UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2009
OR
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
001-33914
(Commission File Number)
SAPPHIRE INDUSTRIALS CORP.
(Exact name of Registrant as specified in its charter)
|
|
|
|
|
Delaware
|
|
26-1159283
|
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(State or Other Jurisdiction of Incorporation
|
|
(I.R.S. Employer Identification No.)
|
|
or Organization)
|
|
|
30 Rockefeller Plaza
62
nd
Floor
New York,
NY 10020
(Address of principal executive offices)
Registrant’s telephone number: (212) 632-6000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such
files). Yes
¨
No
¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated
filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
x
No
¨
The number of outstanding
shares of the Registrant’s common stock as of April 30, 2009 was 100,000,000.
SAPPHIRE INDUSTRIALS CORP.
TABLE OF CONTENTS
The terms “we,” “us,” “our” or “the Company” refer to Sapphire Industrials Corp., a Delaware
corporation. References to “Lazard” refer to Lazard Ltd, a company incorporated under the laws of Bermuda, and its subsidiaries, including Lazard Funding Limited LLC, our founding stockholder (“Lazard Funding”), and Lazard Group
LLC, a Delaware limited liability company (“Lazard Group”) that is the current holding company for Lazard Ltd’s businesses.
Please note that, pursuant to Rule 405 of Regulation S-T, Sapphire Industrials Corp. is not required to file with the U.S. Securities and Exchange Commission, or post
to its corporate Web site, any Interactive Data File prior to June 15, 2010.
i
PART I. FINANCIAL INFORMATION
|
Item 1.
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Condensed Financial Statements (Unaudited)
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Page
|
|
Condensed Balance Sheets as of March 31, 2009 and December 31, 2008
|
|
2
|
|
Condensed Statements of Income for the three month periods ended March 31, 2009 and 2008 and the period September
27, 2007 (date of inception) to March 31, 2009
|
|
3
|
|
Condensed Statements of Cash Flows for the three month periods ended March 31, 2009 and 2008 and the period September 27,
2007 (date of inception) to March 31, 2009
|
|
4
|
|
Condensed Statement of Changes in Stockholders’ Equity for the period September
27, 2007 (date of inception) to March 31, 2009
|
|
5
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Notes to Condensed Financial Statements
|
|
6
|
1
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
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|
March 31,
2009
|
|
|
December 31,
2008
|
|
ASSETS
|
|
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|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,238,063
|
|
|
$
|
1,639,835
|
|
Cash and cash equivalents held in trust
|
|
|
798,954,643
|
|
|
|
798,551,640
|
|
U.S. Treasury securities held in trust
|
|
|
9,128,383
|
|
|
|
9,415,541
|
|
Interest receivable
|
|
|
513
|
|
|
|
2,497
|
|
Prepaid expenses and income taxes
|
|
|
527,204
|
|
|
|
462,393
|
|
Deferred tax assets
|
|
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1,047
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
809,849,853
|
|
|
|
810,071,906
|
|
Other Assets
|
|
|
—
|
|
|
|
8,333
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
809,849,853
|
|
|
$
|
810,080,239
|
|
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
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Current Liabilities:
|
|
|
|
|
|
|
|
|
Deferred underwriting fee
|
|
$
|
31,800,000
|
|
|
$
|
31,800,000
|
|
Accrued expenses
|
|
|
306,751
|
|
|
|
470,308
|
|
Deferred taxes payable
|
|
|
—
|
|
|
|
36,600
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
32,106,751
|
|
|
|
32,306,908
|
|
|
|
|
|
|
|
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Trust Assets Attributable To Common Stock Subject To Possible Conversion (26,663,999 shares)
|
|
|
266,523,335
|
|
|
|
266,523,335
|
|
Deferred Trust Income Attributable To Common Stock Subject To Possible Conversion
|
|
|
2,810,727
|
|
|
|
2,772,116
|
|
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|
|
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Commitment
|
|
|
|
|
|
|
|
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|
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|
|
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Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value per share (1,000,000 shares authorized; none issued or outstanding)
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.001 par value per share (600,000,000 shares authorized, and 100,000,000 shares issued and outstanding (includes 26,663,999
common shares subject to possible conversion)
|
|
|
100,000
|
|
|
|
100,000
|
|
Additional paid-in capital
|
|
|
500,982,777
|
|
|
|
500,982,777
|
|
Earnings accumulated during the development stage
|
|
|
7,328,207
|
|
|
|
7,327,133
|
|
Accumulated other comprehensive income (loss), net of tax (benefit) of $(1,047) and $36,600, at March 31, 2009 and December 31, 2008,
respectively
|
|
|
(1,944
|
)
|
|
|
67,970
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
508,409,040
|
|
|
|
508,477,880
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
809,849,853
|
|
|
$
|
810,080,239
|
|
|
|
|
|
|
|
|
|
See Notes to
Condensed Financial Statements.
2
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
September 27, 2007
(Date of Inception)
to
March 31, 2009
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
$226,336
|
|
|
$
|
5,390,061
|
|
|
$
|
17,392,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
135,012
|
|
|
|
25,000
|
|
|
|
1,047,816
|
|
|
|
|
|
|
|
General and administrative
|
|
157,957
|
|
|
|
95,452
|
|
|
|
872,717
|
|
|
|
|
|
|
|
Interest
|
|
—
|
|
|
|
230
|
|
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
292,969
|
|
|
|
120,682
|
|
|
|
1,921,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
(66,633
|
)
|
|
|
5,269,379
|
|
|
|
15,470,874
|
|
|
|
|
|
|
|
Income Taxes (Benefit)
|
|
(106,318
|
)
|
|
|
1,844,282
|
|
|
|
5,331,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
39,685
|
|
|
|
3,425,097
|
|
|
|
10,138,934
|
|
|
|
|
|
|
|
Less – Deferred Trust Income Attributable To Common Stock Subject To Possible
Conversion
|
|
(38,611
|
)
|
|
|
(1,160,607
|
)
|
|
|
(2,810,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable To Common Stock
|
|
$1,074
|
|
|
$
|
2,264,490
|
|
|
$
|
7,328,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding(*):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
73,336,001
|
|
|
|
61,998,330
|
|
|
|
62,712,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Common Share(*):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$0.00
|
|
|
|
$0.04
|
|
|
|
$0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*)
|
Weighted average number of common shares and net income per share amounts for the three months ended March 31, 2008 and for the period September 27, 2007 (date of inception) to
March 31, 2009 are retroactively adjusted to reflect the impact of a 1.6 to 1 split of Founder Units on January 17, 2008.
|
See Notes to Condensed Financial Statements.
3
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
September 27, 2007
(Date of Inception)
to
March 31, 2009
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
1,074
|
|
|
$
|
2,264,490
|
|
|
$
|
7,328,207
|
|
|
Adjustments to reconcile net income attributable to common stock to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income earned on assets held in trust account
|
|
|
(223,406
|
)
|
|
|
(5,383,295
|
)
|
|
|
(17,342,827
|
)
|
|
Withdrawal of investment income earned on assets held in trust account
|
|
|
—
|
|
|
|
—
|
|
|
|
8,906,810
|
|
|
Deferred trust income attributable to common stock subject to possible conversion
|
|
|
38,611
|
|
|
|
1,160,607
|
|
|
|
2,810,727
|
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest receivable
|
|
|
1,984
|
|
|
|
(1,627
|
)
|
|
|
(513
|
)
|
|
Prepaid expenses and income taxes and other assets
|
|
|
(56,478
|
)
|
|
|
(384,399
|
)
|
|
|
(527,204
|
)
|
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued income taxes payable
|
|
|
—
|
|
|
|
1,844,282
|
|
|
|
—
|
|
|
Accrued expenses (exclusive of accrued costs related to financing activities)
|
|
|
(163,557
|
)
|
|
|
18,651
|
|
|
|
306,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used) in Operating Activities
|
|
|
(401,772
|
)
|
|
|
(481,291
|
)
|
|
|
1,481,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of cash equivalents held in trust
|
|
|
(193,544
|
)
|
|
|
(790,198,716
|
)
|
|
|
(790,299,949
|
)
|
|
Purchases of U.S. Treasury securities held in trust
|
|
|
(9,215,552
|
)
|
|
|
(9,451,284
|
)
|
|
|
(28,105,084
|
)
|
|
Proceeds from sale of U.S. Treasury securities held in trust
|
|
|
9,409,096
|
|
|
|
—
|
|
|
|
18,755,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Investing Activities
|
|
|
—
|
|
|
|
(799,650,000
|
)
|
|
|
(799,650,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of Founder Units
|
|
|
—
|
|
|
|
—
|
|
|
|
143,750
|
|
|
Payments for partial redemption of Founder Units
|
|
|
—
|
|
|
|
(18,750
|
)
|
|
|
(18,750
|
)
|
|
Proceeds from note payable
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
Repayment of note payable
|
|
|
—
|
|
|
|
(100,000
|
)
|
|
|
(100,000
|
)
|
|
Payments for offering costs
|
|
|
—
|
|
|
|
(490,869
|
)
|
|
|
(1,893,888
|
)
|
|
Proceeds from Public Offering, net of $11,325,000 of underwriting fees
|
|
|
—
|
|
|
|
788,675,000
|
|
|
|
788,675,000
|
|
|
Proceeds from issuance of Insider Warrants
|
|
|
—
|
|
|
|
12,500,000
|
|
|
|
12,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Financing Activities
|
|
|
—
|
|
|
|
800,565,381
|
|
|
|
799,406,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In Cash and Cash Equivalents
|
|
|
(401,772
|
)
|
|
|
434,090
|
|
|
|
1,238,063
|
|
|
Cash And Cash Equivalents, Beginning of Period
|
|
|
1,639,835
|
|
|
|
71,053
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash And Cash Equivalents, End of Period
|
|
$
|
1,238,063
|
|
|
$
|
505,143
|
|
|
$
|
1,238,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure Of Non-Cash Investing And Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earned on assets held in trust, net of distributions
|
|
$
|
223,406
|
|
|
$
|
5,383,295
|
|
|
$
|
8,436,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred underwriting fee included in additional paid-in capital
|
|
$
|
—
|
|
|
$
|
31,800,000
|
|
|
$
|
31,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Condensed Financial Statements.
