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In June 2013, we issued 2,012,500
shares of Class A common stock to our sponsors for $25,000 in cash, at a purchase price of approximately $0.01 per share, in connection with our
organization, as follows:
Name
|
|
|
|
Number of
Shares
|
|
Relationship to Us
|
Eric S.
Rosenfeld
|
|
|
|
|
1,128,750
|
|
|
Chairman and Chief Executive Officer
|
DKU 2013,
LLC
|
|
|
|
|
378,750
|
|
|
Sponsor
|
The K2
Principal Fund L.P.
|
|
|
|
|
505,000
|
|
|
Sponsor
|
In July 2013, Eric Rosenfeld
transferred 15,000 shares to each of John P. Schauerman, Jeffrey M. Moses, Margery Kraus, each a member of the board of directors, and Joel Greenblatt,
our special advisor, at the same purchase price originally paid by him for such shares.
In September 2013, we effected a stock
dividend of 0.2 shares of Class A common stock for each outstanding share of Class A common stock, resulting in our sponsors owning an aggregate of
2,415,000 insider shares. Thereafter, Mr. Rosenfeld transferred 224,437 shares to David Sgro, 96,188 shares to Gregory Monahan and 12,825 shares to
Victor Bonilla, at the same purchase price originally paid by him for such shares.
On October 3, 2013, we amended our
certificate of incorporation to reclassify our authorized capital into a single class of common stock such that each share of Class A common stock
became a share of common stock.
If the underwriters do not exercise all
or a portion of their over-allotment option, our sponsors will forfeit up to an aggregate of 315,000 insider shares in proportion to the portion of the
over-allotment option that was not exercised. If such shares are forfeited, we will record the forfeited shares as treasury stock and simultaneously
retire the shares. Upon receipt, such forfeited shares would then be immediately cancelled which would result in the retirement of the treasury shares
and a corresponding charge to additional paid-in capital.
If the underwriters determine the size
of the offering should be increased (including pursuant to Rule 462(b) under the Securities Act) or decreased, a share dividend or a contribution back
to capital, as applicable, would be effectuated in order to maintain our sponsors ownership at a percentage of the number of shares of common
stock to be sold in this offering. An increase in offering size of up to 20% could result in the per-share conversion or liquidation price decreasing
by as much as $0.09.
Our sponsors and EarlyBirdCapital have
committed that they and/or their designees will purchase, pursuant to a written subscription agreement with us and Graubard Miller, as escrow agent,
the 542,500 private units (500,500 units by our sponsors and 42,000 units by EarlyBirdCapital), for a total purchase price of $5,425,000, from us.
These purchases will take place on a private placement basis simultaneously with the consummation of this offering. Our sponsors and EarlyBirdCapital
have also agreed that if the over-allotment option is exercised by the underwriters in full or in part, they will purchase from us at a price of $10.00
per unit the number of private units (up to a maximum of 65,625 private units) that is necessary to maintain in the trust account an amount equal to
approximately $10.20 per share sold to the public in this offering. These additional private units will be purchased in a private placement that will
occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option. The foregoing purchases will only be made by
our sponsors and EarlyBirdCapital, Inc. (and/or its designees) if they are able to do so in accordance with Regulation M and Sections 9(a)(2) and 10(b)
and Rule 10b-5 of the Exchange Act. The purchase price for the private units will be delivered to Graubard Miller, our counsel in connection with this
offering, who will also be acting solely as escrow agent in connection with the private sale of private units, at least 24 hours prior to the date of
this prospectus to hold in a non-interest bearing account until we consummate this offering. Graubard Miller will deposit the purchase price into the
trust account simultaneously with the consummation of the offering or the over-allotment option, as the case may be. The private units are identical to
the units sold in this offering. However, the holders have agreed (A) to vote their private shares in favor of any proposed business combination, (B)
not to propose, or vote in favor of, an
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amendment to our amended and
restated certificate of incorporation with respect to our pre-business combination activities prior to the consummation of such a business combination,
(C) not to convert any private shares into the right to receive cash from the trust account in connection with a stockholder vote to approve our
proposed initial business combination or a vote to amend the provisions of our amended and restated certificate of incorporation relating to
stockholders rights or pre-business combination activity and (D) that such private shares shall not participate in any liquidating distribution
upon winding up if a business combination is not consummated. Additionally, the purchasers have agreed not to transfer, assign or sell any of the
private units (except to certain permitted transferees) until the completion of our initial business combination.
Our sponsors have agreed that if, in
order to consummate any initial business combination, the holders of insider shares or private units are required by the sellers of any target business
to contribute back to our capital a portion of any such securities for cancellation by our company, they will contribute back to our capital a
proportionate number of insider shares or private units, as applicable, pro rata with the other holders of insider shares or private units, as
applicable. However, they will only be able to contribute back to our capital such securities if such contribution is consistent with Regulation M and
Section 10(b) and Rule 10b-5 of the Exchange Act.
In order to meet our working capital
needs following the consummation of this offering, our sponsors, officers and directors may, but are not obligated to, loan us funds, from time to time
or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would
either be paid upon consummation of our initial business combination, without interest, or, at the lenders discretion, up to $500,000 of the
notes may be converted upon consummation of our business combination into additional private units at a price of $10.00 per unit (which, for example,
would result in the holders being issued 55,000 shares of common stock if $500,000 of notes were so converted since the 50,000 rights included in the
private units would result in the issuance of 5,000 shares of common stock upon the closing of our business combination). Our stockholders have
approved the issuance of the shares of common stock upon conversion of such notes, to the extent the holder wishes to so convert them at the time of
the consummation of our initial business combination. If we do not complete a business combination, the loans will not be repaid.
The holders of our insider shares
issued and outstanding on the date of this prospectus, as well as the holders of the private units (and underlying securities) and any shares our
sponsors, officers, directors or their affiliates may be issued in payment of working capital loans made to us, will be entitled to registration rights
pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of a majority of these securities are entitled to
make up to two demands that we register such securities. The holders of the majority of the insider shares can elect to exercise these registration
rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a
majority of the private units or shares issued in payment of working capital loans made to us can elect to exercise these registration rights at any
time after we consummate a business combination. In addition, the holders have certain piggy-back registration rights with respect to
registration statements filed subsequent to our consummation of our initial business combination. We will bear the expenses incurred in connection with
the filing of any such registration statements.
As of June 30, 2013, Eric S. Rosenfeld
loaned to us an aggregate of $65,000 to cover expenses related to this offering. The loan is payable without interest on the earlier of (i) June 26,
2014, (ii) the date on which we consummate our initial public offering or (iii) the date on which we determine to not proceed with our initial public
offering. We intend to repay this loan from the proceeds of this offering not being placed in the trust account.
