ITEM
1. LEGAL PROCEEDINGS
There
are
no material legal proceedings pending nor, to our knowledge, threatened against
us.
ITEM
1A. RISK FACTORS
RISK
FACTORS
We
are a newly formed development stage company with no operating history and
no
revenues, and you have no basis on which to evaluate our ability to achieve
our
business objective.
We
are a
newly formed development stage company with limited operating results. Because
we lack an operating history, you have no basis upon which to evaluate our
ability to achieve our business objective of completing a business combination
with one or more target businesses. We have no plans, arrangements or
understandings with any prospective target business concerning a business
combination and may be unable to complete a business combination. If we fail to
complete a business combination, we will never generate any operating revenues.
We
may not be able to consummate a business combination within the required time
frame, in which case, we would be forced to liquidate our assets.
Pursuant
to our amended and restated certificate of incorporation, we have until October
3, 2009 in which to complete a business combination. If we fail to consummate
a
business combination within the required time frame, our corporate existence
will, in accordance with our amended and restated certificate of incorporation,
cease except for the purposes of winding up our affairs and liquidating. The
foregoing requirements are set forth in Articles Sixth and Seventh of our
amended and restated certificate of incorporation and may not be eliminated
except in connection with, and upon consummation of, a business combination.
We
may not be able to find suitable target businesses within the required time
frame. In addition, our negotiating position and our ability to conduct adequate
due diligence on any potential target may be reduced as we approach the deadline
for the consummation of a business combination.
If
we are forced to liquidate before a business combination and distribute the
trust account, our public stockholders may receive less than $10.00 per share
and our warrants will expire worthless.
If
we are
unable to complete a business combination within the required time frame and
are
forced to liquidate our assets, the per-share liquidation distribution may
be
less than $10.00 because of the expenses of our initial public offering, our
general and administrative expenses and the anticipated costs of seeking a
business combination. Furthermore, there will be no distribution with respect
to
our outstanding warrants, which will expire worthless, if we liquidate before
the completion of a business combination.
If
we are unable to consummate a business combination, our public stockholders
will
be forced to wait the full 24 months before receiving liquidation distributions.
We
have
24 months from October 3, 2007 in which to complete a business combination.
We
have no obligation to return funds to public stockholders prior to the
expiration of such 24 month period unless we consummate a business combination
prior thereto and only then in cases where public stockholders have sought
conversion of their shares. Only after the expiration of this full time period
will public stockholders be entitled to liquidation distributions if we are
unable to complete a business combination. Accordingly, public stockholders
funds may be unavailable to them until such date.
Highlands
Acquisition Corp.
You
will not be entitled to protections normally afforded to investors of blank
check companies.
Since
the
net proceeds of our initial public offering are intended to be used to complete
a business combination with a target business that has not been identified,
we
may be deemed to be a ‘‘blank check’’ company under the United States securities
laws. However, since our securities are listed on the American Stock Exchange,
a
national securities exchange, and we have net tangible assets in excess of
$5.0
million because of the consummation of our initial public offering and have
filed a Current Report on Form 8-K, including an audited balance sheet
demonstrating this fact, we are exempt from rules promulgated by the SEC to
protect investors in blank check companies such as Rule 419. Accordingly, our
stockholders will not be afforded the benefits or protections of those rules
such as completely restricting the transferability of our securities, requiring
us to complete a business combination within 18 months of the effective date
of
our initial registration statement and restricting the use of interest earned
on
the funds held in the trust account. Because we are not subject to Rule 419,
our
units are immediately tradable, we are entitled to withdraw a certain amount
of
interest earned on the funds held in the trust account prior to the completion
of a business combination and we have a longer period of time to complete such
a
business combination than we would if we were subject to such rule.
Because
there are numerous companies with a business plan similar to ours seeking to
effectuate a business combination and because of our limited resources and
structure, it may be more difficult for us to consummate a business combination.
In
identifying, evaluating and selecting a target business for a business
combination, we expect to encounter intense competition from other entities
having a business objective similar to ours including other blank check
companies, private equity groups, venture capital funds, leveraged buyout funds,
and operating businesses seeking strategic acquisitions. Many of these entities
are well-established and have extensive experience identifying and effecting
business combinations directly or through affiliates. Moreover, many of these
competitors possess greater financial, technical, human and other resources
than
us which will give them a competitive advantage in pursuing the acquisition
of
certain target businesses. Furthermore:
•
our
obligation to seek stockholder approval of our initial business combination
or
obtain necessary financial information may delay the completion of a
transaction;
•
our
obligation to convert into cash up to 30% minus one share of the shares of
common stock held by our public stockholders who vote against the business
combination and exercise their conversion rights may reduce the resources
available to us for a business combination;
•
our
outstanding warrants, and the future dilution they potentially represent, may
not be viewed favorably by certain target businesses; and
•
the
requirement to acquire an operating business that has a fair market value equal
to at least 80% of the balance of the trust account at the time of the
acquisition (excluding deferred underwriting discounts and commissions) could
require us to acquire the assets of several operating businesses at the same
time, all of which sales would be contingent on the closings of the other sales,
which could make it more difficult to consummate the business combination.
Any
of
these factors may place us at a competitive disadvantage in successfully
negotiating a business combination and, because we are subject to competition
from entities seeking to consummate a business plan similar to ours, we cannot
assure you that we will be able to effectuate a business combination within
the
required time period.
If
the net proceeds of our initial public offering not being held in the trust
account plus the interest earned on the funds held in the trust account that
may
be available to us are insufficient to allow us to operate for at least the
next
24 months, we may be unable to complete a business combination.
We
believe that the funds available to us outside of the trust account, plus the
interest earned on the funds held in the trust account that may be available
to
us, will be sufficient to allow us to operate for at least the next 24 months,
assuming that a business combination is not consummated during that time.
However, we cannot assure you that our estimates will be accurate. We could
use
a portion of the funds available to us to pay fees to consultants to assist
us
with our search for a target business. We could also use a portion of the funds
as a down payment or to fund a ‘‘no-shop’’ provision (a provision in letters of
intent designed to keep target businesses from ‘‘shopping’’ around for
transactions with other companies on terms more favorable to such target
businesses) with respect to a particular proposed business combination. If
we
entered into a letter of intent where we paid for the right to receive
exclusivity from a target business and were subsequently required to forfeit
the
funds whether as a result of our breach or otherwise), we might not have
sufficient funds to continue searching for, or conduct due diligence with
respect to, a target business.
Highlands
Acquisition Corp.
If
we do not conduct an adequate due diligence investigation of a target business
with which we combine, we may be required to subsequently take write-downs
or
write-offs, restructuring, and impairment or other charges that could have
a
significant negative effect on our financial condition, results of operations
and our stock price, which could cause you to lose some or all of your
investment.
We
must
conduct a due diligence investigation of the target businesses we intend to
acquire. Intensive due diligence is time consuming and expensive due to the
operations, accounting, finance and legal professionals who must be involved
in
the due diligence process. Even if we conduct extensive due diligence on a
target business with which we combine, we cannot assure you that this diligence
will reveal all material issues that may affect a particular target business,
or
that factors outside the control of the target business and outside of our
control will not later arise. If our diligence fails to identify issues specific
to a target business, industry or the environment in which the target business
operates, we may be forced to later write-down or write-off assets, restructure
our operations, or incur impairment or other charges that could result in our
reporting losses. Even though these charges may be non-cash items and not have
an immediate impact on our liquidity, the fact that we report charges of this
nature could contribute to negative market perceptions about us or our common
stock. In addition, charges of this nature may cause us to violate net worth
or
other covenants to which we may be subject as a result of assuming pre-existing
debt held by a target business or by virtue of our obtaining post-combination
debt financing.
A
decline in interest rates could limit the amount available to fund our search
for a target business or businesses and complete a business combination since
we
will depend on interest earned on the trust account to fund our search, to
pay
our tax obligations and to complete our initial business combination.