4
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
(*)
|
|
|
Additional
Paid-in
Capital
(*)
|
|
|
Earnings/
(Deficit)
Accumulated
During the
Development
Stage
|
|
|
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
(Benefit)
|
|
|
Stockholders’
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
Balance at September 27, 2007 (date of inception)
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Proceeds from issuance of Founder Units to Initial Stockholders
|
|
23,000,000
|
|
|
|
23,000
|
|
|
|
120,750
|
|
|
|
|
|
|
|
|
|
|
|
143,750
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(374
|
)
|
|
|
|
|
|
|
(374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
23,000,000
|
|
|
|
23,000
|
|
|
|
120,750
|
|
|
|
(374
|
)
|
|
|
—
|
|
|
|
143,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of Units in Public Offering (includes 26,663,999 shares of Common Stock subject to possible
conversion)
|
|
80,000,000
|
|
|
|
80,000
|
|
|
|
754,901,112
|
|
|
|
|
|
|
|
|
|
|
|
754,981,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less 26,663,999 shares of Common Stock subject to possible conversion
|
|
|
|
|
|
|
|
|
|
(266,523,335
|
)
|
|
|
|
|
|
|
|
|
|
|
(266,523,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Insider Warrants
|
|
|
|
|
|
|
|
|
|
12,500,000
|
|
|
|
|
|
|
|
|
|
|
|
12,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,327,507
|
|
|
|
|
|
|
|
7,327,507
|
|
|
Other comprehensive income, net of taxes of $36,600:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,035
|
|
|
|
77,035
|
|
|
Adjustment for realized gains reclassified to earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,065
|
)
|
|
|
(9,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,395,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of Founder Units
|
|
(3,000,000
|
)
|
|
|
(3,000
|
)
|
|
|
(15,750
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
100,000,000
|
|
|
|
100,000
|
|
|
|
500,982,777
|
|
|
|
7,327,133
|
|
|
|
67,970
|
|
|
|
508,477,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
|
|
|
|
|
|
1,074
|
|
|
Other comprehensive income (loss), net of tax (benefit) of $(37,647):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,173
|
)
|
|
|
(22,173
|
)
|
|
Adjustment for realized gains reclassified to earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,741
|
)
|
|
|
(47,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
100,000,000
|
|
|
|
$100,000
|
|
|
|
$500,982,777
|
|
|
$
|
7,328,207
|
|
|
$
|
(1,944
|
)
|
|
$
|
508,409,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
*
)
|
Common stock and additional paid-in capital as of December 31, 2007 are retroactively adjusted to reflect the
impact of a 1.6 for 1 split of Founder Units on January 17, 2008.
|
See Notes to Condensed Financial Statements.
5
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BUSINESS OPERATIONS AND BASIS OF PRESENTATION
Organization and Business Operations
Sapphire Industrials Corp. (the “Company”) was incorporated in Delaware on September 27, 2007 for the purpose of effecting a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more operating businesses. The Company is considered to be in the development stage as defined by Statement of Financial Accounting
Standards (“SFAS”) No. 7, “
Accounting and Reporting By Development Stage Enterprises
” and is subject to the risks associated with development stage companies.
At March 31, 2009, the Company had not yet commenced any business operations other than pursuing prospective acquisition
candidates, and through that date our efforts have been limited to organizational activities; activities relating to our initial public offering (the “Public Offering”) and financing transaction (the “Financing Transaction”)
described in Note 3; activities relating to identifying and evaluating prospective acquisition candidates; and activities relating to general corporate matters. We have not generated any revenues other than investment income earned on the
proceeds of our Public Offering and Financing Transaction. The Company has selected December 31 as its fiscal year-end.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering and the Financing
Transaction, although substantially all of the net proceeds of the Public Offering and the Financing Transaction are intended to be applied toward consummating a business combination with an operating business or businesses (the “Business
Combination”). There is no assurance that the Company will be able to successfully effect a Business Combination. Upon the closing of the Public Offering and the Financing Transaction, management placed substantially all of the net proceeds in
a trust account (the “Trust Account”) that is required to be invested in money market funds that invest principally in either (i) short-term securities issued or guaranteed by the United States having a rating in the highest
investment category granted by a recognized credit rating agency at the time of acquisition or (ii) tax exempt municipal bonds issued by governmental entities located within the United States. In addition, the Company is permitted to invest up
to $10,000,000 in U.S. Treasury securities.
At March 31, 2009
and December 31, 2008, the Trust Account assets were invested in money market funds and in U.S. Treasury securities and are reflected as “Cash and Cash Equivalents Held In Trust” and “U.S. Treasury Securities Held In Trust,” in
the accompanying Condensed Balance Sheets — see Note 4. Until the earlier of (i) the consummation of the Business Combination or (ii) liquidation of the Company, the remaining net proceeds (not held in the Trust Account) may be used
to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. Additionally, up to an aggregate of $6,000,000 of investment income earned on the Trust Account balance may be
released to the Company to fund its expenses and other working capital requirements and additional amounts may be released from investment income to the Company as necessary to satisfy tax obligations.
The Company, after signing a definitive agreement for the acquisition of a
target business or businesses, will be required to submit such transaction for stockholder approval. In the event that less than a majority of the public stockholders voting at a meeting called for stockholders’ approval of the Business
Combination vote in favor of the Business Combination or stockholders owning 33.33% or more of the shares sold in the Public Offering vote against the Business Combination and exercise their conversion rights (calculated on a cumulative basis with
stockholders who exercise their conversion rights with respect to their shares in connection with any extension of the Company’s corporate existence to up to 36 months) as described below, the Business Combination will not be
6
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS—(Continued)
(UNAUDITED)
consummated. In connection with a vote on a Business Combination, a majority of the Company’s outstanding shares of common stock (“Common
Stock”) must also be voted in favor of an amendment to the Company’s amended and restated certificate of incorporation approving its perpetual existence.
All of the Company’s stockholders prior to the Public Offering, which include all of the officers and directors of the
Company and Lazard Funding Limited LLC (“Lazard Funding”) (collectively the “Initial Stockholders”), purchased founder units (the “Founder Units”), which each consist of one share of the Company’s Common Stock and
one common stock purchase warrant (“Founder Warrants”). Lazard Funding is a wholly-owned subsidiary of Lazard Group LLC (“Lazard Group”). Lazard Group is an indirect subsidiary of Lazard Ltd (together with Lazard Funding and
Lazard Group, referred to as “Lazard”). Lazard Ltd is an international financial advisory and asset management firm, and its shares of Class A common stock are traded on the New York Stock Exchange.
The Founder Warrants each entitle the holder to purchase from the Company one
share of Common Stock at an exercise price of $7.50 per share and become exercisable after the consummation of a Business Combination if and when the sales price of the Common Stock exceeds a specified price level. The Founder Warrants, which expire
on January 17, 2013, are subject to certain transfer restrictions, cannot be redeemed by the Company while they are owned by the Initial Stockholders or their permitted transferees, and, in the event of a liquidation as described below, the Founder
Warrants will not participate in any distributions from the Trust Account and will expire worthless. The Initial Stockholders have agreed to vote the shares of Common Stock included in their Founder Units (“Founder Shares”) in accordance
with the majority of the shares of Common Stock voted by the public stockholders with respect to any Business Combination. On all other matters other than an extension of the Company’s existence and in any case after consummation of a Business
Combination, this voting safeguard will no longer be applicable and the Initial Stockholders will be able to vote their Founder Shares independently of the public stockholders. See Note 7 below for additional information regarding Founder Units.