Crescendo Advisors II, LLC, an
affiliate of Eric S. Rosenfeld, has agreed that, commencing on the date of this prospectus through the earlier of our consummation of our initial
business combination or our liquidation, it will make available to us certain general and administrative services, including office space, utilities
and administrative support, as we may require from time to time. We have agreed to pay Crescendo Advisors II, LLC $10,000 per month for these services.
Eric S. Rosenfeld is the majority holder of Crescendo Advisors II, LLC. Accordingly, Eric S. Rosenfeld will benefit from the transaction to the extent
of his interest
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in Crescendo Advisors II, LLC.
However, this arrangement is solely for our benefit and is not intended to provide Eric S. Rosenfeld compensation in lieu of a salary. We believe,
based on rents and fees for similar services in the New York City metropolitan area, that the fee charged by Crescendo Advisors II, LLC is at least as
favorable as we could have obtained from an unaffiliated person.
Other than the fees described above, no
compensation or fees of any kind, including finders fees, consulting fees or other similar compensation, will be paid to any of our sponsors,
officers, directors or their respective affiliates, for services rendered to us prior to, or in connection with the consummation of our initial
business combination (regardless of the type of transaction that it is). However, such individuals will receive reimbursement for any out-of-pocket
expenses incurred by them in connection with activities on our behalf, such as identifying potential target businesses, performing business due
diligence on suitable target businesses and business combinations as well as traveling to and from the offices, plants or similar locations of
prospective target businesses to examine their operations. There is no limit on the amount of out-of-pocket expenses reimbursable by us; provided,
however, that to the extent such expenses exceed the available proceeds not deposited in the trust account and the interest income earned on the
amounts held in the trust account, such expenses would not be reimbursed by us unless we consummate an initial business combination.
After our initial business combination,
members of our management team who remain with us may be paid consulting, board, management or other fees from the combined company with any and all
amounts being fully disclosed to stockholders, to the extent then known, in the proxy solicitation materials furnished to our stockholders. It is
unlikely the amount of such compensation will be known at the time of a stockholder meeting held to consider our initial business combination, as it
will be up to the directors of the post-combination business to determine executive and director compensation. In this event, such compensation will be
publicly disclosed at the time of its determination in a Current Report on Form 8-K, as required by the SEC.
All ongoing and future transactions
between us and any of our officers and directors or their respective affiliates will be on terms believed by us to be no less favorable to us than are
available from unaffiliated third parties. Such transactions will require prior approval by our audit committee and a majority of our uninterested
independent directors, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such
transaction unless our audit committee and a majority of our disinterested independent directors determine that the terms of such transaction are no
less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties.
Related Party Policy
Our Code of Ethics requires us to
avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines
approved by the board of directors (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount
involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive
officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our shares of common stock, or (c) immediate family
member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of
being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has
interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a
member of his or her family, receives improper personal benefits as a result of his or her position.
We also require each of our directors
and executive officers to annually complete a directors and officers questionnaire that elicits information about related party
transactions.
These procedures are intended to
determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a
director, employee or officer.
To further minimize conflicts of
interest, we have agreed not to consummate our initial business combination with an entity that is affiliated with any of our sponsors, officers or
directors unless we have
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obtained an opinion from an
independent investment banking firm and the approval of a majority of our disinterested and independent directors (if we have any at that time) that
the business combination is fair to our unaffiliated stockholders from a financial point of view. Furthermore, in no event will any of our sponsors,
officers, directors or their respective affiliates be paid any finders fee, consulting fee or other similar compensation prior to, or for any
services they render in order to effectuate, the consummation of our initial business combination (regardless of the type of transaction that it
is).
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DESCRIPTION OF
SECURITIES
General
Our certificate of incorporation
currently authorizes the issuance of 15,000,000 shares of common stock, par value $0.0001, and 1,000,000 shares of preferred stock, par value $0.0001.
As of the date of this prospectus, 2,415,000 shares of common stock are outstanding, held by ten stockholders of record. No shares of preferred stock
are currently outstanding. The following description summarizes all of the material terms of our securities. Because it is only a summary, it may not
contain all the information that is important to you. For a complete description you should refer to our amended and restated certificate of
incorporation and bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part.
Common Stock
Our holders of record of our common
stock are entitled to one vote for each share held on all matters to be voted on by stockholders. In connection with any vote held to approve our
initial business combination, our sponsors, as well as all of our officers and directors, have agreed to vote their respective shares of common stock
owned by them immediately prior to this offering, including both the insider shares and the private shares, and any shares acquired in this offering or
following this offering in the open market, in favor of the proposed business combination.
We will consummate our initial business
combination only if we have net tangible assets of at least $5,000,001 upon such consummation and a majority of the outstanding shares of common stock
voted are voted in favor of the business combination.
Our board of directors is 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. There is no
cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares eligible to vote for the
election of directors can elect all of the directors.
Pursuant to our amended and restated
certificate of incorporation, if we do not consummate our initial business combination within 18 months from the closing of this offering (or 24 months
from the closing of this offering if the extension criteria described elsewhere in this prospectus is met), we will (i) cease all operations except for
the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding
public shares, which redemption will completely extinguish public stockholders rights as stockholders (including the right to receive further
liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the
approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our
obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Our sponsors have agreed to waive their
rights to share in any distribution with respect to their insider shares and private shares.
Our stockholders have no conversion,
preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the shares of common stock, except that
public stockholders have the right to have their shares of common stock converted to cash equal to their pro rata share of the trust account if they
vote on the proposed business combination and the business combination is completed. Additionally, if we were to seek to amend any provisions of our
amended and restated certificate of incorporation relating to stockholders rights or pre-business combination activity, dissenting public
stockholders will have the right to convert their public shares to cash in connection with any such vote. In either of such events, converting
stockholders would be paid their pro rata portion of the trust account promptly following consummation of the business combination or the approval of
the amendment to the amended and restated certificate of incorporation. If the business combination is not consummated or the amendment is not
approved, stockholders will not be paid such amounts.
Preferred Stock
There are no shares of preferred stock
outstanding. Our amended and restated certificate of incorporation authorizes the issuance of 1,000,000 shares of preferred stock with such
designation, rights and preferences as
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may be determined from time to time
by our board of directors. No shares of preferred stock are being issued or registered in this offering. Accordingly, our board of directors is
empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of common stock. However, the underwriting agreement prohibits us, prior to a business
combination, from issuing preferred stock which participates in any manner in the proceeds of the trust account, or which votes as a class with the
common stock on our initial business combination. We may issue some or all of the preferred stock to effect our initial business combination. In
addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although we do not
currently intend to issue any shares of preferred stock, we reserve the right to do so in the future.