Of
the
net proceeds of our initial public offering, only $500,000 will be available
to
us initially outside the trust account to fund our working capital requirements.
We will depend on sufficient interest being earned on the proceeds held in
the
trust account to provide us with additional working capital of up to $2.1
million which we will need to identify one or more target businesses and to
complete our initial business combination, as well as the funds required to
pay
any tax obligations that we may owe. While we are entitled to have released
to
us for such purposes certain interest earned on the funds in the trust account,
a substantial decline in interest rates may result in our having insufficient
funds available with which to structure, negotiate or close an initial business
combination. In such event, we would need to borrow funds from our founders
to
operate or may be forced to liquidate. Our founders are under no obligation
to
advance funds in such circumstances.
If
third parties bring claims against us, the proceeds held in trust could be
reduced and the per-share liquidation price received by stockholders may be
less
than approximately $9.77 per share.
Our
placing of funds in the trust account may not protect those funds from third
party claims against us. Although we will seek to have all vendors and service
providers we engage and prospective target businesses we negotiate with, execute
agreements with us waiving any right, title, interest or claim of any kind
in or
to any monies held in the trust account for the benefit of our public
stockholders, there is no guarantee that they will execute waiver agreements.
Furthermore, there is no guarantee that, even if an entity executes a waiver
agreement with us, it will not seek recourse against the trust account. Nor
is
there any guarantee that a court would uphold the validity of a waiver
agreement.
Accordingly,
the proceeds held in trust could be subject to claims which could take priority
over those of our public stockholders and, as a result, the per-share
liquidation price could be less than approximately $9.77 due to claims of
creditors. If we liquidate before the completion of a business combination
and
distribute the proceeds held in the trust account to our public stockholders,
Kanders & Company and Ivy Capital Partners have agreed that they will be
liable to ensure that the proceeds in the trust account are not reduced by
the
claims of target businesses or claims of vendors or other entities that are
owed
money by us for services rendered or contracted for or products sold to us,
but
only if a vendor or prospective target business does not execute a valid and
enforceable waiver. Because we will seek to have all vendors and prospective
target businesses execute waiver agreements with us waiving any right, title,
interest or claim of any kind they may have in or to any monies held in the
trust account, we believe the likelihood of Kanders & Company and Ivy
Capital Partners having any such obligations is minimal. Notwithstanding the
foregoing, we have reviewed their financial information and believe they will
be
able to satisfy any indemnification obligations that may arise. However, we
cannot assure you that they will be able to satisfy those obligations.
Therefore, we cannot assure you that the per-share distribution from the trust
account, if we liquidate, will not be less than approximately $9.77, plus
interest, due to such claims.
Highlands
Acquisition Corp.
Additionally,
if we are forced to file a bankruptcy case or an involuntary bankruptcy case
is
filed against us which is not dismissed, the proceeds held in the trust account
could be subject to applicable bankruptcy law, and may be included in our
bankruptcy estate and subject to the claims of third parties with priority
over
the claims of our stockholders. To the extent any bankruptcy claims deplete
the
trust account, we cannot assure you we will be able to return to our public
stockholders at least approximately $9.77 per share.
Our
stockholders may be held liable for claims by third parties against us to the
extent of distributions received by them.
If
we are
unable to complete a business combination within the required time period,
our
corporate existence will cease except for the purposes of winding up our affairs
and liquidating pursuant to Section 278 of the Delaware General Corporation
Law,
in which case we will as promptly as practicable thereafter adopt a plan of
distribution in accordance with Section 281(b) of the Delaware General
Corporation Law. Section 278 provides that our existence will continue for
at
least three years after its expiration for the purpose of prosecuting and
defending suits, whether civil, criminal or administrative, by or against us,
and of enabling us gradually to settle and close our business, to dispose of
and
convey our property, to discharge our liabilities and to distribute to our
stockholders any remaining assets, but not for the purpose of continuing the
business for which we were organized. Our existence will continue automatically
even beyond the three-year period for the purpose of completing the prosecution
or defense of suits begun prior to the expiration of the three-year period,
until such time as any judgments, orders or decrees resulting from such suits
are fully executed. Section 281(b) will require us to pay or make reasonable
provision for all then-existing claims and obligations, including all
contingent, conditional, or unmatured contractual claims known to us, and to
make provisions as will be reasonably likely to be sufficient to provide
compensation for any then-pending claims and for claims that have not been
made
known to us or that have not arisen but that, based on facts known to us at
the
time, are likely to arise or to become known to us within 10 years after the
date of dissolution. Accordingly, we would be required to provide for any
creditors known to us at that time or those that we believe could be potentially
brought against us within the subsequent 10 years prior to distributing the
funds held in the trust to stockholders. However, because we are a blank check
company, rather than an operating company, and our operations will be limited
to
searching for prospective target businesses to acquire, the only likely claims
to arise would be from our vendors that we engage after the consummation of
this
offering (such as accountants, lawyers, investment bankers, etc.) and potential
target businesses. We intend to have all vendors that we engage after the
consummation of this offering and prospective target businesses execute
agreements with us waiving any right, title, interest or claim of any kind
in or
to any monies held in the trust account. Accordingly, we believe the claims
that
could be made against us should be limited, thereby lessening the likelihood
that any claim would result in any liability extending to the trust. However,
we
cannot assure you that we will properly assess all claims that may be
potentially brought against us. As a result, our stockholders could potentially
be liable for any claims to the extent of distributions received by them (but
no
more) and any liability of our stockholders may extend well beyond the third
anniversary of the date of distribution. Accordingly, we cannot assure you
that
third parties will not seek to recover from our stockholders amounts owed to
them by us.
If
we are
forced to file a bankruptcy case or an involuntary bankruptcy case is filed
against us which is not dismissed, any distributions received by stockholders
could be viewed under applicable debtor/creditor and/or bankruptcy laws as
either a ‘‘preferential transfer’’ or a ‘‘fraudulent conveyance.’’ As a result,
a bankruptcy court could seek to recover all amounts received by our
stockholders. Furthermore, because we intend to distribute the proceeds held
in
the trust account to our public stockholders promptly after 24 months from
October 3, 2007, this may be viewed or interpreted as giving preference to
our
public stockholders over any potential creditors with respect to access to
or
distributions from our assets. Furthermore, our board may be viewed as having
breached their fiduciary duties to our creditors and/or may have acted in bad
faith, and thereby exposing itself and our company to claims of punitive
damages, by paying public stockholders from the trust account prior to
addressing the claims of creditors. We cannot assure you that claims will not
be
brought against us for these reasons.
Highlands
Acquisition Corp.
An
effective registration statement may not be in place when a warrant holder
desires to exercise warrants, thus precluding such warrant holder from being
able to exercise warrants and causing the warrants to expire worthless.
No
warrant will be exercisable and we will not be obligated to issue shares of
common stock unless, at the time a holder seeks to exercise a warrant, we have
a
registration statement under the Securities Act in effect covering the shares
of
common stock issuable upon the exercise of the warrants and a current prospectus
relating to the common stock. Under the terms of the warrant agreement, we
have
agreed to use our best efforts to have a registration statement in effect
covering shares of common stock issuable upon exercise of the warrants as of
the
date the warrants become exercisable and to maintain a current prospectus
relating to the common stock issuable upon exercise of the warrants until the
expiration of the warrants. However, we cannot assure you that we will be able
to do so. We will not be required to net cash settle the warrants if we do
not
maintain a current prospectus. In such event, the warrants held by public
stockholders may have no value, the market for such warrants may be limited,
such warrants may expire worthless and, as a result, an investor may have paid
the full unit price solely for the shares of common stock included in the units.
A
warrant holder will only be able to exercise a warrant if the issuance of common
stock upon the exercise has been registered or qualified or is deemed exempt
under the securities laws of the state of residence of the holder of the
warrants.