Any public stockholder who votes against a Business
Combination or an extension of the Company’s existence that is approved and consummated may demand at the time of such vote that the Company convert his or her shares into a pro rata share of the Trust Account. Accordingly, public stockholders
holding up to 33.33% less one share of the aggregate number of shares owned by all public stockholders, cumulative with holders expressing conversion rights with respect to an extension of the Company’s existence to up to 36 months, may seek
conversion of their shares in the event of a Business Combination. If such a Business Combination or extension of the Company’s existence occurs, such public stockholders are entitled to receive their per-share interest in the Trust Account
computed without regard to the shares held by Initial Stockholders. In this respect, an aggregate of $269,334,062 and $269,295,451 has been classified as “Trust Assets Attributable To Common Stock Subject To Possible Conversion” and
“Deferred Trust Income Attributable To Common Stock Subject To Possible Conversion” in the accompanying Condensed Balance Sheets at March 31, 2009 and December 31, 2008, respectively.
The Company’s amended and restated certificate of incorporation provides
that the Company will continue in existence until 24 months from January 17, 2008, the effective date of the registration statement governing the Public Offering, and, unless the Company has consummated a Business Combination by such date, its
corporate existence will cease and it will dissolve and liquidate for the purpose of winding up its affairs. However, if the Company has entered into a definitive agreement relating to a Business Combination within 24 months following the
consummation of the Public Offering, and if the Company anticipates that it may not be able to consummate such Business Combination within the 24-month period, the Company may seek up to a 12-month extension to consummate the Business Combination by
calling a special (or annual) meeting of its stockholders for the purpose of soliciting their approval for such extension. In connection with the vote required for any such
7
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS—(Continued)
(UNAUDITED)
extension, the Initial Stockholders have agreed to vote their Founder Shares in accordance with the majority of the shares of Common Stock voted by the
public stockholders. This voting arrangement does not apply to shares included in units purchased by Lazard and any other Initial Stockholder in the Public Offering or in the open market subsequent to the Public Offering (see Note 3 below), with
respect to which Lazard and the other Initial Stockholders have agreed to vote all such shares in favor of both a Business Combination and an extension of the Company’s corporate existence to up to 36 months. Any public stockholders voting
against the proposed extension will be eligible at the time of such vote to elect to convert their shares into a pro rata share of the Trust Account if the Company effects the extension. However, the Company will not effect the extension if a
majority of the outstanding shares of Common Stock are not voted in favor of the extension or if 33.33% or more of the shares sold in the Public Offering vote against the proposed extension and elect to convert their shares into their pro rata share
of the Trust Account.
Upon dissolution, the Company will
distribute to all of the public stockholders (including Lazard and our directors to the extent they purchased shares in the Public Offering or in the open market), in proportion to their respective equity interests, an aggregate sum equal to the
amount in the Trust Account, inclusive of any interest, plus any remaining net assets. Pursuant to letter agreements the Initial Stockholders have entered into with the Company and the underwriter, the Initial Stockholders have waived their right to
receive distributions with respect to their Founder Units upon the Company’s liquidation.
Basis of Presentation
The accompanying condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly,
they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited
financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2008. The accompanying December 31, 2008 unaudited balance sheet data was derived from audited financial statements, but
does not include all disclosures required by U.S. GAAP for annual financial statement purposes. The accompanying condensed financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim periods presented. These adjustments are of a normal recurring nature. Preparing financial statements requires management to make estimates and assumptions that affect the
amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on management’s knowledge of current events and actions that the Company may undertake in the future, actual results may
differ materially from these estimates. The results of operations for the three month period ended March 31, 2009 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.
2. RECENT ACCOUNTING DEVELOPMENTS
As described above, the net proceeds from the Public Offering
and Financing Transaction are intended to be applied towards the consummation of a Business Combination. On January 1, 2009, the Company adopted SFAS No. 141 (revised 2007), “
Business Combinations
” (“SFAS No. 141(R)”), the
provisions of which are applicable on a prospective basis. SFAS No. 141(R) replaced SFAS No. 141, “
Business Combinations
” (“SFAS No. 141”), and supersedes or amends other related authoritative literature although it
retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the
purchase method
) be used for all business combinations and for an acquirer to be identified for each business
combination. SFAS No. 141(R) also established principles and requirements for how the acquirer: (a) recognizes and measures in its
8
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS—(Continued)
(UNAUDITED)
financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) recognizes and measures
the goodwill acquired in a business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination.
SFAS No. 141(R) also requires the acquirer to expense, as incurred, costs relating to any acquisitions. The adoption of SFAS No. 141(R) on January 1, 2009 did not have any impact on the Company’s financial statements but may have an impact in
the future, to the extent the Company enters into a business combination.
On January 1, 2009, the Company adopted SFAS No. 160, “
Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51
” (“SFAS No. 160”), the presentation
and disclosure requirements of which were required to be applied retrospectively. SFAS No. 160 amends Accounting Research Bulletin No. 51, “
Consolidated Financial Statements
”, to establish accounting and reporting standards for the
noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. In addition, it also changes the way the consolidated income statement is presented by requiring consolidated net income to include amounts attributable to both the parent and the noncontrolling interest with
separate disclosure of each component on the face of the consolidated income statement. It does not, however, impact the calculation of net income per share as such calculation will continue to be based on amounts attributable to the parent. The
adoption of SFAS No. 160 did not have any impact on the Company’s financial statements.
On January 1, 2008, the Company adopted, on a prospective basis, the required provisions of SFAS No. 157, “
Fair Value Measurement
s” (“SFAS No. 157”), which, among other things, defined fair
value, established a framework for measuring fair value and enhanced disclosure requirements about fair value measurements with respect to its financial assets and financial liabilities. On January 1, 2009, the Company adopted the remaining
provisions of SFAS No. 157, as permitted by the Financial Accounting Standards Board (the “FASB”) Staff Position (“FSP”) Financial Accounting Standard (“FAS”) 157-2, “
Effective Date of FASB Statement No.
157
” (“FSP 157-2”), which delayed the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). These nonfinancial items include, for example, reporting units required to be measured at fair value for annual goodwill impairment testing purposes and nonfinancial assets acquired and liabilities assumed in a business
combination. Neither the partial adoption of the required provisions of SFAS No. 157 on January 1, 2008, nor the adoption of the remaining provisions of SFAS No. 157 on January 1, 2009, as permitted by FSP 157-2, had a material
impact on the Company’s financial statements.
On April 1,
2009, the FASB issued FSP FAS 141(R)-1, “
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies
” (“FSP 141(R)-1”), which amends and clarifies SFAS No. 141(R), to
amend the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP 141(R)-1 is effective for assets or liabilities arising
from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of FSP 141(R)-1 did not impact the Company’s
financial statements but may have an impact in the future, to the extent the Company enters into a business combination.
In April 2009, the FASB issued several FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements
and impairments of debt securities. FSP FAS 157-4, “
Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not
Orderly
”
, provides additional guidance on determining fair values when there
9
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS—(Continued)
(UNAUDITED)
is no active market or when observable transactions or quoted prices represent distressed sales, and reaffirms that the objective of fair value measurement
is to reflect the price at which an asset or liability would be sold or transferred in an orderly transaction (as opposed to a distressed or forced transaction) at market conditions prevailing at the date of the financial statements.
FSP FAS 107-1 and FSP APB 28-1, “
Interim Disclosures about Fair Value
of Financial Instruments
”
(“FSP 107-1” and “FSP APB 28-1”, respectively), relate to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at
fair value. Prior to issuing these FSPs, fair values for these assets and liabilities were only disclosed once a year. FSP 107-1 and FSP APB 28-1 now require these disclosures on a quarterly basis, providing qualitative and quantitative information
about fair value estimates for all those financial instruments not measured on the balance sheet at fair value.
FSP FAS 115-2 and FSP FAS 124-2, “
Recognition and Presentation of Other-Than-Temporary Impairments
”
are intended to bring
greater consistency to the timing of impairment recognition and provide greater clarity about the credit and noncredit components of debt securities whose fair value is below amortized cost and that are not expected to be sold, and also require
increased disclosures regarding expected cash flows, credit losses and an aging of securities with unrealized losses.
The pronouncements described in the three preceding paragraphs are effective for interim and annual periods ending after June 15, 2009. The Company
is currently addressing the impact, if any, of these FSPs on its financial statements.
3. PUBLIC OFFERING AND FINANCING TRANSACTION
Pursuant to a Registration Statement on Form S-1 declared effective by the SEC on January 17, 2008 (the “Registration Statement”), the Company sold in its Public Offering 80,000,000 units (“Offering Units”), with each
Offering Unit comprised of one share of Common Stock and one Redeemable Common Stock Purchase Warrant (“Offering Warrant”), at a price of $10.00 per Offering Unit. The Public Offering was consummated on January 24, 2008. Gross proceeds
from the Public Offering of $800,000,000 less current underwriting fees of $11,325,000 resulted in $788,675,000 in net proceeds to the Company, prior to offering expenses and deferred underwriting fees. Total underwriting fees for the Public
Offering were an aggregate of $43,125,000, with $11,325,000 payable on closing of the Public Offering and $31,800,000 only payable upon the consummation of a Business Combination. If a Business Combination is not consummated, the deferred
underwriting fee will not be paid to the underwriter.