Rights
Each holder of a right will
automatically receive one-tenth (1/10) of a share of common stock upon consummation of our initial business combination, even if the holder of such
right converted all shares of common stock held by him, her or it in connection with the initial business combination or an amendment to our amended
and restated certificate of incorporation with respect to our pre-business combination activities. No additional consideration will be required to be
paid by a holder of rights in order to receive his, her or its additional shares of common stock upon consummation of an initial business combination
as the consideration related thereto has been included in the unit purchase price paid for by investors in this offering. The shares issuable upon
exchange of the rights will be freely tradable (except to the extent held by affiliates of ours). If we enter into a definitive agreement for a
business combination in which we will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same
per share consideration the holders of the common stock will receive in the transaction on an as-converted into common stock basis. If we are unable to
complete an initial business combination within the required time period and we liquidate the funds held in the trust account, holders of rights will
not receive any of such funds with respect to their rights, nor will they receive any distribution from our assets held outside of the trust account
with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the
holders of the rights upon consummation of an initial business combination. Additionally, in no event will we be required to net cash settle the
rights. Accordingly, the rights may expire worthless.
Purchase Option
We have agreed to sell to
EarlyBirdCapital an option to purchase up to a total of 420,000 units at $11.75 per unit. The units issuable upon exercise of this option are identical
to those offered by this prospectus. Accordingly, after the business combination shares of the purchase option will be to purchase 462,000 shares of
common stock as the rights will result in the issuance of 42,000 additional shares for the same aggregate purchase price.
Dividends
We have not paid any cash dividends on
our shares of common stock to date and do not intend to pay cash dividends prior to the completion of our initial business combination. The payment of
cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent
to completion of our initial business combination. The payment of any dividends subsequent to our initial business combination will be within the
discretion of our then board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our
business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
Our Transfer Agent
The transfer agent for our securities
is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004.
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Certain Anti-Takeover Provisions of Delaware Law and our
Amended and Restated Certificate of Incorporation and By-Laws
Staggered board of
directors
Our amended and restated certificate of
incorporation provides that our board of directors will be classified into three classes of directors of approximately equal size. As a result, in most
circumstances, a person can gain control of our board only by successfully engaging in a proxy contest at two or more annual meetings.
Special meeting of
stockholders
Our bylaws provide that special
meetings of our stockholders may be called only by a majority vote of our board of directors, by our president or by our chairman or by our secretary
at the request in writing of stockholders owning a majority of our issued and outstanding capital stock entitled to vote.
Advance notice requirements for
stockholder proposals and director nominations
Our bylaws provide that stockholders
seeking to bring business before our annual meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of
stockholders must provide timely notice of their intent in writing. To be timely, a stockholders notice will need to be delivered to our
principal executive offices not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the
scheduled date of the annual meeting of stockholders. In the event that less than 70 days notice or prior public disclosure of the date of the
annual meeting of stockholders is given, a stockholders notice shall be timely if delivered to our principal executive offices not later than the
10th day following the day on which public announcement of the date of our annual meeting of stockholders is first made or sent by us. Our bylaws also
specify certain requirements as to the form and content of a stockholders meeting. These provisions may preclude our stockholders from bringing
matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.
Authorized but unissued
shares
Our authorized but unissued shares of
common stock and preferred stock are available for future issuances without stockholder approval and could be utilized for a variety of corporate
purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and
unreserved shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
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SHARES ELIGIBLE FOR FUTURE
SALE
Immediately after this offering, we
will have 11,042,500 shares of common stock outstanding, or 12,683,125 shares of common stock if the over-allotment option is exercised in full. Of
these shares, the 8,400,000 shares of common stock sold in this offering, or 9,660,000 shares of common stock if the over-allotment option is exercised
in full, will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by one of our
affiliates within the meaning of Rule 144 under the Securities Act. All of the remaining shares are restricted securities under Rule 144, in that they
were issued in private transactions not involving a public offering.
Rule 144
A person who has beneficially owned
restricted shares of common stock for at least six months would be entitled to sell their shares provided that (1) such person is not deemed to have
been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (2) we are subject to the Exchange Act periodic
reporting requirements for at least three months before the sale. Persons who have beneficially owned restricted shares of common stock for at least
six months but who are our affiliates at the time of, or any time during the three months preceding, a sale, would be subject to additional
restrictions, by which such person would be entitled to sell within any three-month period a number of shares that does not exceed the greater of
either of the following:
|
|
1% of the number of shares then outstanding, which will equal
110,425 shares of common stock immediately after this offering (or 126,831 shares of common stock if the over-allotment option is exercised in full);
and
|
|
|
the average weekly trading volume of the shares of common stock
during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
|
Sales under Rule 144 are also limited
by manner of sale provisions and notice requirements and to the availability of current public information about us.
Restrictions on the Use of Rule 144 by Shell Companies or
Former Shell Companies
Historically, the SEC staff had taken
the position that Rule 144 is not available for the resale of securities initially issued by companies that are, or previously were, blank check
companies, like us. The SEC has codified and expanded this position in the amendments discussed above by prohibiting the use of Rule 144 for resale of
securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a
shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:
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|
the issuer of the securities that was formerly a shell company
has ceased to be a shell company;
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the issuer of the securities is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act;
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the issuer of the securities has filed all Exchange Act reports
and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such
reports and materials), other than Form 8-K reports; and
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at least one year has elapsed from the time that the issuer
filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
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As a result, it is likely that pursuant
to Rule 144, our sponsors will be able to sell their insider shares and private units freely without registration one year after we have completed our
initial business combination assuming they are not an affiliate of ours at that time.
Registration
Rights
The holders of our insider shares
issued and outstanding on the date of this prospectus, as well as the holders of the private units and any shares our sponsors, officers, directors or
their affiliates may be issued in payment of working capital loans made to us, will be entitled to registration rights pursuant to an
agreement
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to be signed prior to or on the
effective date of this offering. The holders of a majority of these securities are entitled to make up to two demands that we register such securities.
The holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date
on which these shares of common stock are to be released from escrow. The holders of a majority of the private units or shares issued in payment of
working capital loans made to us can elect to exercise these registration rights at any time commencing on the date that we consummate our initial
business combination. In addition, the holders have certain piggy-back registration rights with respect to registration statements filed
subsequent to our consummation of our initial business combination. We will bear the expenses incurred in connection with the filing of any such
registration statements.
