us to fund our working capital requirements), calculated as of two business days prior to the consummation of the proposed initial business combination, divided by the number of shares sold in this offering. The initial per-share conversion price is expected to be $9.77 (or approximately $9.74 per share if the over-allotment option is exercised in full), or approximately $0.23 less than the per-unit offering price of $10.00 (approximately $0.26 less if the over-allotment is exercised in full).

 

An eligible public stockholder who wishes to exercise its conversion rights may request conversion of its shares 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 public stockholder votes against our initial business combination, our initial business combination is approved and completed, the public stockholder holds its shares through the closing of our initial business combination and the public stockholder follows the specific procedures for conversion that will be set forth in the proxy statement relating to the stockholder vote on a proposed initial business combination. Following the approval of our initial business combination by our stockholders and until the completion of our initial business combination or termination of the definitive agreement relating to the proposed initial business combination, any transfer of shares owned by a public stockholder who has requested to exercise its conversion rights will be blocked. If a public stockholder votes against our initial business combination but fails to properly exercise its conversion rights, such public stockholder will not have its shares of common stock converted. Any request for conversion, once made, may be withdrawn at any time up to the date of the meeting of stockholders being held for the purpose of approving the initial business combination. It is anticipated that the funds to be distributed to public stockholders who elect conversion will be distributed promptly after completion of our initial business combination. Public stockholders who exercise their conversion rights will still have the right to exercise any warrants they still hold.

 

We may require public stockholders to tender their certificates to our transfer agent prior to the meeting or to deliver their shares to the transfer agent electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System. We will notify investors on a Current Report on Form 8-K and in our proxy statement related to the initial business combination if we impose this requirement. Traditionally, in order to perfect conversion rights in connection with a blank check company’s business combination, a stockholder could simply vote against a proposed business combination and check a box on the proxy card indicating such stockholder was seeking to exercise its conversion rights. After the business combination was approved, the company would contact such stockholder to arrange for him, her or it to deliver his, her or its certificate to verify ownership. As a result, the stockholder then had an “option window” after the consummation of the business combination during which he, she or it could monitor the price of the stock in the market. If the price rose above the conversion price, the stockholder could sell his, her or its shares in the open market before actually delivering his, her or its shares to the company for cancellation in consideration for the conversion price. Thus, the conversion right, to which stockholders were aware they needed to commit before the stockholder meeting, would become a “put” right surviving past the consummation of the business combination until the converting stockholder delivered his, her or its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a converting stockholder’s election to convert is irrevocable once the business combination is approved.

If we elect to require physical delivery of the share certificates, we would expect that stockholders would have to comply with the following steps. If the shares are held in street name, stockholders must instruct their account executive at the stockholders’ bank or broker to withdraw the shares from the stockholders’ account and request that a physical certificate be issued in the stockholders’ name. Our transfer agent will be available to assist with the process. No later than the day prior to the stockholder meeting, the written instructions stating that the stockholder wishes to convert his or her shares into a pro rata share of the trust account and confirming that the stockholder has held the shares since the record date and will continue to hold them through the stockholder meeting and the closing of our business combination must be presented to our transfer agent. Certificates that have not been tendered in accordance with these procedures by the day prior to the stockholder meeting will not be converted into cash. In the event that a stockholder tenders his or her shares and decides prior to the stockholder meeting that he or she does not want to convert his or her shares, the stockholder may withdraw the tender. In the event that a stockholder tenders shares and our business combination is not completed, these shares will not be converted into cash and the physical certificates representing these shares will be returned to the stockholder.

 

We will not consummate an initial business combination if holders of more than 30% (minus one share) of our outstanding shares of common stock sold in this offering exercise their conversion rights and vote against the initial business combination. This may have the effect of making it easier for us to have an initial business combination approved over stockholder dissent than other blank check companies with a business purpose similar to ours. Similar blank check companies generally will not consummate a business combination if public stockholders holding more than 20% of their outstanding shares of common stock exercise their conversion rights.

 

In connection with a vote on our initial business combination, public stockholders may elect to vote a portion of their shares for and a portion of their shares against the initial business combination. If the initial business combination is approved and consummated, public stockholders who elected to convert the portion of their shares voted against the initial business combination will receive the conversion price with respect to those shares and may retain any other shares they own.