Lazard
purchased 5,000,000 of the 80,000,000 Offering Units sold in the Public Offering at a price equal to the Public Offering price of $10.00 per Offering Unit and, subject to certain exceptions, has agreed that it will not sell or transfer such Offering
Units until 180 days after the closing of a Business Combination.
Each Offering Warrant entitles the holder to purchase from the Company one share of Common Stock at an exercise price of $7.00 commencing on the consummation of a Business Combination. There will be no distribution from the Trust Account
with respect to the Offering Warrants in the event of a liquidation as described in Note 1 above. Offering Warrants not exercised prior to liquidation or January 17, 2012, the date of expiration, will expire worthless. The Company may call the
Offering Warrants for redemption under certain circumstances, which include during periods when the sales price of the Common Stock exceeds specified price levels. In that event, holders of the Offering Warrants may elect to exercise their Offering
Warrants prior to the scheduled redemption date; however, the Company has the option to require all holders who elect to exercise their Offering Warrants do so on a “cashless basis.”
10
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS—(Continued)
(UNAUDITED)
Additionally, the Company completed the Financing Transaction whereby it sold a total of 12,500,000
warrants (“Insider Warrants”), at $1.00 per Insider Warrant, in a private placement transaction that took place simultaneously with the consummation of the Public Offering. All of the Insider Warrants, as well as a majority of the Founder
Units, were purchased by Lazard.
The Insider Warrants are
identical to the Offering Warrants described above, except that the Insider Warrants have an exercise price of $7.50 per share, cannot be redeemed by the Company while they are owned by Lazard or its permitted transferees and may be exercised even
if a registration statement registering the underlying Common Stock is not effective. Both the Offering Warrants and the Insider Warrants are recorded in “Additional Paid-In-Capital” because in no event will the exercise of a warrant
result in the holder of a warrant being entitled to receive a net cash settlement or other consideration in lieu of physical settlement in shares of Common Stock. Lazard has agreed that, subject to certain exceptions, it will not sell or transfer
the Insider Warrants until 90 days after consummation of a Business Combination.
As described in Note 1 above, all of the proceeds from the sale of the Insider Warrants have been placed in the Trust Account, along with substantially all of the proceeds from the Public Offering, and will be held
there until the consummation of a Business Combination or liquidation of the Company. If the Company does not consummate a Business Combination and is forced to liquidate, the $12,500,000 of proceeds from the sale of the Insider Warrants will become
part of the distribution to the Company’s public stockholders and the Insider Warrants will expire worthless.
Pursuant to agreements signed on January 17, 2008, the Initial Stockholders and the holder of the Insider Warrants are entitled to registration rights
with respect to their Founder Units and Insider Warrants (or the underlying securities) as well as certain other securities owned or acquired by the Initial Stockholders. In addition, the Initial Stockholders and the holder of the Insider Warrants
(or the underlying securities) have certain “piggy-back” registration rights on registration statements filed after the Company’s consummation of a Business Combination. The Company will bear the expenses incurred in connection with
the filing of any such registration statements.
In addition,
Lazard entered into an agreement with the underwriter of the Public Offering pursuant to which it will place limit orders for up to $37,500,000 of the Company’s Common Stock commencing two business days after the Company files a proxy statement
relating to the Business Combination and ending on the business day immediately preceding the record date for the meeting of stockholders at which such Business Combination is to be approved, or earlier in certain circumstances. The limit orders
require Lazard to purchase any of the Company’s shares of Common Stock offered for sale at or below a price equal to the per share value of the Trust Account as of the date of the Company’s most recent Annual Report on Form 10-K or
quarterly report on Form 10-Q, as applicable, filed prior to such purchase. Lazard will not be permitted to exercise conversion rights with respect to these shares but it will participate in any liquidation distribution with respect to any shares of
Common Stock purchased pursuant to such limit orders. Lazard has agreed to vote all shares of Common Stock purchased pursuant to such limit orders in favor of a Business Combination and in favor of an extension of the Company’s corporate
existence.
4. ASSETS HELD IN TRUST
A total of $799,650,000 of the net proceeds from the Public Offering,
including $12,500,000 from the Financing Transaction and $31,800,000 of deferred underwriting commissions, has been placed in the Trust Account, with Mellon Bank N.A. serving as account agent. The Trust Account is invested in money market funds and
U.S. Treasury Notes.
The money market funds are considered cash equivalents. U.S. Treasury Securities
11
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS—(Continued)
(UNAUDITED)
Held In Trust are considered “available -for-sale” investments under SFAS No. 115,
“Accounting for Certain Investments in Debt and
Equity Securities”
and are recorded at their fair value, with any increase or decrease in fair value reported in “Accumulated Other Comprehensive Income, Net of Tax” until such time as they are realized and reclassified to
earnings using the specific identification method. Any declines in fair value of “available for sale” securities that are determined to be other than temporary would be charged to earnings at that time.
The activity in the Trust Account, by major security type and class of
security, for the three month periods ended March 31, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Money
Market
Funds
|
|
|
U.S.
Treasury
Notes
|
|
|
Total
|
|
|
Money
Market
Funds
|
|
U.S.
Treasury
Notes
|
|
|
Total
|
|
|
Fair value, beginning of period
|
|
$798,551,640
|
|
|
$9,415,541
|
|
|
$807,967,181
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Initial investment (including accrued interest) (January 24, 2008)
|
|
|
|
|
|
|
|
|
|
|
$790,198,716
|
|
$9,451,284
|
|
|
$799,650,000
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividends
|
|
119,459
|
|
|
30,500
|
|
|
149,959
|
|
|
5,343,664
|
|
39,631
|
|
|
5,383,295
|
|
|
Realized gain
|
|
|
|
|
73,447
|
|
|
73,447
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses in other comprehensive income
|
|
|
|
|
(34,114
|
)
|
|
(34,114
|
)
|
|
|
|
(26,110
|
)
|
|
(26,110
|
)
|
|
Realized gain reclassified to investment income
|
|
|
|
|
(73,447
|
)
|
|
(73,447
|
)
|
|
|
|
|
|
|
|
|
|
Sale of U.S. Treasury Notes (including accrued interest)
|
|
9,409,096
|
|
|
(9,409,096
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Purchase of U.S. Treasury Notes (including accrued interest)
|
|
(9,215,552
|
)
|
|
9,215,552
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Interest received on U.S. Treasury Notes
|
|
90,000
|
|
|
(90,000
|
)
|
|
—
|
|
|
219,375
|
|
(219,375
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, end of period
|
|
$798,954,643
|
|
|
$9,128,383
|
|
|
$808,083,026
|
|
|
$795,761,755
|
|
$9,245,430
|
|
|
$805,007,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period fair value per share, before consideration of applicable income taxes (excluding 20,000,000 Founder Shares, which do
not have liquidation rights)
|
|
|
$10.10
|
|
|
|
|
|
|
|
$10.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawals of earned
investment income are used for general and administrative expenses, professional fees, payment of accrued expenses, payment of a portion of the offering costs and for working capital purposes.
The Company considers these investments “Level 1” in the fair value
hierarchy pursuant to SFAS No. 157.
At March 31, 2009 and
December 31, 2008, the money market funds were invested in the Dreyfus Treasury Prime Cash Management Fund (a money market mutual fund structured within the confines of Rule 2a-7 under the Investment Company Act of 1940, as amended), which invests
solely in U.S. Treasury Bills and U.S. Treasury Notes. The Bank of New York Mellon, the custodian bank for these funds, is responsible for the safekeeping of securities on behalf of the funds. Since the securities are registered in the name of each
fund, they are not assets or liabilities of the custodian bank.
On February 6, 2009, the Company sold its then $9,000,000 principal investment in U.S. Treasury Notes, with a carrying value of $9,123,428 and interest rates of 4.875% that were scheduled to mature on August 15, 2009, and purchased
$9,000,000 principal amount of new U.S. Treasury Notes, with interest rates of 2.000% that mature on February 28, 2010. The sale resulted in proceeds of $9,409,096, which includes $212,221 of accrued interest, and realized a gross gain of $73,447,
which was reclassified out of “Accumulated Other Comprehensive Income” and is included in “Investment Income” on the Condensed Statements of Income for the three month period ended March 31, 2009 and the period
September 27, 2007 (date of inception) to March 31, 2009.
12
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS—(Continued)
(UNAUDITED)
5. INCOME TAXES
Income tax expense (benefit) for the three month periods ended March 31, 2009 and 2008 and for the period September 27, 2007 (date of inception) to
March 31, 2009 is calculated at an effective tax rate of 35%. In addition, the three month period ended March 31, 2009 includes an adjustment of $82,996 reducing the Company’s prior year Federal income taxes, which resulted in a computed
effective tax rate for the three month period ended March 31, 2009 of 160%. The Company has no unrecognized tax benefits at March 31, 2009 and December 31, 2008. The Company’s accounting policy provides that interest and penalties related
to income taxes, if any, are to be included in income tax expense.