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We intend to offer our securities
described in this prospectus through the underwriters named below. Subject to the terms and conditions of the underwriting agreement, the underwriters,
through their representative EarlyBirdCapital, Inc., have severally agreed to purchase from us on a firm commitment basis the following respective
number of units at a public offering price less the underwriting discounts and commissions set forth on the cover page of this
prospectus:
Underwriter
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|
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Number of
Units
|
EarlyBirdCapital, Inc.
|
|
|
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|
7,400,000
|
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Aegis Capital
Corp.
|
|
|
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750,000
|
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Ladenburg
Thalmann & Co. Inc.
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|
|
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250,000
|
|
Total
|
|
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|
8,400,000
|
|
A copy of the underwriting agreement
has been filed as an exhibit to the registration statement of which this prospectus forms a part.
As described elsewhere in this
prospectus, our sponsors and EarlyBirdCapital have committed that they and/or their designees will purchase the private units (for an aggregate
purchase price of $5,425,000). These purchases will take place on a private placement basis simultaneously with the consummation of this offering. Our
sponsors and EarlyBirdCapital have also agreed that if the over-allotment option is exercised by the underwriters in full or in part, they will
purchase from us at a price of $10.00 per unit the number of private units (up to a maximum of 65,625 private units) that is necessary to maintain in
the trust account an amount equal to approximately $10.20 per share sold to the public in this offering. These additional private units will be
purchased in a private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option.
The sponsors have further agreed that if the underwriters determine that additional private units must be purchased in order to consummate this
offering based on market conditions at that time, the sponsors will purchase such additional private units. Accordingly, the commitment to make such
purchase has been made prior to the execution of the underwriting agreement referred to above. The determination of whether additional private units
must be purchased will be made by the underwriters prior to the effective date of the registration statement of which this prospectus forms a part and
in no event will such determination occur after the signing of the underwriting agreement. All such purchases would be consummated simultaneously with
the consummation of this offering or the over-allotment option, as the case may be. Furthermore, a breach on the part of the sponsors to purchase any
such additional private units after the execution of the underwriting agreement will in no way release the underwriters from their obligations to
purchase the number of units set forth above in connection with this offering.
Listing of our Securities
We expect our units, common stock and
rights to be quoted on Nasdaq under the symbols QTETU, QTET, and QTETR, respectively. We anticipate that our units
will be listed on Nasdaq on or promptly after the effective date of the registration statement. Following the date the shares of our common stock and
rights are eligible to trade separately, we anticipate that the shares of our common stock and rights will be listed separately and as a unit on
Nasdaq. We cannot guarantee that our securities will be approved for listing on Nasdaq or that they will continue to be listed on Nasdaq after this
offering.
Pricing of this Offering
We have been advised by the
representative that the underwriters propose to offer the units to the public at the offering price set forth on the cover page of this prospectus.
They may allow some dealers concessions not in excess of $0.16 per unit and the dealers may reallow a concession not in excess of $0.01 per unit to
other dealers.
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Prior to this offering there has been
no public market for our securities. The public offering price of the units was negotiated between us and the representative of the underwriters.
Factors considered in determining the prices and terms of the shares include:
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the history of other similarly structured blank check
companies;
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prior offerings of those companies;
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our prospects for acquiring an operating business at attractive
values;
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securities exchange listing requirements;
|
|
|
expected liquidity of our securities; and
|
|
|
general conditions of the securities markets at the time of the
offering.
|
However, although these factors were
considered, the determination of our offering price is more arbitrary than the pricing of securities for an operating company in a particular industry
since the underwriters are unable to compare our financial results and prospects with those of public companies operating in the same
industry.
Over-allotment Option
We have granted the underwriters an
option to buy up to 1,260,000 additional units. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any,
made in connection with this offering. The underwriters have 45 days from the date of this prospectus to exercise this option. If the underwriters
exercise this option, they will each purchase additional units approximately in proportion to the amounts specified in the table
above.
Commissions and Discounts
The following table shows the public
offering price, underwriting discount to be paid by us to the underwriters and the proceeds, before expenses, to us. This information assumes either no
exercise or full exercise by the representative of the underwriters of its over-allotment option.
|
|
|
|
Per Unit
|
|
Without
Over-allotment
|
|
With
Over-allotment
|
Public
offering price
|
|
|
|
$
|
10.00
|
|
|
$
|
84,000,000
|
|
|
$
|
96,600,000
|
|
Discount
|
|
|
|
$
|
0.325
|
|
|
$
|
2,730,000
|
|
|
$
|
3,139,500
|
|
Proceeds
before expenses
(1)
|
|
|
|
$
|
9.675
|
|
|
$
|
81,270,000
|
|
|
$
|
93,460,500
|
|
(1)
|
|
The offering expenses are estimated at $500,000.
|
In addition, we have
agreed to pay for the FINRA-related fees and expenses of the underwriters legal counsel and certain diligence and other fees, which are capped at
$27,000. In connection the merger and acquisition services described below, we have agreed to reimburse certain reasonable costs and expenses incurred
by EarlyBirdCapital in its capacity as our investment banker, which are capped at $15,000 with respect to expenses reimbursed prior to the closing of a
business combination.
No discounts or commissions will be
paid on the sale of the private units.
Merger/Acquisition Fee
We have engaged EarlyBirdCapital as an
investment banker to provide us with merger and acquisition services in connection with our initial business combination. Pursuant to this arrangement,
we anticipate EarlyBirdCapital will assist us in negotiating and structuring the terms of our initial business combination,
86
Table of Contents
valuing and structuring any
proposed offer to be made to a target business and negotiating a letter of intent and/or definitive agreement with any potential target business. We
will pay EarlyBirdCapital a cash fee for such services upon the consummation of our initial business combination in an amount equal to 3.75% of the
total gross proceeds raised in the offering (exclusive of any applicable finders fees which might become payable).
Private Units
EarlyBirdCapital has committed to
purchase 42,000 private units for an aggregate purchase price of $420,000, or $10.00 per unit. EarlyBirdCapital has also agreed that if the
over-allotment option is exercised by the underwriters in full or in part, it will purchase from us at a price of $10.00 per unit the number of private
units (up to a maximum of 6,300 private units) that is necessary to maintain in the trust account an amount equal to approximately $10.20 per share of
common stock sold to the public in this offering. The foregoing purchases will only be made by EarlyBirdCapital, Inc. (and/or its designees) if it is
able to do so in accordance with Regulation M and Sections 9(a)(2) and 10(b) and Rule 10b-5 of the Exchange Act. The private units are identical to the
units being sold in this offering. The private units and underlying shares of common stock and rights have been deemed compensation by FINRA and are
therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of the FINRA Manual. Additionally, the private units purchased by EarlyBirdCapital
may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of
this prospectus except to any selected dealer participating in the offering and the bona fide officers or partners of the underwriter and any such
participating selected dealer. EarlyBirdCapital has agreed that the private units it purchases will not be sold or transferred by it (except to certain
permitted transferees) until after we have completed an initial business combination. We have granted the holders of private units, including
EarlyBirdCapital, the registration rights as described under the section
Shares Eligible for Future Sale Registration
Rights
.