 

We expect the initial conversion price to be $9.77 per share (or approximately $9.74 per share if the over-allotment option is exercised in full). As this amount is lower than the $10.00 per unit offering price and it may be less than the market price of a share of our common stock on the date of conversion, there may be a disincentive to public stockholders to exercise their conversion rights.

 

If a vote on an initial business combination is held and the business combination is not approved, we may continue to try to consummate an initial business combination with a different target until 24 months after the date of this prospectus. If the initial business combination is not approved or completed for any reason, then public stockholders voting against our initial business combination who exercised their conversion rights would not be entitled to convert their shares of common stock into a pro rata share of the aggregate amount then on deposit in the trust account. Those 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 that the initial business combination they voted against was duly approved and subsequently completed, or in connection with our liquidation.

 

Liquidation if no business combination

 

Our amended and restated certificate of incorporation, which we intend to adopt immediately prior to the closing of this offering, will provide that we will continue in existence only until 24 months after the date of this prospectus. If we consummate our initial business combination prior to that date, we will seek to amend this provision in order to provide for our perpetual existence. If we have not completed our initial business combination by that date, our corporate existence will cease except for the purposes of winding up our affairs and liquidating pursuant to Section 278 of the Delaware General Corporation Law. Because of this provision in our amended and restated certificate of incorporation, no resolution by our board of directors and no vote by our stockholders to approve our dissolution would be required for us to dissolve and liquidate. Instead, we will notify the Delaware Secretary of State in writing on the termination date that our

corporate existence is ceasing, and include with such notice payment of any franchise taxes then due to or assessable by the state.

 

If we are unable to complete a business combination within 24 months after the date of this prospectus, our existence will automatically terminate and as promptly as practicable thereafter we will adopt a plan of distribution that makes reasonable provision for claims against us in accordance with Section 281(b) of the Delaware General Corporation Law. Upon our plan of distribution, the trustee will commence liquidating the investments constituting the trust account and distribute the proceeds to our public stockholders.

 

Section 278 provides that even after we cease our business activities and distribute the balance of the trust account to our public stockholders, our existence will continue for at least three years after our termination for the purpose of prosecuting and defending suits, whether civil, criminal or administrative, by or against us, and of enabling us gradually to settle and close our business, to dispose of and convey our property, to discharge our liabilities and to distribute to our stockholders any remaining assets, but not for the purpose of continuing the business for which we were organized. Our existence will continue automatically even beyond the three-year period for the purpose of completing the prosecution or defense of suits begun prior to the expiration of the three-year period, until such time as any judgments, orders or decrees resulting from such suits are fully executed. Section 281(b) will require us to pay or make reasonable provision for all then-existing claims and obligations, including all contingent, conditional, or unmatured contractual claims known to us, and to make such provision as will be reasonably likely to be sufficient to provide compensation for any then-pending claims and for claims that have not been made known to us or that have not arisen but that, based on facts known to us at the time, are likely to arise or to become known to us within 10 years after the date of cessation of our business activities. Under Section 281(b), the plan of distribution must provide for all of such claims to be paid in full or make provision for payments to be made in full, as applicable, if there are sufficient assets. If there are insufficient assets, the plan must provide that such claims and obligations be paid or provided for according to their priority and, among claims of equal priority, ratably to the extent of legally available assets. Under Delaware law, absent a valid and enforceable waiver or other special circumstances, creditors of a corporation have a superior right to stockholders in the distribution of assets upon liquidation. These claims must be paid or provided for before we make any distribution of our remaining assets to our stockholders.

 

We expect that all costs and expenses associated with implementing our plan of distribution, as well as payments to any creditors, will be funded from amounts remaining out of the $100,000 of proceeds held outside the trust account and from the $3.0 million, subject to adjustment, in interest income on the balance of the trust account that may be released to us to fund our working capital requirements. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of distribution, to the extent that there is any interest accrued in the trust account not required to pay income taxes on interest income earned on the trust account balance, we may request that the trustee release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses.

 

Our initial stockholders have waived their right to participate in any liquidation distribution with respect to the founders’ shares in the event we fail to consummate an initial business combination, but not with respect to any shares of our common stock they may purchase in this offering or the secondary market, including pursuant to the limit order described above. Additionally, if we do not complete an initial business combination and the trustee must distribute the balance of the trust account, the underwriters have agreed to forfeit any rights or claims to their deferred underwriting discounts and commissions then in the trust account, and those funds will be included in the pro rata liquidation distribution to the public stockholders. There will be no distribution from the trust account with respect to any of our warrants, which will expire worthless if we are liquidated, and as a result purchasers of our units will have paid the full unit purchase price solely for the share of common stock included in each unit.