At March 31, 2009 and December 31, 2008, the Company recorded prepaid income taxes of $345,389 and $262,393, respectively, which represents the amount of estimated tax payments in excess of the income tax provision. Additionally, at March
31, 2009, the Company recorded a prepaid tax asset of $23,322 in connection with the carryover of the loss incurred during the three month period ended March 31, 2009. These amounts are included in “Prepaid Expenses and Income Taxes” on
the accompanying Condensed Balance Sheets.
Further, as of
March 31, 2009 and December 31, 2008 the Company recorded a deferred tax asset (liability) of $1,047 and $(36,600), respectively, related to an unrealized gain (loss) on available-for-sale securities, which were recorded in “Accumulated
Other Comprehensive Income.”
6. COMMITMENT
The Company presently occupies certain office space provided by Lazard.
Lazard has agreed to make such office space, including conference rooms in New York City, and administrative services available to the Company until a Business Combination is consummated or the Company liquidates. The Company has agreed to pay
Lazard $15,000 per month for such services commencing January 17, 2008. The Company has incurred $45,000 and $37,258 for the three month periods ended March 31, 2009 and 2008, respectively, and $217,258 for the period from September 27, 2007
(date of inception) to March 31, 2009, with respect to this commitment, with such amounts included within “General and Administrative” expense on the accompanying Condensed Statements of Income.
7. EQUITY SECURITIES
Founder Units
– As of March 31, 2009 and December 31, 2008, the Company had 20,000,000 Founder Units issued and
outstanding. Founder Units comprise 20% of the aggregate outstanding Founder Units and Offering Units (collectively, the “Units”) (without taking into account any separate trading of Common Stock and warrants issued as part of the Offering
Units in the Public Offering).
The Founder Warrants are
recorded within “Additional Paid-In Capital” because in no event will the registered holder of a warrant be entitled to receive a net-cash settlement or other consideration in lieu of physical settlement in shares of Common Stock, even if
the Common Stock underlying the Founder Warrants is not covered by an effective registration statement.
8. RELATED PARTY
Management of the Company are also employees of Lazard, and accordingly have responsibilities at Lazard. They receive their compensation from Lazard.
On January 17, 2008, the Company entered into an administrative services agreement with Lazard, which is discussed in Note 6 above. In connection with
such agreement, at March 31, 2009 the Company owed Lazard $45,000, which is included in “Accrued Expenses” on the accompanying Condensed Balance Sheet.
13
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS—(Continued)
(UNAUDITED)
The Company also maintains its non-trust cash and cash equivalent investment in an uninsured
brokerage account with a Lazard-affiliated entity. The Company has not experienced any losses in this account.
9. NET INCOME PER SHARE OF COMMON STOCK
Net income per common share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding for the applicable periods. The weighted average
number of shares of common stock issued and outstanding used for the computation of basic and diluted net income per common share takes into account the number of Founders Shares outstanding for the respective periods and the shares of common stock
(but not the 26,663,999 shares of common stock subject to possible conversion) sold in the Public Offering and outstanding since January 24, 2008. The exclusion of common stock subject to possible conversion gives effect to the fact that, upon the
exercise of stockholder conversion rights, the Company may be required to redeem those shares for their pro rata portion of the Trust Account. As a result, the terms of the common stock subject to possible conversion are considered to be
substantially different than those of the common stock. Increases in the conversion value of the common stock subject to possible conversion reduce the net income attributable to common stock.
The weighted average number of shares of common stock issued and outstanding
used for the computation of basic and diluted net income per common share for the three month period ended March 31, 2008 and for the period September 27, 2007 (date of inception) to March 31, 2009 takes into account the number of Founders Shares
outstanding for the periods and is retroactively adjusted to reflect the impact of the 1.6 to 1 split of Founders Units on January 17, 2008.
An aggregate of 112,500,000 warrants, consisting of the Founder Warrants, Offering Warrants and the Insider Warrants represent contingently issuable
shares and are excluded from the calculation of diluted net income per share.
The calculations of the Company’s basic and diluted net income per share and weighted average shares outstanding for the three month periods ended March 31, 2009 and 2008 and the period September 27, 2007 (date
of inception) to March 31, 2009 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
September 27, 2007
(Date of Inception)
to
March 31, 2009
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Net income
|
|
$39,685
|
|
|
$
|
3,425,097
|
|
|
$
|
10,138,934
|
|
|
Less – Net income attributable to common stock subject to possible conversion
|
|
(38,611
|
)
|
|
|
(1,160,607
|
)
|
|
|
(2,810,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock – basic and diluted
|
|
$1,074
|
|
|
$
|
2,264,490
|
|
|
$
|
7,328,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding
|
|
100,000,000
|
|
|
|
81,923,077
|
|
|
|
83,628,623
|
|
|
Less – adjustment for shares of common stock subject to possible conversion
|
|
(26,663,999
|
)
|
|
|
(19,924,747
|
)
|
|
|
(20,915,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding – Basic and Diluted
|
|
73,336,001
|
|
|
|
61,998,330
|
|
|
|
62,712,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock – Basic and Diluted
|
|
$0.00
|
|
|
|
$0.04
|
|
|
|
$0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion should be read in conjunction with the condensed financial statements and related notes included
elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”). This discussion covers the period before and after our initial public offering. In addition, this discussion contains forward-looking statements that must be understood in
the context of numerous risks and uncertainties, including, but not limited to, those described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008 (the “Form 10-K”).
Forward-Looking Statements
Management has included in Parts I and II of this Form 10-Q, including in
its “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this Form 10-Q, statements that 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. Factors that might cause or contribute to a discrepancy from such forward looking statements include, but are not limited to, those described in our other filings with
the Securities and Exchange Commission (the “SEC”), including our Form 10-K.
Overview
We were formed on September 27,
2007 to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more operating businesses. We intend to utilize cash derived from the proceeds of our initial public offering,
private placement of warrants, our capital stock, debt or a combination of cash, capital stock and debt, to effect one or more business combinations. On January 24, 2008, we consummated our initial public offering wherein we sold 80,000,000
units with each unit comprised of one share of common stock and one warrant, at a price of $10.00 per unit. Additionally, we sold 12,500,000 insider warrants, with an exercise price of $7.50 per share, at a price of $1.00 per insider warrant in a
private placement transaction (the “Financing Transaction”) that took place simultaneously with the consummation of the initial public offering.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any operating revenues to date. Through March 31, 2009, our efforts have been limited to
organizational activities; activities relating to our initial public offering and financing transaction; activities relating to identifying and evaluating prospective acquisition candidates; and activities relating to general corporate matters. We
have not generated any revenues, other than investment income earned on the proceeds of our initial public offering and Financing Transaction. We will not generate any operating revenues until after consummation of a business combination. Until we
consummate a business combination (or until the Company dissolves and liquidates) we will generate non-operating income in the form of investment income on our cash equivalents and short-term investments which are held in the trust account we
established upon completion of our initial public offering.
We have incurred costs and expenses that include professional fees, insurance, offering costs, fees under the administrative services agreement, regulatory fees, travel and
other miscellaneous expenses. The current economic environment has made it difficult to obtain financing for business combinations by blank check companies such as ours and companies seeking to complete equity transactions generally. Financing, if
available, may not be on terms acceptable to our stockholders, and it may be more difficult to obtain stockholder approval for a business combination if current conditions persist.
The issuance of additional units, warrants or shares of our capital stock in order to consummate a business combination:
|
|
•
|
|
may significantly reduce the equity interest of our stockholders;
|
15
|
|
•
|
|
may subordinate the rights of holders of common stock if we issue preferred stock with rights senior to those afforded to our common stock;
|
|
|
•
|
|
could cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net
operating loss carryover, if any, and most likely will also result in the resignation or removal of our present officers and directors; and
|
|
|
•
|
|
may adversely affect prevailing market prices for our common stock.
|
Similarly, if we issue debt securities as part of a business combination, it could result in:
|
|
•
|
|
default and foreclosure on our assets if our operating revenues after a business combination are insufficient to pay our debt obligations;
|
|
|
•
|
|
acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants
that require the maintenance of certain financial ratios or reserves and we breach any such covenant without a waiver or renegotiation of the covenant;
|
|
|
•
|
|
our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and
|
|
|
•
|
|
our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while
such debt is outstanding.
|
Results of Operations:
Three Months Ended March 31, 2009 versus March 31, 2008
Net income for the three month period ended March 31, 2009 decreased $3.39
million, or 99%, compared to the corresponding period in 2008. Basic and diluted net income per common share was $0.00, as compared to $0.04 in the 2008 period. These declines are attributable to the following:
Investment income for the three month period ended March 31, 2009 decreased
$5.16 million, or 96%, compared to the corresponding period in 2008. The decline was attributable to broad-based illiquidity in the credit markets which triggered a precipitous decline in interest rates on money market funds invested in securities
issued or guaranteed by the United States.