No
warrants will be exercisable and we will not be obligated to issue shares of
common stock unless the common stock issuable upon an exercise has been
registered or qualified or deemed to be exempt under the securities laws of
the
state of residence of the holder of the warrants. At the time that the warrants
become exercisable, we expect to continue to be listed on a national securities
exchange, which would provide an exemption from registration in every state.
Accordingly, we believe holders in every state will be able to exercise their
warrants as long as our prospectus relating to the common stock issuable upon
exercise of the warrants is current. However, we cannot assure you of this
fact.
If the common stock issuable upon exercise of the warrant is not qualified
or
exempt from qualification in the jurisdictions in which the holders of the
warrants reside, the warrants may be deprived of any value, the market for
the
warrants may be limited and they may expire worthless if they cannot be sold.
We
have been advised that certain provisions contained in our amended and restated
certificate of incorporation may not be enforceable under Delaware law. This
could reduce or eliminate the protection afforded to our stockholders by such
provisions.
Our
amended and restated certificate of incorporation contains certain requirements
and restrictions that will apply to us until the consummation of our initial
business combination. Specifically, our amended and restated certificate of
incorporation provides, among other things, that:
•
prior
to the consummation of any business combination, we shall submit the business
combination to our public stockholders for approval regardless of whether the
business combination is of a type which normally would require stockholder
approval under the Delaware General Corporation Law; in the event that a
majority of the shares held by public stockholders present and entitled to
vote
at the meeting to approve the business combination are voted for the approval
of
the business combination and an amendment to our certificate of incorporation
to
provide for our perpetual existence is approved we will consummate the business
combination; provided that we will not consummate any business combination
if
the holders of 30% or more of the shares sold in this offering vote against
the
business combination and exercise their conversion rights;
Highlands
Acquisition Corp.
•
upon
consummation of our initial public offering, we delivered, or cause to be
delivered, for deposit into the trust account $134,830,000, comprised of (i)
$131,580,000 of the net proceeds, including $3,990,000 in deferred underwriting
discounts and commissions, and (ii) $3,250,000 of the proceeds from our issuance
and sale in a private placement of 3,250,000 sponsors’ warrants issued to
certain of our officers and directors or affiliates of our officers and
directors;
•
in
the
event that a business combination is approved and is consummated, any public
stockholder holding shares of common stock issued in our initial public offering
who voted against the business combination may, contemporaneously with such
vote, demand that we convert his, her or its shares into cash; if so demanded,
we shall, promptly after consummation of the business combination, convert
such
shares into cash;
•
in
the
event that we do not consummate a business combination within the required
time
period, all amounts in the trust account (including deferred underwriting
discounts and commissions) plus any other net assets outside of the trust
account not used for or reserved to pay obligations and claims or other
corporate expenses relating to or arising from our liquidation, shall be
distributed on a pro rata basis to our public stockholders; only public
stockholders shall be entitled to receive liquidating distributions and we
will
pay no liquidating distributions with respect to any other shares of capital
stock;
•
a
public stockholder shall be entitled to receive distributions from the trust
account only in the event of our liquidation or in the event he, she or it
demands conversion in connection with a vote against a business combination;
in
no other circumstances shall a public stockholder have any right or interest
of
any kind in or to the trust account;
•
unless
and until we have consummated an initial business combination, we may not
consummate any other business combination, whether by merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or other similar
business combination or transaction or otherwise;
•
we
will
continue in existence only until October 3, 2009; if we have not completed
a
business combination by such date, our corporate existence will cease except
for
the purposes of winding up our affairs and liquidating; we will not take any
action to amend or waive this provision to allow us to survive for a longer
period of time except in connection with the consummation of our initial
business combination;
•
we
will
consummate our initial business combination only if (i) the initial business
combination is approved by a majority of votes cast by our public shareholders
at a duly held stockholders meeting, (ii) an amendment to our amended and
restated certificate of incorporation to provide for our perpetual existence
is
approved by holders of a majority of our outstanding shares of common stock,
and
(iii) we have confirmed that we have sufficient cash resources to pay both
(x)
the consideration required to close our initial business combination, and (y)
the cash due to public stockholders who vote against the business combination
and who exercise their conversion rights; and
•
our
Board of Directors may not in any event issue any securities convertible into
common stock, shares of common stock or preferred stock prior to an initial
business combination that participates in or is otherwise entitled in any manner
to any of the proceeds in the trust account or votes as a class with the common
stock on an initial business combination.
Our
amended and restated certificate of incorporation provides that until the
consummation of our initial business combination, the above requirements and
restrictions will not be amended. We have been advised that such provisions
limiting our ability to amend our certificate of incorporation may not be
enforceable under Delaware law. Accordingly, if an amendment were proposed
and
approved, it could reduce or eliminate the protection afforded to our public
stockholders by these requirements and restrictions. However, we view these
provisions as obligations to our stockholders and have agreed not to take any
action to amend or waive these provisions.
Highlands
Acquisition Corp.
Since
we have not yet selected a particular industry or target business with which
to
complete a business combination, you will be unable to currently ascertain
the
merits or risks of the industry or business in which we may ultimately operate.
Although
we intend to focus our search for target businesses in the healthcare industry,
we may consummate a business combination with a company in any industry and
are
not limited to any particular type of business. Accordingly, there is no current
basis for you to evaluate the possible merits or risks of the particular
industry in which we may ultimately operate or the target business which we
may
ultimately acquire. If we complete a business combination with an entity in
an
industry characterized by a high level of risk, we may be affected by the
currently unascertainable risks of that industry. Although our management will
endeavor to evaluate the risks inherent in a particular industry or target
business, we cannot assure you that we will properly ascertain or assess all
of
the significant risk factors. Even if we properly assess those risks, some
of
them may be outside of our control or ability to affect. We also cannot assure
you that an investment in our securities will not ultimately prove to be less
favorable to our stockholders than a direct investment, if an opportunity were
available, in a target business.
Your
only opportunity to evaluate and affect the investment decision regarding a
potential business combination will be limited to voting for or against the
business combination submitted to our stockholders for approval.
Your
only
opportunity to evaluate and affect the investment decision regarding a potential
business combination will be limited to voting for or against the business
combination submitted to our stockholders for approval. In addition, a proposal
that you vote against could still be approved if a sufficient number of public
stockholders vote for the proposed business combination. Alternatively, a
proposal that you vote for could still be rejected if a sufficient number of
public stockholders vote against the proposed business combination.
We
may not seek an opinion from an unaffiliated third party as to the fair market
value of the target business we acquire or that the price we are paying for
the
business is fair to our stockholders from a financial point of view.
We
may
not seek an opinion from an unaffiliated third party that the target business
we
select has a fair market value in excess of at least 80% of the balance in
the
trust account (excluding deferred underwriting discounts and commissions).
We
are only required to obtain an opinion if (i) our Board of Directors is not
able
to independently determine that the target business has a sufficient fair market
value to meet the threshold criterion or (ii) we are acquiring a target business
that is an affiliate of a member of our management team. We are also not
required to obtain an opinion from an unaffiliated third party indicating that
the price we are paying is fair to our stockholders from a financial point
of
view unless the target is affiliated with our officers, directors, founders
or
their affiliates. If no opinion is obtained, our stockholders will be relying
on
the judgment of our Board of Directors.
We
may issue shares of our capital stock or debt securities to complete a business
combination. Issuance of our capital stock would reduce the equity interest
of
our stockholders and may cause a change in control of our ownership, while
the
issuance of debt securities may have a significant impact on our ability to
utilize our available cash.
Our
amended and restated certificate of incorporation authorizes the issuance of
up
to 50,000,000 shares of common stock, par value $.0001 per share, and 1,000,000
shares of preferred stock, par value $.0001 per share. There are 16,750,000
authorized but unissued shares of our common stock available for issuance (after
appropriate reservation for the issuance of the shares upon full exercise of
our
outstanding warrants, including the founders’ warrants and sponsors’ warrants
but without taking into account the 1,000,000 co-investment units) and all
of
the 1,000,000 shares of preferred stock available for issuance. We may issue
a
substantial number of additional shares of our common or preferred stock, or
a
combination of common and preferred stock, to complete a business combination.