 

If we are unable to conclude an initial business combination and expend all of the net proceeds of this offering and the founding stockholder’s investment other than the proceeds deposited in the trust account, and without taking into account any interest earned on the trust account, the initial per-share liquidation price will be $9.77 (or approximately $9.74 per share if the over-allotment option is exercised in full), or

approximately $0.23 less than the per-unit offering price of $10.00 (approximately $0.26 less if the over-allotment is exercised in full).

 

The proceeds deposited in the trust account could, however, become subject to claims of our creditors that are in preference to the claims of our stockholders, and we therefore cannot assure you that the actual per-share liquidation price will not be less than $9.77 (or approximately $9.74 per share if the over-allotment option is exercised in full). Although prior to completion of our initial business combination, we will seek to have all third parties (including any vendors or any other entities with which we enter into a contractual relationship following consummation of this offering) and any prospective target businesses enter into valid and enforceable agreements with us waiving any right, title, interest or claim of any kind in or to any assets held in the trust account, there is no guarantee that they will execute such agreements. We have not engaged any such third parties or asked for or obtained any such waiver agreements at this time. It is also possible that such waiver agreements would be held unenforceable, and there is no guarantee that the third parties would not otherwise challenge the agreements and later bring claims against the trust account for amounts owed them. If a target business or other third party were to refuse to enter into such a waiver, we would enter into discussions with such target business or engage such other third party only if our management determined that we could not obtain, on a reasonable basis, substantially similar services or opportunities from another entity willing to enter into such a waiver. In addition, there is no guarantee that these third parties will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Further, we could be subject to claims from parties not in contract with us who have not executed a waiver, such as a third party claiming tortious interference as a result of our initial business combination.

 

Our founding stockholder and Highland have agreed that they will be liable to us if and to the extent claims by third parties reduce the amounts in the trust account available for payment to our stockholders in the event of a liquidation and the claims are made by a vendor for services rendered or products sold to us, by a third party with which we entered into a contractual relationship following consummation of this offering or by a prospective target business. We do not expect that our founding stockholder or Highland will be a party to our contracts with vendors or potential target businesses. As a result, to the extent a vendor or target business recovers claims against us that we pay with funds held in the trust account, we will have to enforce our rights under our indemnification agreements with our founding stockholder or Highland before we are able to pay over the amount of such claims to our public stockholders. A “vendor” refers to a third party that enters into an agreement with us to provide goods or services to us. However, the agreement entered into by our founding stockholder and Highland specifically provides for two exceptions to the indemnity given: there will be no liability (1) as to any claimed amounts owed to a third party who executed a valid and enforceable waiver, or (2) as to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. Furthermore, there could be claims from parties other than vendors or target businesses that would not be covered by the indemnity from our founding stockholder and Highland, such as stockholders and other claimants who are not parties in contract with us who file a claim for damages against us. Based on the representation as to their status as accredited investors (as such term is defined in Regulation D under the Securities Act), we currently believe that our founding stockholder and Highland are capable of funding their indemnity obligations, even though we have not asked them to reserve for such an eventuality. We cannot assure you, however, that our founding stockholder and Highland would be able to satisfy those obligations.

 

Under Delaware law, absent a valid and enforceable waiver or other special circumstances, creditors of a corporation have a superior right to stockholders in the distribution of assets upon liquidation. Consequently, if the trust account is liquidated and paid out to our public stockholders prior to satisfaction of the claims of all of our creditors, it is possible that our stockholders may be held liable for third parties’ claims against us to the extent of the distributions received by them.

 

If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the

claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you that we will be able to return at least $9.77 per share (or approximately $9.74 per share if the over-allotment option is exercised in full) to our public stockholders.

 

A public stockholder will be entitled to receive funds from the trust account only in the event that we do not consummate an initial business combination within 24 months after the date of this prospectus or if the stockholder converts its shares into cash after voting against an initial business combination that is actually completed by us and exercising its conversion rights. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account. Prior to our completing an initial business combination or liquidating, we are permitted to have released from the trust account only (i) interest income to pay income taxes on interest income earned on the trust account balance and (ii) interest income earned of up to $3.0 million, subject to adjustment, to fund our working capital requirements.