Purchase Option
We have agreed to sell to
EarlyBirdCapital (and/or its designees), for $100, an option to purchase up to a total of 420,000 units exercisable at $11.75 per unit (or an aggregate
exercise price of $4,935,000) commencing on the later of the consummation of a business combination and one year from the date of this prospectus.
Since the option is not exercisable until at the earliest the consummation of a business combination, and the rights will automatically result in the
offering of shares of common stock upon consummation of a business combination, the option will effectively represent the right to purchase 462,000
shares of common stock (which includes the 42,000 shares of common stock issuable for the rights included in the units) for $4,935,000. The purchase
option may be exercised for cash or on a cashless basis, at the holders option, and expires five years from the effective date of the
registration statement of which this prospectus forms a part. The option and the 420,000 units, as well as the 462,000 shares of common stock that may
be issued upon exercise of the option, have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule
5110(g)(1) of FINRAs NASD Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year
period (including the foregoing 180-day period) following the date of this prospectus except to any underwriter and selected dealer participating in
the offering and their bona fide officers or partners. The option grants to holders demand and piggy back rights for periods of five and
seven years, respectively, from the effective date of the registration statement of which this prospectus forms a part with respect to the registration
under the Securities Act of the securities directly and indirectly issuable upon exercise of the option. We will bear all fees and expenses attendant
to registering the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of
units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or our
recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of common stock at a price below its
exercise price.
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Table of Contents
Regulatory Restrictions on Purchase of
Securities
Rules of the SEC may limit the ability
of the underwriters to bid for or purchase our units before the distribution of the units is completed. However, the underwriters may engage in the
following activities in accordance with the rules:
|
|
Stabilizing Transactions.
The underwriters may make bids
or purchases soley for the purpose of preventing or retarding a decline in the price of our units, as long as stabilizing bids do not exceed the
offering price of $10.00 and the underwriters comply with all other applicable rules.
|
|
|
Over-Allotments and Syndicate Coverage Transactions.
The
underwriters may create a short position in our units by selling more of our units than are set forth on the cover page of this prospectus up to the
amount of the over-allotment option. This is known as a covered short position. The underwriters may also create a short position in our units by
selling more of our units than are set forth on the cover page of this prospectus and the units allowed by the over-allotment option. This is known as
a naked short position. If the underwriters create a short position during the offering, the representative may engage in syndicate covering
transactions by purchasing our units in the open market. The representative may also elect to reduce any short position by exercising all or part of
the over-allotment option. Determining what method to use in reducing the short position depends on how the units trade in the aftermarket following
the offering. If the unit price drops following the offering, the short position is usually covered with shares purchased by the underwriters in the
aftermarket. However, the underwriters may cover a short position by exercising the over-allotment option even if the unit price drops following the
offering. If the unit price rises after the offering, then the over-allotment option is used to cover the short position. If the short position is more
than the over-allotment option, the naked short must be covered by purchases in the aftermarket, which could be at prices above the offering
price.
|
|
|
Penalty Bids.
The representative may reclaim a selling
concession from a syndicate member when the units originally sold by the syndicate member are purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
|
Stabilization and syndicate covering
transactions may cause the price of our securities to be higher than they would be in the absence of these transactions. The imposition of a penalty
bid might also have an effect on the prices of our securities if it discourages resales of our securities.
Neither we nor the underwriters make
any representation or prediction as to the effect that the transactions described above may have on the price of our securities. These transactions may
occur on Nasdaq, in the over-the-counter market or on any trading market. If any of these transactions are commenced, they may be discontinued without
notice at any time.
Other Terms
Except as set forth above, we are not
under any contractual obligation to engage any of the underwriters to provide any services for us after this offering, and have no present intent to do
so. However, any of the underwriters may, among other things, introduce us to potential target businesses or assist us in raising additional capital,
as needs may arise in the future. If any underwriter provides services to us after this offering, we may pay the underwriter fair and reasonable fees
that would be determined at that time in an arms length negotiation; provided that no agreement will be entered into with the underwriter and no
fees for such services will be paid to the underwriter prior to the date which is 90 days after the date of this prospectus, unless FINRA determines
that such payment would not be deemed underwriters compensation in connection with this offering.
Indemnification
We have agreed to indemnify the
underwriters against some liabilities, including civil liabilities under the Securities Act, or to contribute to payments the underwriters may be
required to make in this respect.
88
Table of Contents
Selling Restrictions
Canada
Resale Restrictions
We intend to distribute our securities
in the Province of Ontario, Canada (the Canadian Offering Jurisdiction) by way of a private placement and exempt from the requirement that
we prepare and file a prospectus with the securities regulatory authorities in such Canadian Offering Jurisdiction. Any resale of our securities in
Canada must be made under applicable securities laws that will vary depending on the relevant jurisdiction, and which may require resales to be made
under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Canadian
resale restrictions in some circumstances may apply to resales of interests made outside of Canada. Canadian purchasers are advised to seek legal
advice prior to any resale of our securities. We may never be a reporting issuer, as such term is defined under applicable Canadian
securities legislation, in any province or territory of Canada in which our securities will be offered and there currently is no public market for any
of the securities in Canada, and one may never develop. Canadian investors are advised that we have no intention to file a prospectus or similar
document with any securities regulatory authority in Canada qualifying the resale of the securities to the public in any province or territory in
Canada.
Representations of Purchasers
A Canadian purchaser will be required
to represent to us and the dealer from whom the purchase confirmation is received that:
|
|
the purchaser is entitled under applicable provincial securities
laws to purchase our securities without the benefit of a prospectus qualified under those securities laws;
|
|
|
where required by law, that the purchaser is purchasing as
principal and not as agent;
|
|
|
the purchaser has reviewed the text above under Resale
Restrictions; and
|
|
|
the purchaser acknowledges and consents to the provision of
specified information concerning its purchase of our securities to the regulatory authority that by law is entitled to collect the
information.
|
Rights of Action Ontario Purchasers
Only
Under Ontario securities legislation,
certain purchasers who purchase a security offered by this prospectus during the period of distribution will have a statutory right of action for
damages, or while still the owner of our securities, for rescission against us in the event that this prospectus contains a misrepresentation without
regard to whether the purchaser relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days
from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made
for our securities. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for our
securities. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us. In
no case will the amount recoverable in any action exceed the price at which our securities were offered to the purchaser and if the purchaser is shown
to have purchased the securities with knowledge of the misrepresentation, we will have no liability. In the case of an action for damages, we will not
be liable for all or any portion of the damages that are proven to not represent the depreciation in value of our securities as a result of the
misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an
Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of
the relevant statutory provisions.