The issuance of additional shares of our common stock or any number of shares
of
our preferred stock:
•
may
significantly reduce the equity interest of our stockholders;
•
may
subordinate the rights of holders of common stock if we issue preferred stock
with rights senior to those afforded to our common stock;
•
may
cause a change in control if a substantial number of our shares of common stock
are issued, which may affect, among other things, our ability to use our net
operating loss carry forwards, if any, and could result in the resignation
or
removal of our present officers and directors;
Highlands
Acquisition Corp.
•
may,
in
certain circumstances, have the effect of delaying or preventing a change of
control of us; and
•
may
adversely affect prevailing market prices for our common stock.
Similarly,
if we issue debt securities, it could result in:
•
default
and foreclosure on our assets if our operating revenues after a business
combination are insufficient to repay our debt obligations;
•
acceleration of our obligations to repay the indebtedness even if we make all
principal and interest payments when due if we breach certain covenants that
require the maintenance of certain financial ratios or reserves without a waiver
or renegotiation of that 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 necessary additional financing if the debt security contains
covenants restricting our ability to obtain such financing while the debt
security is outstanding.
The
value
of your investment in us may decline if any of these events occur.
Resources
could be wasted in researching acquisitions that are not consummated, which
could materially adversely affect subsequent attempts to locate and acquire
or
merge with another business.
It
is
anticipated that the investigation of each specific target business and the
negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys and others. If a
decision is made not to complete a specific business combination, the costs
incurred up to that point for the proposed transaction likely would not be
recoverable. Furthermore, even if an agreement is reached relating to a specific
target business, we may fail to consummate the business combination for any
number of reasons including those beyond our control, such as that public
stockholders owning 30% or more of our shares vote against the business
combination and opt to have us convert their shares for a pro rata share of
the
trust account even if a majority of our stockholders approve the business
combination. Any such event will result in a loss to us of the related costs
incurred which could materially adversely affect subsequent attempts to locate
and acquire or merge with another business.
Our
ability to successfully effect a business combination will be totally dependent
upon the efforts and time commitments of our management team, and our ability
to
be successful after a business combination may be dependent upon the efforts
of
our management team and key personnel who may join us following a business
combination.
Our
ability to successfully effect a business combination is dependent upon the
efforts of our management team. We believe that our success depends on the
continued service and time commitments of these individuals, at least until
we
have consummated a business combination. We cannot assure you that these
individuals will remain with, or devote sufficient time to, us for the immediate
or foreseeable future. In addition, these individuals are engaged in, or
anticipate, in the future, becoming engaged in, several other business endeavors
and none of them is required to commit any specified amount of time to our
affairs. If the other business endeavors of these individuals require them
to
devote substantial amounts of time, it could limit their ability to devote
time
to our affairs, including the time necessary to identify potential business
combinations and monitor the related due diligence, and could have a negative
impact on our ability to consummate a business combination. We cannot assure
you
that any conflicts of interest that these individuals may have in allocating
management time among various business activities, including identifying
potential business combinations and monitoring the related due diligence, will
be resolved in our favor. We do not have employment agreements with, or key-man
insurance on the life of, any of our officers. The unexpected loss of the
services of one or more members of our management team could have a detrimental
effect on us.
Highlands
Acquisition Corp.
The
role
of our management team and key personnel from the target business cannot
presently be ascertained. Although some of our management team may remain with
the target business in senior management or advisory positions following a
business combination, it is likely that some or all of the management of the
target business will remain in place. While we intend to closely scrutinize
any
individuals we engage after a business combination, we cannot assure you that
our assessment of these individuals will prove to be correct. These individuals
may be unfamiliar with the requirements of operating a public company which
could cause us to have to expend time and resources helping them become familiar
with such requirements. This could be expensive and time-consuming and could
lead to various regulatory issues which may adversely affect our operations.
Our
key personnel may negotiate employment or consulting agreements in connection
with a particular business combination. These agreements may provide for them
to
receive compensation following a business combination and as a result, may
cause
them to have conflicts of interest in determining whether a particular business
combination is the most advantageous.
Our
key
personnel will be able to remain with the company after the consummation of
a
business combination only if they are able to negotiate employment or consulting
agreements in connection with the business combination. Such negotiations would
take place simultaneously with the negotiation of the business combination
and
could provide for such individuals to receive compensation in the form of cash
payments and/or our securities for services they would render to the company
after the consummation of the business combination. The personal and financial
interests of such individuals may influence their motivation in identifying
and
selecting a target business. However, we believe the ability of such individuals
to remain with the company after the consummation of a business combination
will
not be the determining factor in our decision as to whether or not we will
proceed with any potential business combination.
Some
of our officers and directors are now, and our other officers and directors
may
in the future become, affiliated with entities engaged in business activities
similar to those intended to be conducted by us and accordingly, have or may
have fiduciary or other obligations to these other entities which could create
conflicts of interest, including in determining to which entity a particular
business opportunity should be presented.
Some
of
our officers and directors are currently affiliated with entities engaged in
business activities similar to those intended to be conducted by us, including
Clarus Corporation, a publicly traded company with no current operating
business, net operating loss carryforwards of approximately $223 million and
approximately $85 million of cash and cash equivalents. Additionally, our
officers and directors may in the future become affiliated with entities,
including, among others, ‘‘blank check’’ companies, public companies, hedge
funds, private equity funds, venture capital funds and other investment vehicles
and capital pools, which may be engaged in business activities similar to those
intended to be conducted by us. In order to minimize potential conflicts of
interest which may arise from multiple corporate affiliations, our officers
and
directors have agreed, pursuant to agreements with us and Citigroup Global
Markets Inc., that they will not organize or become involved in any other blank
check company with a focus on acquiring a target business in the healthcare
industry until we consummate our initial business combination. Notwithstanding
the foregoing, our officers and directors are not restricted from (i) investing
in, or acquiring, directly or indirectly, the securities of any company listed
on a national securities exchange (including, without limitation, NASDAQ),
even
if such company is engaged in the healthcare industry, (ii) organizing,
promoting or becoming involved with blank check companies that do not have
a
focus of acquiring a target business in the healthcare industry or (iii)
organizing, promoting or becoming involved with other investment vehicles having
a business plan of acquiring a healthcare business with which they do not have
a
pre-existing disclosed relationship. Warren B. Kanders, through Kanders &
Company, sponsored Kanders Acquisition Company, Inc., a new blank check company.
Mr. Kanders has been named a director and officer of, and Messrs. Baratelli
and
Julien have been named officers of, such new blank check company. Accordingly,
there may be circumstances where a potential target business may be presented
to
another entity prior to its presentation to us, which could have a negative
impact on our ability to successfully consummate a business combination.
Highlands
Acquisition Corp.
The
obligation of our officers and directors to present a business opportunity
to us
which may be reasonably required to be presented to us under Delaware law is
limited and may be subject to pre-existing fiduciary or other obligations that
our officers and directors may owe to other companies. Consequently, we cannot
assure you that our officers and directors will ever present a business
combination opportunity to us.