Professional fees
for the three month period ended March 31, 2009 increased $110,000, or 440%, compared to the corresponding period in 2008, which primarily resulted from fees incurred in connection with the search for an acquisition candidate.
General and administrative expense for the three month period ended March 31,
2009 increased $63,000, or 65%, compared to the corresponding period in 2008, which primarily resulted from Delaware State franchise fees.
Income before income taxes for the three month period ended March 31, 2009 decreased $5.34 million, or 101%, compared to the corresponding period in 2008,
with such decrease primarily attributable to the decline in investment income described above.
Income tax expense (benefit) for the three month periods ended March 31, 2009 and 2008 represents Federal income taxes calculated at an effective rate of 35%. In addition, the three month period ended
March 31, 2009 includes an adjustment of approximately $83,000 reducing the Company’s prior year Federal income tax expense.
The Period September 27, 2007 (date of inception) to March 31, 2009
Net income of $10,138,934 for the period from September 27, 2007 (date of inception) to March 31, 2009 consisted of investment income primarily of
the assets held in the trust account of $17,342,827 along with
16
$49,710 of other investment income earned on cash held outside of the trust account, reduced by $1,047,816 of professional fees, $872,717 of general and
administrative expense, $1,130 of interest expense and $5,331,940 of income tax expense.
Assets Held in Trust Account
The following table shows the total assets held in the trust account through March 31, 2009:
|
|
|
|
|
|
Gross proceeds from our initial public offering of common stock and Financing Transaction
|
|
$812,500,000
|
|
|
Underwriters’ fee
|
|
(11,325,000
|
)
|
|
Estimated offering costs as of January 24, 2008
|
|
(1,400,000
|
)
|
|
Funds not placed in trust account
|
|
(125,000
|
)
|
|
|
|
|
|
|
Cash placed in trust account on January 24, 2008
|
|
799,650,000
|
|
|
Total investment income earned on assets held in trust account, January 24, 2008 through March 31, 2009
|
|
17,342,827
|
|
|
Unrealized in loss on treasury note included in accumulated other comprehensive income
|
|
(2,991
|
)
|
|
|
|
|
|
|
Subtotal
|
|
816,989,836
|
|
|
|
|
|
Withdrawals from the trust account during the period January 24, 2008 through March 31, 2009:
|
|
|
|
|
Payments for estimated income and other taxes
|
|
(5,865,676)
|
|
|
Transfers to the Company’s operating account for payment of additional offering costs, general and administrative expenses and for
working capital purposes (limited to a maximum of $6,000,000).
|
|
(3,041,134)
|
|
|
|
|
|
|
|
Total assets held in trust account as of March 31, 2009
|
|
$808,083,026
|
|
|
|
|
|
|
|
Total trust account assets attributable to Common Stock subject to possible conversion as of March 31, 2009
|
|
$269,334,062
|
|
|
|
|
|
|
Liquidity and Capital Resources
Our liquidity needs were satisfied on January 24,
2008 through receipt of $799,775,000 of net proceeds from the initial public offering and Financing Transaction, of which $799,650,000 was placed in a trust account and is more fully described below.
The net proceeds from the initial public offering and Financing Transaction,
after deducting estimated offering expenses of $1,400,000 and underwriting discounts and commissions of $11,325,000 (which excludes $31,800,000 of the deferred underwriter’s fee held in the trust account and payable upon the consummation of a
business combination), were $799,775,000. The underwriter in our initial public offering agreed that $31,800,000 of the underwriting discounts and commissions will be deferred and will not be payable unless and until we consummate a business
combination and, accordingly, such amount is held in the trust account.
We intend to use substantially all of the net proceeds of the initial public offering and Financing Transaction, including the assets held in the trust account (exclusive of deferred underwriting discounts and commissions of $31,800,000),
to acquire a target business or businesses and to pay our expenses relating thereto. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the remaining proceeds held in the trust
account, as well as any other net proceeds not expended, will be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target
business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the
consummation of our business combination if the funds available to us outside of the trust account were insufficient to cover such expenses.
We believe that the $125,000 of net proceeds of our initial public offering not held in the trust account, plus up to $6,000,000 of investment income
earned on the trust account balance that may be released to us as well as
17
amounts necessary for our tax obligations, will be sufficient to allow us to operate until at least January 17, 2010 (or until up to January 17, 2011 if
extended pursuant to a stockholder vote), assuming that a business combination is not consummated during that time. Over this time period, we will use these funds to identify and evaluate prospective acquisition candidates, perform business due
diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target
businesses, select the target business to acquire, structure, negotiate and consummate the business combination and meet our obligations as a public company. We anticipate that we will incur, in the aggregate, approximately:
|
|
•
|
|
$4,000,000 of expenses for the search for target businesses and for the legal, accounting and other third party expenses attendant to the due diligence
investigations by our officers and directors or others, and for structuring and negotiating of a business combination;
|
|
|
•
|
|
$600,000 of expenses in legal and accounting fees relating to our SEC reporting obligations;
|
|
|
•
|
|
up to $360,000 for the administrative fee payable to Lazard ($15,000 per month for up to 24 months) (or if the time period within which we may consummate our
initial business combination is extended to 36 months, $540,000); and
|
|
|
•
|
|
$1,165,000 for general working capital that will be used for miscellaneous expenses and reserves, including approximately $400,000 for director and officer
liability insurance premiums.
|
These amounts
are estimates and may differ materially from our actual expenses.
As of March 31, 2009, we had $1,238,063 of unrestricted cash and cash equivalents held outside the trust account available to us for our activities in connection with identifying and conducting due diligence of a suitable business
combination and for general corporate matters. In addition, we are able to draw up to an additional $2,958,866 from the trust account for this purpose prior to a business combination.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our
business. However, we may need to raise additional funds through an offering of debt or equity securities or borrowings under a credit facility if such funds are required to consummate a business combination that is presented to us, although we have
not entered into any such arrangement and have no current intention of doing so. We can give no assurance that we will be able to obtain any such financing on favorable terms, if at all.
Related Party Transactions
Commencing January 17, 2008, we are obligated, through the earlier of the date of the initial business combination or our liquidation, to pay to Lazard a
monthly fee of $15,000 for general and administrative services. The Company incurred fees of $45,000 and $37,258 during the three month periods ended March 31, 2009 and 2008, respectively, and $217,258 for the period September 27, 2007 (date of
inception) to March 31, 2009 for services provided under this agreement. At March 31, 2009 the Company owed Lazard $45,000, which is included in “Accrued Expenses” on the accompanying Condensed Balance Sheet.
On October 1, 2007, Lazard Funding loaned us, in the form of a note, $100,000
for payment of offering expenses on our behalf. The note bore interest at a rate of 3.60% per year and was payable on the earlier of April 1, 2008 or seven days following the closing of the initial public offering. The note was prepaid on
January 24, 2008 out of the proceeds of the initial public offering and Financing Transaction that were not placed in the trust.
On October 2, 2007, Lazard Funding and our directors purchased, in a private placement, an aggregate of 23,000,000 founder units for an aggregate purchase
price of $143,750, with such number of units giving effect to the split of the units that occurred on January 17, 2008 to ensure that the founder units comprise 20% of the outstanding units after our initial public offering (assuming that the
underwriter would exercise its over-allotment option in full), and with each founder unit consisting of one share of common stock and one warrant with an
18
initial exercise price of $7.50 per share. On March 5, 2008, we redeemed an aggregate of 3,000,000 founder units, on a post-split basis, at a redemption
price of $0.00625 per unit as a result of the expiration of the underwriter’s over-allotment option with no exercise thereof so that founder units, in the aggregate, comprise 20% of our issued and outstanding units (without taking into account
any separate trading of common stock and warrants issued as part of the units in our initial public offering).
On January 24, 2008, Lazard Funding purchased from us, on a private placement basis simultaneously with the closing of the initial public offering, an
aggregate of 12,500,000 warrants with an exercise price of $7.50 per share at a price of $1.00 per warrant (for a total purchase price of $12,500,000).
Lazard purchased 5,000,000 units in the initial public offering at a price equal to the public offering price of $10.00 per unit (for an aggregate
purchase price of $50,000,000). Subject to certain exceptions, Lazard has agreed that any such units purchased in the initial public offering will not be sold or transferred by it until 180 days after the consummation of our business combination,
unless a liquidation occurs. Lazard has agreed to vote all of the shares of common stock included in such units in favor of the initial business combination and in favor of an extension of our corporate existence until up to January 17, 2011 in the
event we have entered into a definitive agreement for, but have not yet consummated, our initial business combination. The underwriter in our initial public offering did not receive any underwriting discounts or commissions with respect to these
units.