 

Certificate of Incorporation

 

Our amended and restated certificate of incorporation will set forth certain provisions designed to provide certain rights and protections to our stockholders prior to the consummation of a business combination, including that:

 

 

 

 

 

 

 

Our amended and restated certificate of incorporation will require that prior to the consummation of our initial business combination we obtain unanimous consent of our stockholders to amend these provisions. However, the validity of unanimous consent provisions under Delaware law has not been settled. Section 242(b) of the Delaware General Corporation Law provides in relevant part that permitted amendments to a company’s certificate of incorporation may be effected by the holders of a majority of the outstanding stock entitled to vote thereon. A court could conclude that the unanimous consent requirement constitutes a practical prohibition on amendment in violation of the stockholders’ statutory rights to amend the corporate charter. In that case, these provisions could be amended without unanimous consent, and any such amendment could reduce or eliminate the protection these provisions afford to our stockholders. However, we view all of the foregoing provisions as obligations to our stockholders. Neither we nor our board of directors will propose any amendment to these provisions, or support, endorse or recommend any proposal that stockholders amend any of these provisions at any time prior to the consummation of our initial business combination (subject to any fiduciary obligations our management or board of directors may have). In addition, we believe we have an obligation in every case to structure our initial business combination so that not less than 30% of the shares sold in this offering (minus one share) have the ability to be converted to cash by public stockholders exercising their conversion rights and the business combination will still go forward.

 

COMPARISON OF THIS OFFERING TO THOSE
OF BLANK CHECK COMPANIES SUBJECT TO RULE 419

 

The following table compares the terms of this offering to the terms of an offering by a blank check company subject to the provisions of Rule 419. This comparison assumes that the gross proceeds, underwriting discounts and underwriting expenses of our offering would be identical to those of an offering undertaken by a company subject to Rule 419, and that the underwriters will not exercise their over-allotment option. None of the provisions of Rule 419 apply to our offering.

 

 

Competition

 

In identifying, evaluating and selecting a target business for our initial business combination, we may encounter intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout funds, as well as operating businesses seeking acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human and other resources than us. While we believe there are numerous potential target businesses with which we could combine, our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore:

 

 

 

Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination.

 

Facilities

 

Our executive offices are currently located at 13455 Noel Road, Suite 800, Dallas, Texas 75240. The cost for this space is included in the $10,000 per-month fee described above that Highland, the sole member of our founding stockholder, charges us for general and administrative services. We believe, based on rents and fees for similar services in the Dallas area that the fee charged by Highland 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.

 

Employees

 

We currently have five officers. These individuals are not obligated to devote any specific number of hours to our business and intend to devote only as much time as they deem necessary to our business. We currently have no employees and do not expect to have any full-time employees prior to the consummation of a business combination. As a result, we will rely on Highland for all secretarial and administrative services prior to the consummation of our initial business combination.

 

Periodic Reporting and Financial Information

 

We have registered our securities under the Exchange Act and after this offering will have public reporting obligations, including the filing of annual and quarterly reports with the SEC. In accordance with the requirements of the Exchange Act, our annual report will contain financial statements audited and reported on by our independent registered public accounting firm and our quarterly reports will contain financial statements reviewed by our independent registered public accounting firm.

 

We will not acquire a target business if we cannot obtain audited financial statements based on U.S. generally accepted accounting principles for such target business. We will provide these financial statements in the proxy solicitation materials sent to stockholders for the purpose of seeking stockholder approval of our initial business combination. Our management believes that the need for target businesses to have, or be able to obtain, audited financial statements may limit the pool of potential target businesses available for acquisition.

 

We will be required to comply with the internal control requirements of the Sarbanes-Oxley Act for the fiscal year ending December 31, 2009. 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.

 

Legal Proceedings

 

There is no material litigation currently pending against us or any of our officers or directors in their capacity as such.