In
order
to minimize potential conflicts of interest which may arise from multiple
affiliations, our officers and non-independent directors have agreed, until
the
earliest of our consummation of a business combination, our liquidation or
until
such time as he ceases to be a director or officer, to present to us for our
consideration, prior to presentation to any other person or entity, any business
opportunity to acquire a privately held operating business, if, and only if
(i)
the target entity has a fair market value between 80% of the balance in the
trust account (excluding deferred underwriting discounts and commissions) and
$500 million, the target entity’s principal business operations are in the
healthcare industry and the opportunity is to acquire substantially all of
the
assets or 50.1% or greater of the voting securities of the target entity or
(ii)
the target entity’s principal business operations are outside of the healthcare
industry and the opportunity to acquire such target entity is presented by
a
third party to one of our officers or non-independent directors expressly for
consideration by us. With respect to all business opportunities, including
those
described in clause (i), but excluding those described in clause (ii) above,
the
obligation of our officers and non-independent directors to present a business
opportunity to us which may be reasonably required to be presented to us under
Delaware law is subject to any pre-existing fiduciary or other obligations
that
the officer or non-independent director may owe to another entity. Our Board
of
Directors has adopted resolutions renouncing any interest in or expectancy
to be
presented any business opportunity outside of those described in clauses (i)
and
(ii) above (as qualified by the immediately preceding sentence) that comes
to
the attention of any of our officers or non-independent directors. Neither
this
agreement by our officers and non-independent directors nor the resolutions
may
be amended or rescinded in any way except upon prior approval by the holders
of
a majority of our outstanding shares of common stock.
Certain
of our officers and non-independent directors are executive officers and/or
directors of other companies. As a result, with respect to all business
opportunities, including those described in clause (i), but excluding those
described in clause (ii) above, the obligation of our officers and
non-independent directors to present a business opportunity to us which may
be
reasonably required to be presented to us under Delaware law is subject to
the
pre-existing fiduciary or other obligations that our officers and
non-independent directors may owe to such other companies. Consequently, we
cannot assure you that our officers and non-independent directors will ever
present a business combination opportunity to us.
In
addition, although we do not expect our independent directors to present
business opportunities to us, they may become aware of business opportunities
that may be appropriate for presentation to us. In such instances they may
determine to present these business opportunities to other entities with which
they are or may be affiliated, in addition to, or instead of, presenting them
to
us.
One
of our directors, who is also a member of our Investment Committee, and two
of
our officers who will be involved in the evaluation of a potential business
combination for us are also a director and officers of a new blank check company
and, if we reject a potential business combination, such new blank check company
could be offered such potential business combination.
Mr.
Kanders is a director of our company and a member of our Investment Committee
and Messrs. Baratelli and Julien are officers of our company, as such, each
will
be involved in identifying and evaluating prospective acquisition candidates,
selecting potential target businesses, and structuring, negotiating and
consummating an acquisition. Mr. Kanders is also a principal stockholder of
the
sponsor of, and a director and officer of, Kanders Acquisition Company, Inc.
,
new blank check company and Messrs. Baratelli and Julien are also officers
of
such new blank check company that may, subject to, among other things, market
conditions, move forward with an initial public offering of its securities.
This
new blank check company has agreed that it will not seek or acquire a target
business in the healthcare industry unless and until we have completed our
initial business combination or have liquidated. If a potential business
combination is presented to us and we decide not to proceed with such business
combination for any reason, such business combination could be presented by
Messrs. Kanders, Baratelli or Julien to the new blank check company for which
they serve as a director or an officer, as applicable.
Highlands
Acquisition Corp.
The
founders have waived their rights to participate in liquidation distributions
with respect to the founders’ common stock and founders’ warrants and sponsors’
warrants and, therefore, our officers and directors may have a conflict of
interest in determining whether a particular target business is appropriate
for
a business combination.
The
founders have waived their right to receive distributions with respect to the
founders’ common stock upon our liquidation if we are unable to consummate a
business combination. Accordingly, the founders’ common stock and founders’
warrants, as well as the sponsors’ warrants, and any other warrants purchased by
our officers or directors will be worthless if we do not consummate a business
combination. The personal and financial interests of our directors and officers
who own founders’ common stock or warrants (or are affiliated with owners of
these securities) may influence their motivation in timely identifying and
selecting a target business and completing a business combination. Consequently,
our directors’ and officers’ discretion in identifying and selecting a suitable
target business may result in a conflict of interest when determining whether
the terms, conditions and timing of a particular business combination are
appropriate and in our stockholders’ best interest.
The
American Stock Exchange may delist our securities from quotation on its exchange
which could limit investors’ ability to make transactions in our securities and
subject us to additional trading restrictions.
Our
securities are listed on the American Stock Exchange, a national securities
exchange, however we cannot assure you that our securities will continue to
be
listed on the American Stock Exchange in the future prior to a business
combination. Additionally, in connection with our business combination, it
is
likely that the American Stock Exchange will require us to file a new initial
listing application and meet its initial listing requirements as opposed to
its
more lenient continued listing requirements. We cannot assure you that we will
be able to meet those initial listing requirements at that time.
If
the
American Stock Exchange delists our securities from trading on its exchange,
we
could face significant material adverse consequences, including:
•
a
limited availability of market quotations for our securities;
•
a
reduced liquidity with respect to our securities;
•
a
determination that our common stock is a ‘‘penny stock’’ which will require
brokers trading in our common stock to adhere to more stringent rules, possibly
resulting in a reduced level of trading activity in the secondary trading market
for our common stock;
•
a
limited amount of news and analyst coverage for our company; and
•
a
decreased ability to issue additional securities or obtain additional financing
in the future.
We
may only be able to complete one business combination with the proceeds of
our
initial public offering and the private placement of the sponsors’ warrants,
which will cause us to be solely dependent on a single business which may have
a
limited number of products or services.
Our
business combination must be with one or more target businesses having an
aggregate fair market value of at least 80% of the balance in the trust account
(excluding deferred underwriting discounts and commissions) at the time of
such
acquisition. However, we may not be able to acquire more than one target
business because of various factors, including the existence of complex
accounting issues and the requirement that we prepare and file pro forma
financial statements with the SEC that present operating results and the
financial condition of several target businesses as if they had been operated
on
a combined basis. By consummating a business combination with only a single
entity, our lack of diversification may subject us to numerous economic,
competitive and regulatory developments. Further, we would not be able to
diversify our operations or benefit from the possible spreading of risks or
offsetting of losses, unlike other entities which may have the resources to
complete several business combinations in different industries or different
areas of a single industry. Accordingly, the prospects for our success may
be:
•
solely
dependent upon the performance of a single business, or
Highlands
Acquisition Corp.
•
dependent upon the development or market acceptance of a single or limited
number of products, processes or services.
This
lack
of diversification may subject us to numerous economic, competitive and
regulatory developments, any or all of which may have a substantial adverse
impact upon the particular industry in which we may operate subsequent to a
business combination.
Alternatively,
if we determine to simultaneously acquire several businesses and such businesses
are owned by different sellers, we will need for each of the sellers to agree
that our purchase of its business is contingent on the simultaneous closings
of
the other business combinations, which may make it more difficult for us, and
delay our ability, to complete the business combination. With multiple business
combinations, we could also face additional risks, including additional burdens
and costs with respect to possible multiple negotiations and due diligence
investigations (if there are multiple sellers) and the additional risks
associated with the subsequent assimilation of the operations and services
or
products of the acquired companies in a single operating business. If we are
unable to adequately address these risks, it could negatively impact our
profitability and results of operations.
We
will likely seek to effect our initial business combination with one or more
privately held companies, which may present certain challenges to us including
the lack of available information about these companies.
In
pursuing our acquisition strategy, we will likely seek to effect our initial
business combination with one or more privately held companies. By definition,
very little public information exists about these companies, and we could be
required to make our decision on whether to pursue a potential initial business
combination on the basis of limited information.
The
ability of our stockholders to exercise their conversion rights may not allow
us
to effectuate the most desirable business combination or optimize our capital
structure.