Enforcement of Legal Rights
All of our directors and officers as
well as the experts named herein are located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon us or those persons. All of our assets and the assets of those persons are located outside of Canada and, as
a
89
Table of Contents
result, it may not be possible to
satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of
Canada.
Collection of Personal Information
If a Canadian purchaser is resident in
or otherwise subject to the securities laws of the Province of Ontario, the Purchaser authorizes the indirect collection of personal information
pertaining to the Canadian purchaser by the Ontario Securities Commission (the OSC) and each Canadian purchaser will be required to
acknowledge and agree that the Canadian purchaser has been notified by us (i) of the delivery to the OSC of personal information pertaining to the
Canadian purchaser, including, without limitation, the full name, residential address and telephone number of the Canadian purchaser, the number and
type of securities purchased and the total purchase price paid in respect of the securities, (ii) that this information is being collected indirectly
by the OSC under the authority granted to it in securities legislation, (iii) that this information is being collected for the purposes of the
administration and enforcement of the securities legislation of Ontario, and (iv) that the title, business address and business telephone number of the
public official in Ontario who can answer questions about the OSCs indirect collection of the information is the Administrative Assistant to the
Director of Corporate Finance, the Ontario Securities Commission, Suite 1903, Box 5520, Queen Street West, Toronto, Ontario, M5H 3S8, Telephone: (416)
593-8086, Facsimile: (416) 593-8252.
90
Table of Contents
Graubard Miller, New York, New York, is
acting as our counsel in connection with the registration of our securities under the Securities Act of 1933, and as such, will pass upon the validity
of the securities offered in this offering. McDermott Will & Emery LLP, New York, New York, is acting as counsel to the
underwriters.
The financial statements of Quartet
Merger Corp. (a company in the development stage) as of June 30, 2013 and for the period from April 19, 2013 (inception) through June 30, 2013
appearing in this prospectus have been audited by Marcum LLP, independent registered public accounting firm, as set forth in their report, thereon
(which contains an explanatory paragraph relating to substantial doubt about the ability of Quartet Merger Corp. (a company in the development stage)
to continue as a going concern as described in Note 1 to the financial statements), appearing elsewhere in this prospectus, and are included in
reliance on such report given on the authority of such firm as an experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL
INFORMATION
We have filed with the SEC a
registration statement on Form S-1 under the Securities Act with respect to the units we are offering by this prospectus. This prospectus does not
contain all of the information included in the registration statement. For further information about us and our shares, you should refer to the
registration statement and the exhibits and schedules filed with the registration statement. Whenever we make reference in this prospectus to any of
our contracts, agreements or other documents, the references are materially complete but may not include a description of all aspects of such
contracts, agreements or other documents, and you should refer to the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document.
Upon completion of this offering, we
will be subject to the information requirements of the Exchange Act and will file annual, quarterly and current event reports, proxy statements and
other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SECs website at
www.sec.gov
. You may also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Washington,
D.C. 20549.
You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
91
Table of Contents
Quartet Merger Corp.
(A Company in the Development
Stage)
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
Page
|
Report of
Independent Registered Public Accounting Firm
|
|
|
|
F-2
|
Financial
Statements
|
|
|
|
|
Balance
Sheets
|
|
|
|
F-3
|
Statements of
Operations
|
|
|
|
F-4
|
Statements of
Changes in Stockholders Equity
|
|
|
|
F-5
|
Statements of
Cash Flows
|
|
|
|
F-6
|
Notes to
Financial Statements
|
|
|
|
F-7
F-13
|
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Shareholders of Quartet Merger
Corp.
We have audited the accompanying
balance sheet of Quartet Merger Corp. (a company in the development stage) (the Company) as of June 30, 2013, and the related statements of
operations, changes in stockholders equity and cash flows for the period from April 19, 2013 (inception) through June 30, 2013. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of Quartet Merger Corp. (a company in the development
stage), as of June 30, 2013, and the results of its operations and its cash flows for the period from April 19, 2013 (inception) through June 30, 2013
in conformity with generally accepted accounting principles (United States).
The accompanying financial statements
have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has no
present revenue, its business plan is dependent on the completion of a financing and the Companys cash and working capital as of June 30, 2013
are not sufficient to complete its planned activities for the upcoming year. These conditions raise substantial doubt about the Companys ability
to continue as a going concern. Managements plans regarding these matters are also described in Notes 1 and 3. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Marcum LLP
Marcum LLP
New York, NY
August 2, 2013, except for Notes
1, 3, 6 and 7 as to which the date is October 3, 2013
F-2
Table of Contents
Quartet Merger Corp.
(A Company In the Development
Stage)
Balance Sheet
June 30, 2013
ASSETS
|
|
|
|
|
|
|
|
Current
assets Cash
|
|
|
|
$
|
77,500
|
|
Deferred
offering costs associated with initial public offering (Note 4)
|
|
|
|
|
52,500
|
|
Total
assets
|
|
|
|
$
|
130,000
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
$
|
563
|
|
Deferred
offering costs payable
|
|
|
|
|
40,000
|
|
Note payable
to stockholder (Note 5)
|
|
|
|
|
65,000
|
|
Total
liabilities
|
|
|
|
|
105,563
|
|
|
Commitments (Note 6)
|
|
|
|
|
|
|
|
Stockholders equity (Notes 6 & 7)
|
|
|
|
|
|
|
Preferred
stock, $.0001 par value
|
|
|
|
|
|
|
Authorized
1,000,000 shares; none issued
|
|
|
|
|
|
|
Common stock,
$.0001 par value
|
|
|
|
|
|
|
Authorized
12,500,000 shares, 2,415,000 shares issued and outstanding
(1)(2)
|
|
|
|
|
241
|
|
Additional
paid-in capital
|
|
|
|
|
24,759
|
|
Deficit
accumulated during the development stage
|
|
|
|
|
(563
|
)
|
Total
stockholders equity
|
|
|
|
|
24,437
|
|
|
Total
liabilities and stockholders equity
|
|
|
|
$
|
130,000
|
|
(1)
|
|
Share amounts have been retroactively restated to reflect (i)
the effect of a stock dividend of 0.2 shares of Class A common stock for each outstanding share of Class A common stock on September 9, 2013 and (ii)
the reclassification of the Class A common stock and Class B common stock into one single class of common stock effectuated on October 3, 2013 (see
Note 7).
|
(2)
|
|
Includes an aggregate of 315,000 shares subject to forfeiture by
the initial stockholders to the extent that the underwriters over-allotment option is not exercised in full. (Note 7)
|
The Accompanying Notes are an Integral Part of these
Financial Statements.