In addition, on January 11, 2008 Lazard entered into an
agreement with Citigroup Global Markets Inc. in accordance with Rule 10b5-1 under the Exchange Act pursuant to which it will place limit orders for up to $37,500,000 of our common stock commencing two business days after we file a preliminary proxy
statement relating to our initial business combination and ending on the business day immediately preceding the record date for the meeting of stockholders at which such initial business combination is to be approved, or earlier in certain
circumstances. The limit orders will require Lazard to purchase any of our shares of common stock offered for sale at or below a price equal to the per-share value of the trust account as of the date of our most recent Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as applicable, filed prior to such purchase. The purchase of such shares will be made by Citigroup Global Markets Inc. or another broker dealer mutually agreed upon by Citigroup Global Markets Inc. and Lazard. It is
intended that purchases pursuant to the limit orders will satisfy the conditions of Rule 10b-18(b) under the Exchange Act and the broker’s purchase obligation will otherwise be subject to applicable law, including Regulation M which may
prohibit purchases under certain circumstances. Lazard has agreed to vote all shares of common stock purchased pursuant to such limit orders in favor of the initial business combination and in favor of an extension of our corporate existence until
up to January 17, 2011 in the event we have entered into a definitive agreement for, but have not yet consummated, our initial business combination. As a result, Lazard may be able to influence the outcome of our initial business combination. Lazard
will not be permitted to exercise conversion rights with respect to these shares but it will participate in any liquidation distribution with respect to any shares of common stock purchased pursuant to such limit orders. Lazard has agreed that it
will not sell or transfer any shares of common stock purchased by it pursuant to such agreement until 180 days after we have consummated an initial business combination.
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed
any debt or commitments of other entities or entered into any options on non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities other than the general and administrative services agreement with Lazard, of which we are
obligated, through the earlier of the date of the initial business combination or our liquidation, to pay a monthly fee of $15,000.
19
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our balance sheet and results of operations are based upon our condensed
financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) pursuant to the rules and regulations of the SEC regarding interim financial reporting
as discussed in Note 1 of the Notes to Condensed Financial Statements. The preparation of the Company’s financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to income taxes and investing activities. Management bases these estimates on historical
experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The
Company believes that the critical accounting policies set forth below comprise the most significant estimates and judgments used in the preparation of its financial statements.
Cash Equivalents and Concentration of Credit Risk
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be
cash equivalents. The Company maintains its cash equivalents held in trust with Mellon Bank N.A., a financial institution with high credit ratings. In addition, the Company maintains its non-trust cash and cash equivalents in an uninsured brokerage
account with a Lazard-affiliated entity.
U.S. Treasury Securities Held
In Trust
The Company considers its investment in U.S.
Treasury securities “available for sale” investments under Statement of Financial Accounting Standards (“SFAS”) No. 115 (“SFAS No.115”) and records these investments at their fair value, with any increase or decrease in
fair value reported in “accumulated other comprehensive income, net of tax,” until such time they are realized and reclassified to earnings using the specific identification method. Any declines in fair value of “available for
sale” securities that are determined to be other than temporary would be charged to earnings at that time. The U.S. Treasury securities held in trust at March 31, 2009 have a maturity date of February 28, 2010.
Income Taxes
As part of the process of preparing its financial statements, the Company is required to estimate its income taxes in each
of the jurisdictions in which it operates. This process requires the Company to estimate its actual current tax liability and to assess temporary differences resulting from differing book versus tax treatment of items, such as unrealized gains on
investments. These temporary differences result in deferred tax assets and liabilities, which are included in the Company’s statements of financial condition. In addition, Financial Accounting Standards Board (“FASB”) Interpretation
No. 48, “
Accounting for
Uncertainty
in Income Taxes
” (“FIN No. 48”), requires that a tax position be recognized in the financial statements only when it is more likely than not that the position will be
sustained upon examination by the relevant taxing authority based on the technical merits of the position. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and
liabilities and any valuation allowance recorded against its net deferred tax assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets
will be realized and, when necessary, valuation allowances should be established. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become
deductible. Management considers the level of historical taxable income, scheduled reversals of deferred taxes and future taxable income in making this assessment. If actual results differ from these estimates or the Company adjusts these estimates
in future periods, the Company may need to adjust its valuation allowance, which could materially impact the Company’s financial position and results of operations.
20
FIN No. 48 clarifies the more likely than not criteria included in FASB Statement No. 109,
“Accounting for Income Taxes,”
(“SFAS No. 109”) that must be met prior to recognition of the financial statement benefit of a tax position taken or expected to be taken in a tax return. FIN No. 48 also requires the
recognition of a liability for differences between tax positions taken in a tax return and amounts recognized in the financial statements. Management applies the more likely than not criteria included in FIN No. 48 when estimating its
income taxes in each of the jurisdictions in which it operates. See Note 5 of Notes to Condensed Financial Statements for additional information regarding income taxes.
Tax contingencies can involve complex issues and may require an extended period of time to resolve. Significant management
judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. Furthermore, the Company’s interpretation of
complex tax laws may impact its recognition and measurement of current and deferred income taxes.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could
materially differ from those estimates.
Recent Accounting Developments
On January 1, 2009, the Company adopted SFAS No. 141
(revised 2007), “
Business Combinations
” (“SFAS No. 141(R)”), the provisions of which are applicable on a prospective basis. SFAS No. 141(R) replaces SFAS No. 141, “
Business Combinations
” (“SFAS No.
141”), and supersedes or amends other related authoritative literature although it retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the
purchase method
) be used for
all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141(R) also establishes principles and requirements for how the acquirer (a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in an acquiree; (b) recognizes and measures the goodwill acquired in a business combination or a gain from a bargain purchase; and (c) determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial effects of a business combination. SFAS No. 141(R) also requires the acquirer to expense, as incurred, costs relating to any acquisitions. The adoption of SFAS No.
141(R) on January 1, 2009 did not have any impact on the Company’s financial statements but may have an impact in the future, to the extent the Company enters into a business combination.
On January 1, 2008, the Company adopted, on a prospective basis, the required
provisions of SFAS No. 157,
“Fair Value Measurements”
(“SFAS No. 157”), which, among other things, defined fair value, established a framework for measuring fair value and enhanced disclosure requirements about fair value
measurements with respect to its financial assets and financial liabilities. On January 1, 2009, the Company adopted the remaining provisions of SFAS No. 157, as permitted by FASB Staff Position (“FSP”) Financial Accounting Standard
(“FAS”) 157-2, “
Effective Date of FASB Statement No. 157
” (“FSP 157-2”), which delayed the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a recurring basis (at least annually). These nonfinancial items include, for example, reporting units required to be measured at fair value for annual goodwill impairment testing purposes and
nonfinancial assets acquired and liabilities assumed in a business combination. Neither the partial adoption of the required provisions of SFAS No. 157 on January 1, 2008 nor the adoption of the remaining provisions of SFAS No. 157 on January 1,
2009, as permitted by FSP 157-2, had a material impact on the Company’s financial statements.
On January 1, 2009, the Company adopted SFAS No. 160, “
Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No.
51”
(“SFAS No. 160”), the presentation and disclosure requirements of which were required to be applied retrospectively. SFAS No. 160 amends Accounting Research Bulletin No. 51, “
Consolidated Financial
Statements
”, to establish accounting and reporting standards for the
21
noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary
is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. In addition, it also changes the way the consolidated income statement is presented by requiring consolidated net income
to include amounts attributable to both the parent and the noncontrolling interest with separate disclosure of each component on the face of the consolidated income statement. It does not, however, impact the calculation of net income per share, as
such calculation will continue to be based on amounts attributable to the parent. The adoption of SFAS No. 160 did not impact the Company’s financial statements.
On April 1, 2009, the Financial Accounting Standards Board (“the FASB”) issued FSP FAS 141(R)-1,
“
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies
” (“FSP 141(R)-1”), which amends and clarifies SFAS No. 141(R), to amend the initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP 141(R)-1 is effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of FSP 141(R)-1 did not impact the Company’s financial statements but may have
an impact in the future, to the extent the Company enters into a business combination.
In April 2009, the FASB issued several FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of debt securities. FSP FAS 157-4,
“
Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly”, provides additional guidance on determining fair values
when there is no active market or when observable transactions or quoted prices represent distressed sales, and reaffirms that the objective of fair value measurement is to reflect the price at which an asset or liability would be sold or
transferred in an orderly transaction (as opposed to a distressed or forced transaction) at market conditions prevailing at the date of the financial statements.
FSP FAS 107-1 and FSP APB 28-1, “
Interim Disclosures about Fair Value of Financial Instruments
”
(“FSP 107-1” and “FSP APB 28-1”, respectively), relate to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Prior to issuing these
FSPs, fair values for these assets and liabilities were only disclosed once a year. FSP 107-1 and FSP APB 28-1 now require these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all
those financial instruments not measured on the balance sheet at fair value.