When
we
seek stockholder approval of any business combination, we will offer each public
stockholder (but not our founders or Mr. Kanders with respect to the shares
of
common stock underlying the 500,000 units his affiliate purchased in our initial
public offering) the right to have his, her or its shares of common stock
converted to cash if the stockholder votes against the business combination
and
the business combination is approved and completed. A public stockholder must
both vote against the business combination and then exercise his, her or its
conversion rights to receive a pro rata portion of the aggregate amount then
on
deposit in the trust account. Accordingly, if our business combination requires
us to use substantially all of our cash to pay the purchase price, because
we
will not know how many stockholders may exercise such conversion rights, we
may
either need to reserve part of the trust account for possible payment upon
conversion, or we may need to arrange third party financing to help fund our
business combination in case a larger percentage of public stockholders exercise
their conversion rights than we expect. Since we have no specific business
combination under consideration, we have not taken any steps to secure third
party financing. Therefore, we may not be able to consummate a business
combination that requires us to use all of the funds held in the trust account
as part of the purchase price, or we may end up having a leverage ratio that
is
not optimal for our business combination. This may limit our ability to
effectuate the most attractive business combination available to us.
We
may proceed with a business combination even if public stockholders owning
4,139,999 of the shares sold in our initial public offering exercise their
conversion rights. This requirement may make it easier for us to have a business
combination approved over stockholder dissent.
We
may
proceed with a business combination as long as public stockholders owning less
than 30% of the shares sold in our initial public offering both vote against
the
business combination and exercise their conversion rights. Accordingly, public
stockholders holding up to
4,139,999
shares
of
our common stock may both vote against the business combination and exercise
their conversion rights and we could still consummate a proposed business
combination. We have set the conversion percentage at 30% in order to reduce
the
likelihood that a small group of stockholders holding a block of our stock
will
be able to stop us from completing a business combination that is otherwise
approved by a large majority of our public stockholders. However, this may
have
the effect of making it easier for us to have a business combination approved
over a stockholder dissent. While there are a few other offerings similar to
ours which include conversion provisions greater than 20%, the 20% threshold
is
common for offerings similar to ours. Because we permit a larger number of
stockholders to exercise their conversion rights, it will reduce the requirement
to consummate an initial business combination with a target business which
you
may vote against, making it easier for us to have a business combination
approved over stockholder dissent, and you may not receive the full amount
of
your original investment upon exercise of your conversion rights.
Highlands
Acquisition Corp.
Our
business combination may require us to use substantially all of our cash to
pay
the purchase price. In such a case, because we will not know how many
stockholders may exercise such conversion rights, we may need to arrange third
party financing to help fund our business combination in case a larger
percentage of stockholders exercise their conversion rights than we expect.
Additionally, even if our business combination does not require us to use
substantially all of our cash to pay the purchase price, if a significant number
of stockholders exercise their conversion rights, we will have less cash
available to use in furthering our business plans following a business
combination and may need to arrange third party financing. We have not taken
any
steps to secure third party financing for either situation. We cannot assure
you
that we will be able to obtain such third party financing on terms favorable
to
us or at all.
Our
founders, including our officers and directors, control a substantial interest
in us and thus may influence certain actions requiring a stockholder vote.
Our
founders (including all of our officers and directors) collectively own
approximately 23.3% of our issued and outstanding shares of common stock. None
of our founders, officers, directors or their affiliates has indicated any
intention to purchase additional units or shares of common stock from persons
in
the open market or in private transactions. However, if a significant number
of
stockholders vote, or indicate an intention to vote, against a proposed business
combination, our founders, officers, directors or their affiliates could make
such purchases in the open market or in private transactions in order to
influence the vote. In addition, Kanders & Company and the Ivy Affiliates
have agreed to purchase 1,000,000 units from us in a private placement that
will
occur immediately prior to the consummation of our initial business combination.
The holders of these units may vote the shares of common stock included therein
in any manner they choose (except they have agreed to vote such shares in favor
of our initial business combination in connection with a vote on our proposed
initial business combination). Accordingly, they may be able to effectively
influence the outcome of all matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions other than approval of our initial business combination.
Warren
B.
Kanders, Russell F. Warren, Jr., two members of our Board of Directors, and
our
founders have entered into a stockholders agreement that will continue to be
in
effect for a period of three years after our initial business combination.
If a
party to the agreement or an affiliate thereof is nominated to serve as a
director, all of the parties to the agreement have agreed to vote in favor
of
the nominee. Since the parties to the agreement currently hold or have voting
control over approximately 23% of our outstanding common stock, and will be
purchasing the co-investment units, these parties will have significant
influence in electing our directors.
Our
Board
of Directors is and will be divided into three classes, each of which will
generally serve for a term of three years with only one class of directors
being
elected in each year. It is unlikely that there will be an annual meeting of
stockholders to elect new directors prior to the consummation of a business
combination, in which case all of the current directors will continue in office
until at least the consummation of the business combination. If there is an
annual meeting, as a consequence of our ‘‘staggered’’ Board of Directors, only a
minority of the Board of Directors will be considered for election and our
founders, because of their ownership position, will have considerable influence
regarding the outcome. Accordingly, our founders will continue to exert control
at least until the consummation of a business combination.
Highlands
Acquisition Corp.
Our
outstanding warrants may have an adverse effect on the market price of our
common stock and make it more difficult to effect a business combination.
We
have
issued warrants to purchase 13,800,000 shares of common stock as part of the
units sold in our initial public offering. We also have sold the founders’
warrants as part of the founders’ units to purchase 3,450,000 shares of common
stock, the sponsors’ warrants to purchase 3,250,000 shares of common stock and
may sell 1,000,000 co-investment units, which include 1,000,000 co-investment
warrants to purchase 1,000,000 shares of common stock. To the extent we issue
shares of common stock to effect a business combination, the potential for
the
issuance of a substantial number of additional shares upon exercise of these
warrants could make us a less attractive acquisition vehicle in the eyes of
a
target business. These warrants, when exercised, will increase the number of
issued and outstanding shares of our common stock and reduce the value of the
shares issued to complete the business combination. Accordingly, our warrants
may make it more difficult to effectuate a business combination or increase
the
cost of acquiring the target business. Additionally, the sale, or even the
possibility of a sale, of the shares underlying the warrants could have an
adverse effect on the market price for our securities or on our ability to
obtain future financing. If and to the extent these warrants are exercised,
you
may experience a substantial dilution of your holdings.
If
our founders or the purchasers of the sponsors’ warrants or co-investment units
exercise their registration rights, it may have an adverse effect on the market
price of our common stock and the existence of these rights may make it more
difficult to effect a business combination.
Our
founders are entitled to demand that we register the resale of the founders’
common stock and warrants at any time commencing 30 days after we consummate
a
business combination. Additionally, purchasers of the sponsors’ warrants are
entitled to demand that we register the resale of their warrants and underlying
shares of common stock at any time commencing 30 days after we consummate a
business combination. The purchasers of the co-investment units are entitled
to
demand that we register the resale of their co-investment units and underlying
securities at any time commencing 30 days after we consummate a business
combination. We will bear the cost of registering these securities. If such
individuals exercise their registration rights with respect to all of their
securities, then there will be an additional 4,450,000 shares of common stock
and 7,700,000 warrants (as well as 7,700,000 shares of common stock underlying
the warrants) eligible for trading in the public market. The presence of these
additional securities trading in the public market may have an adverse effect
on
the market price of our common stock. In addition, the existence of these rights
may make it more difficult to effectuate a business combination or increase
the
cost of acquiring the target business, as the stockholders of the target
business may be discouraged from entering into a business combination with
us or
will request a higher price for their securities because of the potential
negative effect the exercise of such rights may have on the trading market
for
our common stock.
If
we effect a business combination with a company located outside of the United
States, we would be subject to a variety of additional risks that may negatively
impact our operations.
We
may
effect a business combination with a company located outside of the United
States. If we did, we would be subject to any special considerations or risks
associated with companies operating in the target business’ home jurisdiction,
including any of the following:
•
rules
and regulations or currency conversion or corporate withholding taxes on
individuals;
•
tariffs
and trade barriers;
•
regulations related to customs and import/export matters;
•
longer
payment cycles;
•
tax
issues, such as tax law changes and variations in tax laws as compared to the
United States;
•
currency fluctuations and exchange controls;
•
challenges in collecting accounts receivable;
Highlands
Acquisition Corp.