 

MANAGEMENT

 

Directors and Executive Officers

 

Our directors and executive officers as of the date of this prospectus are as follows:

 

 

James D. Dondero, Chairman of the Board of Directors and Chief Executive Officer — Mr. Dondero is a founder of Highland and has served as its President and Managing Partner since 1993. Prior to founding Highland, Mr. Dondero served as Chief Investment Officer of Protective Life Corporation’s Guaranteed Investment Contract, or GIC, subsidiary, an issuer of guaranteed investment contracts to private pension plans, where he helped grow the business from its inception in 1989 to over $2 billion in assets in 1993. From 1985 to 1989, Mr. Dondero managed approximately $1 billion in fixed income funds for American Express, a diversified financial services company. Mr. Dondero is a Beta Gamma Sigma graduate of the University of Virginia with Bachelor of Science degrees in Accounting and Finance. Mr. Dondero is a Certified Public Accountant and a Certified Management Accountant. He has earned the right to use the Chartered Financial Analyst designation. Mr. Dondero serves as Chairman of the Board of Directors of Highland Financial Partners, L.P., a holding company for structured finance subsidiaries and other assets, and is a director for Highland Capital Management Europe, Ltd., a United Kingdom based investment adviser, NexBank, a banking institution, and American Banknote, a holding company and the parent of the ABnote Group, which operates through its subsidiaries and is a supplier of secure documents, services and systems.

 

Mark Okada, President — Mr. Okada is a founder of Highland and has served as its Chief Investment Officer since 1993. Mr. Okada is responsible for overseeing the Highland Group’s investment activities for its various funds and managed accounts. Mr. Okada served as Manager of Fixed Income for Protective Life Corporation’s GIC subsidiary, an issuer of guaranteed investment contracts to private pension plans, from 1990 to 1993. From 1986 to 1990, Mr. Okada served as Vice President for Hibernia National Bank, a banking institution, managing over $1 billion of high-yield bank loans. Mr. Okada is Chairman of the Board of Directors of Common Grace Ministries, Inc. Mr. Okada is an honors graduate of the University of California Los Angeles with degrees in Economics and Psychology. He has earned the right to use the Chartered Financial Analyst designation. Mr. Okada serves as a director for Highland Capital Management Europe, Ltd., a United Kingdom based investment adviser, Highland Financial Partners, L.P., a limited partnership, and NexBank, a banking institution.

 

Kenneth McGovern, Chief Financial Officer — Mr. McGovern has been the Chief Financial Officer of Highland since July 2007. From August 2005 to July 2007, Mr. McGovern was the Chief Investment Officer at Flagstone Reinsurance Holdings, a Bermuda-based reinsurance company. Prior to joining Flagstone, Mr. McGovern was Director of Capital Markets at Wal-Mart Stores, Inc., or Wal-Mart, where he started in 1992. Prior to his role in Corporate Finance at Wal-Mart, he spent eight years as an independent technology consultant. Mr. McGovern has a Master of Arts degree in Mathematical Finance from Columbia University, a Master of Science degree in Industrial Administration from Purdue University, and a Bachelor of Science degree from the University of Maryland.

 

Joseph Dougherty, Director and Senior Vice President — Mr. Dougherty has been Head of Retail Products and a Senior Portfolio Manager at Highland since February 2004. Mr. Dougherty has served as

Portfolio Manager, Senior Vice President and/or Director of Highland’s NYSE-listed funds and 1940 Act registered funds since 2000. He has also served as Portfolio Manager for the Highland Group’s sub-advised closed-end funds since 2004. In this capacity, Mr. Dougherty oversees investment decisions for the Highland Group’s day-to-day operations. Prior to his current duties, Mr. Dougherty served as Portfolio Analyst for Highland from 1998 to 1999. As a Portfolio Analyst, Mr. Dougherty helped follow companies within the chemical, retail, supermarket, wireless and restaurant sectors. Prior to joining the Highland Group in March 1998, Mr. Dougherty served as an investment analyst with Sandera Capital Management, a private investment firm, from 1997 to 1998. He was a Business Development Manager at Akzo Nobel, a company based in the Netherlands, from 1994 to 1996 and a Senior Accountant at Deloitte & Touche, LLP, from 1992 to 1994. He received a Masters degree in Business Administration from Southern Methodist University, and a Bachelor of Science degree in Accounting from Villanova University. Mr. Dougherty is a Certified Public Accountant, and has earned the right to use the Chartered Financial Analyst designation. Mr. Dougherty serves as a director of 11 funds and one business development company associated with Highland Capital Management, L.P.