F-3
Table of Contents
Quartet Merger Corp.
(A Company In the Development
Stage)
Statement of Operations
For the period April 19, 2013
(Inception) to June 30, 2013
Formation
costs
|
|
|
|
$
|
496
|
|
General and
administrative costs
|
|
|
|
|
67
|
|
Net loss
|
|
|
|
$
|
(563
|
)
|
|
Weighted
average shares outstanding
(1)(2)
|
|
|
|
|
2,100,000
|
|
|
Basic and
diluted net loss per share
|
|
|
|
$
|
(0.00
|
)
|
(1)
|
|
Share amounts have been retroactively restated to reflect (i)
the effect of a stock dividend of 0.2 shares of Class A common stock for each outstanding share of Class A common stock on September 9, 2013 and (ii)
the reclassification of the Class A common stock and Class B common stock into one single class of common stock effectuated on October 3, 2013 (see
Note 7).
|
(2)
|
|
Excludes an aggregate of 315,000 shares subject to forfeiture by
the initial stockholders to the extent that the underwriters over-allotment option is not exercised in full. (Note 7)
|
The Accompanying Notes are an Integral Part of these
Financial Statements.
F-4
Table of Contents
Quartet Merger Corp.
(A Company In the Development
Stage)
Statement of Changes in Stockholders Equity
For
the period April 19, 2013 (Inception) to June 30, 2013
|
|
|
|
Common Stock
|
|
|
|
|
|
Shares
(1)(2)
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Deficit
Accumulated
During
the
Development
Stage
|
|
Stockholders
Equity
|
Common shares
issued to initial stockholders on June 24, 2013, at approximately $0.01242 per share
|
|
|
|
|
2,415,000
|
|
|
$
|
241
|
|
|
$
|
24,759
|
|
|
$
|
|
|
|
$
|
25,000
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(563
|
)
|
|
|
(563
|
)
|
Balance at
June 30, 2013
|
|
|
|
|
2,415,000
|
|
|
$
|
241
|
|
|
$
|
24,759
|
|
|
$
|
(563
|
)
|
|
$
|
24,437
|
|
(1)
|
|
Share amounts have been retroactively restated to reflect (i)
the effect of a stock dividend of 0.2 shares of Class A common stock for each outstanding share of Class A common stock on September 9, 2013 and (ii)
the reclassification of the Class A common stock and Class B common stock into one single class of common stock effectuated on October 3, 2013 (see
Note 7).
|
(2)
|
|
Includes an aggregate of 315,000 shares subject to forfeiture by
the initial stockholders to the extent that the underwriters over-allotment option is not exercised in full. (Note 7)
|
The Accompanying Notes are an Integral Part of these
Financial Statements.
F-5
Table of Contents
Quartet Merger Corp.
(A Company In the Development
Stage)
Statement of Cash Flows
For the period April 19, 2013
(Inception) to June 30, 2013
Cash flow
from operating activities
|
|
|
|
|
|
|
Net
loss
|
|
|
|
$
|
(563
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Change in
operating assets and liabilities:
|
|
|
|
|
|
|
Increase in
accounts payable
|
|
|
|
|
563
|
|
Net cash
provided by operating activities
|
|
|
|
|
|
|
|
Cash flows
from financing activities
|
|
|
|
|
|
|
Proceeds from
sale of shares of common stock to founding stockholders
|
|
|
|
|
25,000
|
|
Proceeds from
note payable, stockholder
|
|
|
|
|
65,000
|
|
Deferred
costs associated with initial public offering
|
|
|
|
|
(12,500
|
)
|
Net cash
provided by financing activities
|
|
|
|
|
77,500
|
|
Net
increase in cash
|
|
|
|
|
77,500
|
|
Cash at
beginning of period
|
|
|
|
|
|
|
Cash at
end of period
|
|
|
|
$
|
77,500
|
|
|
Non-cash
Financial Activities
|
|
|
|
|
|
|
Accrual of
deferred offering costs
|
|
|
|
$
|
40,000
|
|
The Accompanying Notes are an Integral Part of these
Financial Statements.
F-6
Table of Contents
Note 1 Organization and Plan of Business Operations and
Going Concern Consideration
Quartet Merger Corp. (the
Company) was incorporated in Delaware on April 19, 2013 as a blank check company whose objective is to acquire, through a merger, share
exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination, one or more operating businesses
(a Business Combination).
At June 30, 2013, the Company had not
yet commenced any operations. All activity through June 30, 2013 relates to the Companys formation and the proposed public offering described
below. The Company has selected December 31 as its fiscal year-end.
The Company is considered to be a
development stage company and, as such, the Companys financial statements are prepared in accordance with the Accounting Standards Codification
(ASC) topic 915 Development Stage Entities. The Company is subject to all of the risks associated with development stage
companies.
The Companys ability to commence
operations is contingent upon obtaining adequate financial resources through a proposed public offering of up to 8,400,000 units (or 9,660,000 units if
the underwriters over-allotment option is exercised in full) (Units) which is discussed in Note 3 (Proposed Public
Offering). Simultaneously with the consummation of the Proposed Public Offering, the Companys sponsors and EarlyBirdCapital, Inc., the
representative of the underwriters in the Proposed Public Offering (Representative), and/or its designees, have committed to purchase an
aggregate of 542,500 units (Insider Units) at $10.00 per unit (for a total purchase price of $5,425,000). In addition, the Companys
sponsors and the Representative have agreed that if the over-allotment option is exercised by the underwriters in full or in part, they will purchase,
at a price of $10.00 per unit, the number of Insider Units (up to a maximum of 65,625) that is necessary to maintain in the trust account an amount
equal to approximately $10.20 per share of common stock sold to the public in this offering. These additional private units will be purchased in a
private placement that will occur simultaneously with the purchase of units resulting from the exercise of the over-allotment option. All of the
proceeds the Company receives from these purchases will be placed in the trust account described below. The Companys management has broad
discretion with respect to the specific application of the net proceeds of this Proposed Public Offering and the Insider Units, although substantially
all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company intends to apply to have the Units
listed on the Nasdaq Capital Market (NASDAQ). Pursuant to the NASDAQ listing rules, the Companys initial Business Combination must be
with a target business or businesses whose collective fair market value is at least equal to 80% of the balance in the trust account at the time of the
execution of a definitive agreement for such Business Combination, although this may entail simultaneous acquisitions of several target businesses.