•
cultural and language differences;
•
employment regulations;
•
crime,
strikes, riots, civil disturbances, terrorist attacks and wars; and
•
deterioration of political relations with the United States.
We
cannot
assure you that we would be able to adequately address these additional risks.
If we were unable to do so, our operations might suffer.
If
we effect a business combination with a company located outside of the United
States, the laws applicable to such company will likely govern all of our
material agreements and we may not be able to enforce our legal rights.
If
we
effect a business combination with a company located outside of the United
States, the laws of the country in which such company operates will govern
almost all of the material agreements relating to its operations. We cannot
assure you that the target business will be able to enforce any of its material
agreements or that remedies will be available in this new jurisdiction. The
system of laws and the enforcement of existing laws in such jurisdiction may
not
be as certain in implementation and interpretation as in the United States.
The
inability to enforce or obtain a remedy under any of our future agreements
could
result in a significant loss of business, business opportunities or capital.
Additionally, if we acquire a company located outside of the United States,
it
is likely that substantially all of our assets would be located outside of
the
United States and some of our officers and directors might reside outside of
the
United States. As a result, it may not be possible for investors in the United
States to enforce their legal rights, to effect service of process upon our
directors or officers or to enforce judgments of United States courts predicated
upon civil liabilities and criminal penalties of our directors and officers
under Federal securities laws.
If
we are deemed to be an investment company, we may be required to institute
burdensome compliance requirements and our activities may be restricted, which
may make it difficult for us to complete a business combination.
A
company
that, among other things, is or holds itself out as being engaged primarily,
or
proposes to engage primarily, in the business of investing, reinvesting, owning,
trading or holding certain types of securities would be deemed an investment
company under the Investment Company Act of 1940. Since we will invest the
proceeds held in the trust account, it is possible that we could be deemed
an
investment company. Notwithstanding the foregoing, we do not believe that our
anticipated principal activities will subject us to the Investment Company
Act
of 1940. To this end, the proceeds held in trust may be invested by the trustee
only in United States ‘‘government securities’’ within the meaning of Section
2(a)(16) of the Investment Company Act of 1940 having a maturity of 180 days
or
less or in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act of 1940. By restricting the
investment of the proceeds to these instruments, we intend to meet the
requirements for the exemption provided in Rule 3a-1 promulgated under the
Investment Company Act of 1940.
If
we are
nevertheless deemed to be an investment company under the Investment Company
Act
of 1940, we may be subject to certain restrictions that may make it more
difficult for us to complete a business combination, including:
•
restrictions on the nature of our investments; and
•
restrictions on the issuance of securities.
In
addition, we may have imposed upon us certain burdensome requirements,
including:
•
registration as an investment company;
Highlands
Acquisition Corp.
•
adoption of a specific form of corporate structure; and
•
reporting, record keeping, voting, proxy, compliance policies and procedures
and
disclosure requirements and other rules and regulations.
Compliance
with these additional regulatory burdens would require additional expense for
which we have not allotted.
Because
we must furnish our stockholders with target business financial statements,
we
may not be able to complete a business combination with some prospective target
businesses.
We
will
provide stockholders with audited financial statements of the prospective target
business as part of the proxy solicitation materials sent to stockholders to
assist them in assessing the target business. In all likelihood, these financial
statements will need to be prepared in accordance with United States generally
accepted accounting principles. We cannot assure you that any particular target
business identified by us as a potential acquisition candidate will have
financial statements prepared in accordance with United States generally
accepted accounting principles or that the potential target business will be
able to prepare its financial statements in accordance with United States
generally accepted accounting principles. To the extent that this requirement
cannot be met, we may not be able to acquire the proposed target business.
These
financial statement requirements may limit the pool of potential target
businesses with which we may combine.
Compliance
with the Sarbanes-Oxley Act of 2002 will require substantial financial and
management resources and may increase the time and costs of completing an
acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report
on
our system of internal controls and requires that we have such system of
internal controls audited beginning with our Annual Report on Form 10-K for
the
year ending December 31, 2008. If we fail to maintain the adequacy of our
internal controls, we could be subject to regulatory scrutiny, civil or criminal
penalties and/or stockholder litigation. Any inability to provide reliable
financial reports could harm our business. Section 404 of the Sarbanes-Oxley
Act
also requires that our independent registered public accounting firm report
on
management’s evaluation of our system of internal controls. A target company may
not be in compliance with the provisions of the Sarbanes-Oxley Act regarding
adequacy of their internal controls. The development of the internal controls
of
any such entity to achieve compliance with the Sarbanes-Oxley Act may increase
the time and costs necessary to complete any such acquisition. Furthermore,
any
failure to implement required new or improved controls, or difficulties
encountered in the implementation of adequate controls over our financial
processes and reporting in the future, could harm our operating results or
cause
us to fail to meet our reporting obligations. Inferior internal controls could
also cause investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our stock.
Risks
Related to the Healthcare Industry
Business
combinations with companies with operations in the healthcare industry entail
special considerations and risks. If we are successful in completing a business
combination with a target business with operations in the healthcare industry,
we will be subject to, and possibly adversely affected by, the following risks:
The
healthcare industry’s highly competitive market and our inability to compete
effectively could adversely affect our business prospects and results of
operations.
Our
target businesses may operate in highly competitive markets against both large
and small companies. Our target business may not be able to offer products
similar to, or more desirable than, those of our competitors or at a price
comparable to that of our competitors. Compared to our target business, many
of
the competitors may have:
Highlands
Acquisition Corp.
•
greater
financial and other resources;
•
more
widely accepted products;
•
a
larger number of endorsements from healthcare professionals;
•
a
larger product portfolio;
•
superior ability to maintain new product flow;
•
greater
research and development and technical capabilities;
•
patent
portfolios that may present an obstacle to the conduct of our business;
•
stronger name recognition;
•
larger
sales and distribution networks; and
•
international manufacturing facilities that enable them to avoid the
transportation costs and foreign import duties associated with shipping our
products manufactured in the United States to international customers.
Accordingly,
we may be at a competitive disadvantage with respect to our competitors. These
factors may materially impair our ability to develop and sell our products
following our business combination.
If
our target business cannot develop or license new products or product
enhancements or find new applications for existing products, we will not remain
competitive.
Companies
operating in the healthcare market must continually develop innovative new
products before the competition renders those products obsolete. Our success
and
our ability to increase revenues following a business combination will depend,
in part, on our ability to develop, license, acquire and distribute new and
innovative products, enhance our existing products with new technology and
find
new applications for our existing products. However, we may not be successful
in
developing or introducing new products, enhancing existing products or finding
new applications for our existing products. We also may not be successful in
manufacturing, marketing and distributing products in a cost-effective manner,
establishing relationships with marketing partners, obtaining coverage and
satisfactory reimbursement for our future products or product enhancements
or
obtaining required regulatory clearances and approvals in a timely fashion
or at
all. If we fail to keep pace with continued new product innovation or
enhancement or fail to successfully commercialize our new or enhanced products,
our competitive position, financial condition and results of operations could
be
materially and adversely affected.
In
addition, if any of our new or enhanced products contain undetected errors
or
defects, especially when first introduced, or if new applications that we
develop for existing products do not work as planned, our ability to market
these and other products could be substantially delayed, and we could ultimately
become subject to product liability litigation, resulting in lost revenues,
potential damage to our reputation and/or delays in regulatory clearance. In
addition, obtaining approval and acceptance of our products by physicians,
physical therapists and other professionals that recommend and prescribe our
products could be adversely affected.
Sales
revenue may decline if third-party distributors and independent sales
representatives do not dedicate a sufficient level of marketing energy and
focus
to the products produced by our target business.