 

Timothy K. Hui, Director — Mr. Hui has been the Dean of Educational Resources at Philadelphia Biblical University since 2001. From July 2004 to June 2006 he was Assistant Provost for Graduate Education and from July 2003 to June 2004 he was the Assistant Provost for Educational Resources. Mr. Hui received a Bachelor of Science degree in Christian Education from Philadelphia Biblical University and received a Masters degree in Theology and a Doctorate degree in Theology from the Dallas Theological Seminary. He also received a Masters in Library Sciences from the University of North Texas, and his Juris Doctor degree from Southern Methodist University. Mr. Hui serves as a director of 11 funds and one business development company associated with Highland Capital Management, L.P.

 

Scott F. Kavanaugh, Director — Mr. Kavanaugh is the Chairman and Chief Executive Officer of First Foundation Bank. Prior to joining First Foundation Bank, he was an Independent Contractor from April 2006 to September 2007 and a Private Investor from July 2003 to April 2006. From January 2000 to February 2003 he was Executive Vice President, Director and Treasurer of Commercial Capital Bank, a banking institution, and was Managing Principal and Chief Operating Officer of Financial Institutional Partners Mortgage Company and the Managing Principal and President of Financial Institutional Partners, LLC, an investment banking firm, from April 1998 to February 2003. Mr. Kavanaugh received a BBA in Accounting from the University of Tennessee and received a Masters degree in Accounting from North Texas State University. Mr. Kavanaugh serves as a director of 11 funds, one business development company and one limited partnership associated with Highland Capital Management, L.P.

 

James F. Leary, Director — Mr. Leary has been a Managing Director of Benefit Capital Southwest, Inc., a financial consulting firm, since January 1999. Prior to joining Benefit Capital, Mr. Leary was Vice Chairman of Finance and Director for Search Financial Services, a financial services company, from 1995 to 1998, and was the Founder and President of Southwestern Management, Inc., a company which managed capital limited partnerships and their wholly-owned small business investment corporations, from 1983 to 1999. Mr. Leary received a Bachelor of Science degree in Finance, and received a Masters degree in Banking and Finance from New York University. Mr. Leary also attended the Advanced Management Program at Harvard University’s Graduate School of Business. Mr. Leary serves as a director of 11 funds and one business development company associated with Highland Capital Management, L.P., as well as Capstone Group, a series of open-end mutual funds, Pacesetter Capital Group, a private small business investment company, and the Homeowners of America Insurance Company, an insurance company.

 

Bryan A. Ward, Director — Mr. Ward is a Senior Manager at Accenture, LLP, a global management consulting, technology services and outsourcing company, and has been the Business Development Director of the North American Southwest Region since September 2002. He was the Special Projects Advisor at Accenture with focus on the oil and gas industry from September 1998 to December 2001. Mr. Ward is also a private investor and advisor to various technology, products, and oil and gas entities and serves on the Advisory Board for the University of Texas Dallas Center for Brain Health. Mr. Ward received a Bachelor of Science in Business Administration degree in Banking and Finance at the University of Arkansas and has studied Geology at Southern Methodist University and Petroleum Land Management at

the University of Texas. Mr. Ward serves as a director of 11 funds and one business development company associated with Highland Capital Management, L.P.

 

Number and Terms of Office of Directors

 

Upon the consummation of this offering, our board of directors will be divided into three classes with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the first class of directors, consisting of Messers. Leary and Hui, will expire at our first annual meeting of stockholders following consummation of this offering. The term of office of the second class of directors, consisting of Messers. Kavanaugh and Ward, will expire at the second annual meeting of stockholders following consummation of this offering. The term of office of the third class of directors, consisting of Messers. Dondero and Dougherty, will expire at the third annual meeting of stockholders following consummation of this offering.

 

These individuals will play a key role in identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating our initial business combination. However, none of these individuals 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 these individuals is currently affiliated with any such entity. Nevertheless, we believe that the skills and expertise of these individuals, their collective access to potential target businesses, and their ideas, contacts, and acquisition expertise should enable them to successfully identify and assist us in completing our initial business combination. However, there is no assurance such individuals will, in fact, be successful in doing so.

 

Although all members of the board of directors will be invited and encouraged to attend annual meetings of stockholders, we do not have a policy with respect to such attendance. We will seek to schedule our annual meeting of stockholders at a time and date to accommodate attendance by members of our board of directors.