FSP FAS 115-2 and FSP FAS 124-2, “
Recognition and Presentation of Other-Than-Temporary Impairments
”
are intended to bring greater consistency to the timing of impairment recognition and
provide greater clarity about the credit and noncredit components of debt securities whose fair value is below amortized cost and that are not expected to be sold, and also require increased disclosures regarding expected cash flows, credit losses
and an aging of securities with unrealized losses.
The
pronouncements described in the three preceding paragraphs are effective for interim and annual periods ending after June 15, 2009. The Company is currently addressing the impact, if any, of these FSPs on its financial statements.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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We were incorporated in Delaware on September 27, 2007 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more operating businesses. We are considered in the development stage at March 31, 2009, and remain in the development stage as we have not yet commenced any operations. Through
March 31, 2009, our efforts have
22
been limited to organizational activities; activities relating to our initial public offering and Financing Transaction; activities relating to identifying
and evaluating prospective acquisition candidates; and activities relating to general corporate matters. We did not have any financial instruments that were exposed to market risks at March 31, 2009 other than approximately $9.0 million
principal amount of U.S. Treasury Notes, which mature on February 28, 2010, and are held in the trust account.
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices, and other market driven rates
or prices. We are not presently engaged in, and if a suitable business target is not identified by us prior to the prescribed liquidation of the trust account we may not engage in, any substantive commercial business. Accordingly, the risks
associated with foreign exchange rates, commodity prices, and equity prices are not significant. The net proceeds of our initial public offering held in the trust account have been invested only in (a) a Mellon Bank, N.A. money market deposit
account or (b) one or more money market funds we select for which The Dreyfus Corporation, an affiliate of the account agent, or any subsidiary or affiliate thereof serves as investment advisor, administrator, shareholder servicing agent,
custodian or subcustodian and (c) upon our written request, the account agent shall be required to (x) invest such requested amount directly in United States treasury bonds, bills or notes identified by us and (y) sell, transfer or
otherwise dispose of treasuries identified by us, provided, that the amount of treasuries held at any time may not exceed $10 million. Such money market funds must invest principally either in short-term securities issued or guaranteed by the United
States having a rating in the highest investment category granted thereby by a recognized credit rating agency at the time of acquisition or in tax exempt municipal bonds issued by governmental entities located within the United States. At March 31,
2009, the money market funds were invested in the Dreyfus Treasury Prime Cash Management Fund (a money market mutual fund structured within the confines of Rule 2a-7 under the Investment Company Act of 1940, as amended), which invests solely in U.S.
Treasury Bills and U.S. Treasury Notes. The Bank of New York Mellon, the custodian bank for these funds, is responsible for the safekeeping of securities on behalf of the funds. Since the securities are registered in the name of each fund, they are
not assets or liabilities of the custodian bank. Given our limited risk in our exposure to U.S. Treasury Notes and such money market funds, we do not view the interest rate risk to be significant. We do not enter into derivatives or other financial
instruments for trading or speculative purposes.
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Item 4.
|
Controls and Procedures
|
a. Disclosure Controls and Procedures
Our management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d(e) under the Exchange Act) as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Exchange Act. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis,
the information relating to us that we are required to disclose in the reports that we file or submit under the Exchange Act and are effective in ensuring that information that we are required to disclose in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
b. Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial
reporting (as defined in Rule 13(a)-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
23
PART II. OTHER INFORMATION
|
Item 1.
|
Legal Proceedings
|
There is no litigation currently pending or, to the knowledge of management, contemplated against us or any of our officers or directors in their capacity
as such.
There have been no material changes to the risk factors previously disclosed in the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2008.
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Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Not applicable.
|
Item 3.
|
Defaults Upon Senior Securities
|
None.
|
Item 4.
|
Submission of Matters to a Vote of Security Holders
|
None.
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Item 5.
|
Other Information
|
None.
24
|
|
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|
|
3.1
|
|
Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
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3.2
|
|
Amended and Restated By-laws (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
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4.1
|
|
Specimen Unit Certificate (Incorporated by reference to the corresponding exhibit to the Registrant’s Registration Statement on Form S-1 (File
No. 333-146620).
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|
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4.2
|
|
Specimen Common Stock Certificate (Incorporated by reference to the corresponding exhibit to the Registrant’s Registration Statement on Form S-1
(File No. 333-146620).
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|
|
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4.3
|
|
Specimen Warrant Certificate (Incorporated by reference to the corresponding exhibit to the Registrant’s Registration Statement on Form S-1 (File No. 333-146620).
|
|
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|
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4.4
|
|
Warrant Agreement between the Registrant and Mellon Investor Services LLC dated January 17, 2008 (Incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form
10-K (File No. 001-33914) filed on March 24, 2008).
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|
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10.1
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Lazard dated January 24, 2008 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on
Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
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10.2
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Donald G. Drapkin dated January 24, 2008 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Annual
Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
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10.3
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Douglas C. Taylor dated January 24, 2008 (Incorporated by reference to Exhibit 10.3 to the Registrant’s Annual
Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
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|
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10.4
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Charles G. Ward dated January 24, 2008 (Incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report
on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
|
|
10.5
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Thomas Dooley dated January 24, 2008 (Incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on
Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
|
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10.6
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and R. Ian Molson dated January 24, 2008 (Incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on
Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
|
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10.7
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and David M. Schizer dated January 24, 2008 (Incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report
on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
|
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10.8
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Ronald J. Kramer dated January 24, 2008 (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report
on Form 10-K (File No. 001-33914) filed on March 24, 2008).
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|
|
|
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10.9
|
|
Trust Account Agreement between Mellon Bank, N.A. and the Registrant dated January 17, 2008 (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K (File
No. 001-33914) filed on March 24, 2008).
|
|
|
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10.10
|
|
Securities Escrow Agreement between the Registrant, Mellon Investor Services LLC and the securityholders named therein dated January 17, 2008 (Incorporated by reference to Exhibit 10.10 to the
Registrant’s Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
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25
|
|
|
|
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10.11
|
|
Letter Agreement between Lazard and Registrant regarding administrative support dated January 17, 2008 (Incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form
10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
|
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10.12
|
|
Registration Rights Agreement among the Registrant and Lazard Funding Limited LLC dated January 17, 2008 (Incorporated by reference to Exhibit 10.13 to the Registrant’s Annual Report on
Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
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10.13
|
|
Amended and Restated Warrant Subscription Agreement between the Registrant and Lazard Funding Limited LLC dated January 14, 2008 (Incorporated by reference to Exhibit 10.14 to the
Registrant’s Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
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|
|
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10.14
|
|
Initial Unit Subscription Agreement between the Registrant and Lazard Funding Limited LLC (Incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1
(File No. 333-146620)).
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10.15
|
|
Initial Unit Subscription Agreement between the Registrant and Donald G. Drapkin (Incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 (File No.
333-146620)).
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10.16
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Initial Unit Subscription Agreement between the Registrant and Douglas C. Taylor (Incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 (File No.
333-146620)).
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10.17
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Initial Unit Subscription Agreement between Registrant and Charles G. Ward (Incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 (File No.
333-146620)).
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10.18
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Initial Unit Subscription Agreement between the Registrant and Thomas Dooley (Incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 (File No.
333-146620)).
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10.19
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Initial Unit Subscription Agreement between the Registrant and R. Ian Molson (Incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 (File No.
333-146620)).
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10.20
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Initial Unit Subscription Agreement between the Registrant and David M. Schizer (Incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 (File No.
333-146620)).
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10.21
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Initial Unit Subscription Agreement between the Registrant and Ronald J. Kramer (Incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 (File No.
333-146620)).
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10.22
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Letter Agreement between Lazard Funding Limited LLC and Citigroup Global Markets Inc. regarding open market share purchases dated January 9, 2008 (Incorporated by reference to Exhibit 10.23 to
the Registrant’s Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
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31.1
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Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a)
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31.2
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Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a)
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32.1
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350
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32.2
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350
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99.1
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Audit Committee Charter (Incorporated by reference to Exhibit 99.1 to the Registrant’s Annual Report on Form 10-K (File 001-33914) filed on February 13,
2009).
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99.2
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Nominating and Corporate Governance Committee Charter (Incorporated by reference to Exhibit 99.2 to the Registrant’s Annual Report on Form 10-K (File 001-33914) filed on
February 13, 2009).
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99.3
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Compensation Committee Charter (Incorporated by reference to Exhibit 99.3 to the Registrant’s Annual Report on Form 10-K (File 001-33914) filed on February 13,
2009).
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26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: May 5, 2009
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SAPPHIRE INDUSTRIALS CORP.
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By:
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/
S
/ D
ONALD
G.
D
RAPKIN
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Name:
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Donald G. Drapkin
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Title:
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Chairman, Chief Executive Officer and President
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By:
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/
S
/ D
OUGLAS
C.
T
AYLOR
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Name:
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Douglas C. Taylor
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Title:
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Chief Financial Officer, Secretary and Director
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27
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