Companies
in the healthcare industry often utilize third-party distributors and
independent sales representatives to distribute product. These third-party
distributors and independent sales representatives maintain the relationships
with the hospitals, doctors, and other healthcare professionals that purchase,
use and recommend the use of products and services. Some of the independent
sales representatives that sell our target business’ product may also sell our
competitors’ products. These sales representatives may not dedicate the
necessary effort to market and sell our products. If we fail to attract and
retain third-party distributors and skilled independent sales representatives
or
fail to adequately train and monitor the efforts of the third-party distributors
and sales representatives that market and sell our products, or if our existing
third-party distributors and independent sales representatives choose not to
carry our products, our results of operations and future growth could be
adversely affected.
Highlands
Acquisition Corp.
If
we are required to obtain governmental approval of our products, the production
of our products could be delayed and we could be required to engage in a lengthy
and expensive approval process that may not ultimately be successful.
Unanticipated
problems may arise in connection with the development of new products or
technologies, and many such efforts may ultimately be unsuccessful. In addition,
the testing or marketing of products may require obtaining government approvals,
which may be a lengthy and expensive process with an uncertain outcome. Delays
in commercializing products may result in the need to seek additional capital,
potentially diluting the interests of investors. These various factors may
result in abrupt advances and declines in the price of our securities and,
in
some cases, may have a broad effect on the prices of securities of companies
in
the healthcare industry generally.
Healthcare
reform, managed care and buying groups have exerted downward pressure on the
prices of healthcare products and services.
Healthcare
reform and the healthcare industry’s response to rising costs have resulted in a
significant expansion of managed care organizations and buying groups. This
growth of managed care and the advent of buying groups in the United States
has
caused a shift toward coverage and payments based on more cost-effective
treatment alternatives. Buying groups enter into preferred supplier arrangements
with one or more manufacturers of medical products in return for price discounts
to members of these buying groups. Our target business’ failure to obtain new
preferred supplier commitments from major group purchasing organizations or
its
failure to retain existing preferred supplier commitments could adversely affect
the company’s sales and profitability.
Healthcare
products are subject to recalls even after receiving FDA or foreign regulatory
clearance or approval.
Products
and therapeutics are subject to ongoing reporting regulations that require
companies to report to the FDA or similar governmental authorities in other
countries if a product causes, or contributes to, death or serious injury,
or if
it malfunctions and would be likely to cause, or contribute to, death or serious
injury if the malfunction were to recur. The FDA and similar governmental
authorities in other countries have the authority to require a company to recall
its product in the event of material deficiencies or defects. In addition,
companies with a defective product may voluntarily recall their product even
in
the absence of government intervention. Any recall would divert managerial
and
financial resources and could harm our target business’ reputation with its
customers and with the healthcare professionals that use, prescribe and
recommend our products. Our target business could have product recalls that
result in significant costs to us in the future, and such recalls could have
a
material adverse effect on our business.
Companies
who lose patent protection or inadvertently reveal trade secrets may lose market
share to competitors and may not be able to operate profitably.
Companies
in the healthcare industry rely upon a combination of patents, trade secrets,
copyrights, trademarks, license agreements and contractual provisions to
establish and protect the intellectual property rights in their products and
the
processes for the development, manufacture and marketing of their products.
If
non-patented trade secrets are revealed to the public, our competitors could
utilize the information to create their own products that incorporate our target
business’ intellectual property. In addition, our target business’ patents could
be circumvented, invalidated or declared unenforceable. Any proceedings before
the U.S. Patent and Trademark Office could result in adverse decisions as to
the
priority of our inventions and the narrowing or invalidation of claims in issued
patents. We could also incur substantial costs in any such proceedings. In
addition, our target business may hold patent and other intellectual property
licenses from third parties for some of our business’ products and on
technologies that are necessary in the design and manufacture of some of our
business’ products. The loss of such licenses could prevent us from
manufacturing, marketing and selling these products, which could have a material
adverse effect on our business.
Highlands
Acquisition Corp.
Patent
litigation may affect a healthcare company’s operational and financial results
even if the company ultimately prevails.
Litigation
involving patents and other intellectual property rights is common in the
healthcare industry, and healthcare companies have used intellectual property
litigation in an attempt to gain a competitive advantage. Our target business
may become a party to lawsuits involving patents or other intellectual property.
Such litigation is costly and time consuming. If our target business loses
any
of these proceedings, a court or a similar foreign governing body could
invalidate or render unenforceable our owned or licensed patents, require us
to
pay significant damages, seek licenses and/or pay ongoing royalties to third
parties, require us to redesign our products, or prevent us from manufacturing,
using or selling our products, any of which would have a material adverse effect
on our business and results of operations and financial condition.
Our
target business may expand into new markets through the development of new
products and our expansion may not be successful.
Our
target business may attempt to expand into new markets through the development
of new product applications based on the company’s existing specialized
technology and design capabilities. These efforts could require it to make
substantial investments, including significant research, development,
engineering and capital expenditures for new, expanded or improved manufacturing
facilities which would divert resources from other aspects of its business.
Expansion into new markets may be costly and may not result in any benefit
to
our target business. Specific risks in connection with expanding into new
markets include the failure of customers in new markets to accept our products
and price competition in new markets. Such expansion efforts into new markets
could be unsuccessful.
Consolidation
in the healthcare industry could have an adverse effect on our revenues and
results of operations.
Many
healthcare companies are consolidating to create larger companies. As the
healthcare industry consolidates, competition to provide products and services
to industry participants will become more intense. In addition, many of our
potential target business’ customers are also consolidating, and these customers
and other industry participants may try to use their purchasing power to
negotiate price concessions or reductions for the products that our target
business manufactures and markets. If our target business is forced to reduce
its prices because of consolidation in the healthcare industry, the company’s
revenues could decrease, and its business, financial condition and results
of
operations could be adversely affected.
Companies
in the healthcare industry are often subject to environmental and health and
safety requirements, and may be liable for contamination or other harm caused
by
hazardous materials that they use.
Companies
in the healthcare industry often utilize hazardous materials to manufacture
their products. These materials are subject to federal, state, local and foreign
environmental requirements, including regulations governing the use,
manufacture, handling, storage and disposal of hazardous materials and related
occupational health and safety regulations. Our target business could incur
liability as a result of any contamination or injury and could also be held
responsible for costs relating to any contamination of its facilities and
third-party waste disposal sites. Our target business could incur significant
expenses in the future relating to any failure to comply with environmental
laws. Any such future expenses or liability could have a material adverse effect
on our financial condition. The enactment of stricter laws or regulations,
the
stricter interpretation of existing laws and regulations or the requirement
to
undertake the investigation or remediation of currently unknown environmental
contamination at our target company’s business or third party sites might
require it to make additional expenditures, which could be material.
Highlands
Acquisition Corp.
Changes
in government regulation of health insurance could negatively affect our
business prospects.
Several
states have recently enacted or are considering legislative initiatives intended
to provide healthcare insurance for all individuals. Similarly, some of the
leading candidates running for President of the United States in the Democratic
and Republican parties have announced that they intend to make healthcare
insurance reform a major part of their respective platforms. It is too early
to
understand the specific provisions that are being proposed or assess the
likelihood that they will be enacted. Nonetheless, there may be legislative
or
regulatory changes at the state or federal level that could negatively affect
(i) our ability to make an acquisition or (ii) after an acquisition, the
business prospects of such an acquisition. If we are unable to comply with
governmental regulations affecting the healthcare industry, it could negatively
affect our operations.
There
is
extensive government regulation of certain healthcare businesses as well as
various proposals at the federal government level to reform the healthcare
system. Changes to the existing regulatory framework and/or implementation
of
various reform initiatives could adversely affect certain sections of the
healthcare industry. If we are unable to adhere to these requirements, it could
result in the imposition of penalties and fines against us, and could also
result in the imposition of restrictions on our business and operations.
Furthermore, the costs of compliance also could have a material adverse effect
on our profitability and operations.
Highlands
Acquisition Corp.