 

Executive Officer and Director Compensation

 

None of our executive officers or directors has received any compensation for service rendered. After our initial business combination, our executive officers and directors who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to stockholders, to the extent then known, in the proxy solicitation materials furnished to our stockholders. It is unlikely, however, that the amount of such compensation will be known at the time of a stockholder meeting held to consider an initial business combination, as it will be up to the directors of the post-combination business to determine executive and director compensation.

 

Director Independence

 

The American Stock Exchange requires that a majority of our board of directors must be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our independent directors will have regularly scheduled meetings at which only independent directors are present.

 

We have agreed not to enter into our initial business combination with any entity in which any of our initial stockholders, officers, directors or the Highland Group or its affiliates has a financial interest.

 

Board Committees

 

Prior to the completion of this offering, our board of directors will form an audit committee and a governance and nominating committee to be effective upon completion of this offering. Each committee will be composed of three directors.

 

Audit Committee

 

Upon completion of this offering, our audit committee will consist of Messers. Hui, Kavanaugh, Leary and Ward, with Mr. Kavanaugh serving as chair. As required by the rules of the American Stock Exchange,

each of the members of our audit committee will be able to read and understand fundamental financial statements, and we consider Mr. Kavanaugh to qualify as an “audit committee financial expert” and as “financially sophisticated” as defined under SEC and American Stock Exchange rules, respectively. The responsibilities of our audit committee will include:

 

 

 

Governance and Nominating Committee

 

Upon completion of this offering, our governance and nominating committee will consist of Messers. Hui, Kavanaugh, Leary and Ward. The functions of our governance and nominating committee will include:

 

 

Compensation Committee

 

In light of the fact that no officers or directors will receive compensation prior to our initial business combination, our board of directors has concluded that a compensation committee is unnecessary.

Guidelines for Selecting Director Nominees

 

The guidelines for selecting nominees, which are specified in the Governance and Nominating Committee Charter, generally provide that each candidate will be considered and evaluated based upon an assessment of the following criteria:

 

 

Code of Ethics and Committee Charters

 

As of the date of this prospectus, we have adopted a code of ethics that applies to our officers, directors and employees to be effective upon completion of this offering, and have filed copies of our code of ethics and our board committee charters as exhibits to the registration statement of which this prospectus is a part. You will be able to review these documents by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the code of ethics will be provided without charge upon request to us. We intend to disclose any amendments to or waivers of certain provisions of our code of ethics in a current report on Form 8-K.

 

Conflicts of Interest

 

Potential investors should be aware of the following potential conflicts of interest:

 

 

 

 

consummated. Our initial stockholders, officers and directors may, as part of any business combination, negotiate the repayment of some or all of any such expenses. The financial interest of our initial stockholders, officers, directors or the Highland Group or its affiliates could influence our officers’ and directors’ motivation in selecting a target business, and therefore they may have a conflict of interest when determining whether a particular business combination is in the stockholders’ best interest. Specifically, our officers and directors may tend to favor potential initial business combinations with target businesses that offer to reimburse any expenses that we did not have the funds to reimburse ourselves.

 

 

In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:

 

 

Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board of directors evaluates a particular business opportunity with respect to the above-listed criteria. We cannot assure you that any of the above-mentioned conflicts will be resolved in our favor.

 

The Investment Advisers Act of 1940 imposes on Highland, as an investment advisor, a fiduciary obligation with respect to dealings with its clients. This fiduciary obligation includes a duty to make suitable recommendations to its clients in light of their needs. Accordingly, a conflict of interest may arise if a potential business combination opportunity is determined by Highland to be a suitable investment opportunity for one or more of Highland’s clients, either individually or as a group, and in such an event Highland would be permitted to pursue and complete such business combination on behalf of such client or clients rather than present it to our company.

 

Each of our officers and directors has, or may come to have, to a certain degree, other fiduciary obligations. Members of our management team have fiduciary obligations to other companies on whose board of directors they presently sit, or may have obligations to companies whose board of directors they may join in the future. To the extent that they identify business opportunities that may be suitable for us and other companies on whose board of directors they may sit, our officers and directors will honor those fiduciary obligations. Accordingly, they may not present opportunities to us that come to their attention in the performance of their duties as directors of such other entities unless the other companies have declined to accept such opportunities or clearly lack the resources to take advantage of such opportunities. See “Management — Directors and Executive Officers.”

 

To further minimize potential conflicts of interest, we have agreed not to enter into our initial business combination with any entity in which any of our initial stockholders, officers, directors or the Highland Group or its affiliates has a financial interest.

 

PRINCIPAL STOCKHOLDERS

 

The following table sets forth information regarding the direct and indirect beneficial ownership of our common stock as of November 15, 2007, and as adjusted to reflect the sale of our common stock included in the units offered by this prospectus (assuming no purchase of units in this offering), by:

 

 

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. The following table does not reflect record or beneficial ownership of the founders’ warrants or the private placement warrants, as these warrants are not exercisable within 60 days of the date of this prospectus.

 

 

 

 

 

On October 4, 2007, our founding stockholder entered into an agreement with us to purchase 5,000,000 private placement warrants at a price of $1.00 per warrant, simultaneously with the closing of the offering. The $5.0 million of proceeds from this investment will be added to the proceeds of this offering and will be held in the trust account pending our completion of an initial business combination on the terms described in this prospectus. If we do not complete such an initial business combination, then the $5.0 million will be part of the liquidation distribution to our public stockholders, and the private placement warrants will expire worthless. The founders’ warrants and private placement warrants and underlying shares of common stock are entitled to registration rights as described under “Description of Securities.”

 

Immediately after this offering (assuming no exercise of the underwriters’ over-allotment option), our initial stockholders will beneficially own 20% of the then issued and outstanding shares of our common stock. Because of this ownership block, they may be able to effectively influence the outcome of all matters

requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions other than approval of our initial business combination.

 

To the extent the underwriters do not exercise the over-allotment option, up to an aggregate of 937,500 founders’ units will be subject to forfeiture. Our initial stockholders will be required to forfeit only a number of founders’ units necessary to maintain our initial stockholders’ 20% ownership interest in our common stock after giving effect to the offering and the exercise, if any, of the underwriters’ over-allotment option.

 

If the number of units we offer to the public is increased or decreased from the number shown in this prospectus prior to the conclusion of the offering, then the founders’ units, including the number of founders’ units subject to forfeiture, will be adjusted in the same proportion as the increase or decrease in the units offered hereby in order to maintain the initial stockholders’ 20% ownership interest in our common stock after giving effect to the offering and the increase or decrease, if any, in the units offered hereby. We will not make or receive any cash payment in respect of any such adjustment.

 

Our founding stockholder intends to enter into an agreement with Citigroup Global Markets Inc. in accordance with the guidelines of Rule 10b5-1 of the Exchange Act, pursuant to which it will place limit orders for up to $25.0 million of our common stock, commencing on the later of 10 business days after we file our current report on Form 8-K with the SEC announcing the execution of a definitive agreement for our initial business combination and 60 days after termination of the “restricted period” in connection with this offering under Regulation M of the Exchange Act and ending on the business day immediately preceding the record date for the meeting of stockholders at which our initial business combination is to be approved. The limit order will require our founding stockholder to purchase any of our shares of common stock offered for sale (and not purchased by another investor) at or below a price equal to the per share amount held in our trust account as reported in such Form 8-K, until the earlier of the expiration of the buyback period or until such purchases reach $25.0 million in total. Highland has agreed to purchase such securities in the event that our founding stockholder is unable to satisfy its obligations under this agreement. Neither our founding stockholder nor Highland will have any discretion or influence with respect to such purchases. The purchase of shares will be made by Citigroup Global Markets Inc. or another broker dealer mutually agreed upon by Citigroup Global Markets Inc. and our founding stockholder. It is intended that purchases pursuant to the limit order will be in accordance with Rule 10b-18 under the Exchange Act, and the broker’s purchase obligation will otherwise be subject to applicable law. Each of our founding stockholder and Highland has agreed to vote any shares of common stock acquired in this offering or the secondary market, including those purchased pursuant to the limit order, in favor of our initial business combination. As a result, it may be able to influence the outcome of the vote on our initial business combination. Although our founding stockholder will not be able to exercise conversion rights with respect to any shares of our common stock purchased in this offering or the secondary market, including those purchased pursuant to the limit order, it will participate in any liquidation distributions with respect to any such shares of common stock in the event we fail to complete an initial business combination. Our founding stockholder has agreed that it will not sell or transfer any shares of common stock purchased by it pursuant to the limit order until 180 days after we have completed our initial business combination. Shares purchased pursuant to the limit order will be entitled to registration rights as described under “Description of Securities.”