There is no assurance that the Company will be able to effect a Business Combination successfully.
Upon the closing of the Proposed Public
Offering, management has agreed that at least approximately $10.20 per Unit sold in the Proposed Public Offering, including the proceeds of the private
placements of the Insider Units will be held in a United States-based trust account (Trust Account) and invested in United States
government treasury bills, bonds or notes, 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 until the earlier of (i) the consummation of the Companys initial Business Combination and (ii) the
Companys failure to consummate a Business Combination within the prescribed time. Placing funds in the Trust Account may not protect those funds
from third party claims against the Company. Although the Company will seek to have all vendors, service providers, prospective target businesses or
other entities it engages, execute agreements with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no
guarantee that such persons will execute such agreements. The Companys Chief Executive Officer has agreed that he will be liable under certain
circumstances to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or vendors or other entities that are
owed money by the Company for services rendered, contracted for or products sold to the Company. There can be no assurance that he will be able to
satisfy those obligations should they arise. 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
F-7
Table of Contents
continuing general and
administrative expenses. Additionally, the interest earned on the Trust Account balance may be released to the Company to fund working capital
requirements (up to a maximum of $750,000) as well as for any amounts that are necessary to pay the Companys tax obligations.
The Company, after signing a definitive
agreement for the acquisition of a target business, is required to provide stockholders who acquired common shares in the Proposed Public Offering
(Public Stockholders) with the opportunity to convert their Public Shares for a pro rata share of the Trust Account. In the event that
stockholders owning approximately 94.2% (or approximately 94.9% if the overallotment option is exercised in full) or more of the common shares sold as
part of the Units in the Proposed Public Offering exercise their conversion rights described below, the Business Combination will not be consummated.
The actual percentages will only be able to be determined once a target business is located and the Company can assess all of the assets and
liabilities of the combined company upon consummation of the proposed Business Combination, subject to the requirement that the Company must have at
least $5,000,001 of net tangible assets upon close of such Business Combination. As a result, the actual percentages of shares that can be converted
may be significantly lower than the above estimates. The holders of the 2,415,000 common shares purchased prior to the Companys Proposed Public
Offering (Initial Stockholders) will vote any shares they then hold in favor of any proposed Business Combination and will waive any
conversion rights with respect to these shares and the Insider Units pursuant to letter agreements to be executed prior to the Proposed Public
Offering.
In connection with any proposed
Business Combination, the Company will seek stockholder approval of an initial Business Combination at a meeting called for such purpose at which
stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed Business Combination. If the Company seeks
stockholder approval of an initial Business Combination, any Public Stockholder voting either for or against such proposed Business Combination will be
entitled to demand that his common shares be converted into a full pro rata portion of the amount then in the Trust Account (initially approximately
$10.20 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company or necessary to
pay its taxes). Rights sold as part of the Units (Rights) will not be entitled to vote on the Proposed Business Combination and will have
no conversion or liquidation rights.
The Company will consummate a Business
Combination only if holders of less than approximately 94.2% (or approximately 94.9% if the overallotment option is exercised in full) of the common
shares elect to convert and a majority of the outstanding shares of common stock voted, are voted in favor of the Business Combination. Notwithstanding
the foregoing, the Amended and Restated Certificate of Incorporation of the Company will provide that a Public Stockholder, together with any affiliate
or other person with whom such Public Stockholder is acting in concert or as a group (within the meaning of Section 13 of the Securities
Act of 1934, as amended), will be restricted from seeking conversion rights with respect to an aggregate of more than 20% of the shares of common stock
sold in the Proposed Public Offering (but only with respect to the amount over 20% of the shares of common stock sold in the Proposed Public Offering).
A group will be deemed to exist if Public Stockholders (i) file a Schedule 13D or 13G indicated the presence of a group or (ii) acknowledge
to the Company that they are acting, or intend to act, as a group.
Pursuant to the Companys amended
and restated certificate of incorporation to be in effect upon consummation of the Proposed Public Offering, if the Company is unable to complete its
initial Business Combination within 18 months from the date of the Proposed Public Offering (or 24 months from the date of the Proposed Public Offering
if the Company has executed a definitive agreement for a Business Combination within 18 months from the date of the Proposed Public Offering but has
not completed such Business Combination within the 18-month period), the Company will (i) cease all operations except for the purpose of winding up,
(ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares and (iii) as
promptly as reasonably possible following such redemption, subject to the approval of the remaining holders of common stock and the Companys
board of directors, dissolve and liquidate. If the Company is unable to consummate an initial Business Combination and is forced to redeem 100% of the
outstanding public shares for a pro rata portion of the funds held in the Trust Account, each holder will receive a full pro rata portion of the amount
then in the Trust Account, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company
or
F-8
Table of Contents
necessary to pay any of its taxes.
Holders of Rights will receive no proceeds in connection with the liquidation with respect to such rights. The Initial Stockholders and the holders of
Insider Units will not participate in any redemption distribution with respect to their initial shares and Insider Units, including the common stock
included in the Insider Units.
If the Company is unable to conclude
its initial Business Combination and expends all of the net proceeds of the Proposed Public Offering not deposited in the Trust Account, without taking
into account any interest earned on the Trust Account, the Company expects that the initial per-share redemption price for common stock will be
approximately $10.20. The proceeds deposited in the Trust Account could, however, become subject to claims of the Companys creditors that are in
preference to the claims of the Companys stockholders. In addition, if the Company is forced to file a bankruptcy case or an involuntary
bankruptcy case is filed against it that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and
may be included in its bankruptcy estate and subject to the claims of third parties with priority over the claims of the Companys common
stockholders. Therefore, the actual per-share redemption price may be less than approximately $10.20.
Going Concern Consideration
At June 30, 2013, the Company had
$77,500 in cash and a working capital deficiency of $28,063. Further, the Company has incurred and expects to continue to incur significant costs in
pursuit of its financing and acquisition plans. These conditions raise substantial doubt about the Companys ability to continue as a going
concern. Management plans to address this uncertainty through the Proposed Public Offering as discussed in Note 3. There is no assurance that the
Companys plans to raise capital or to consummate a Business Combination will be successful. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Note 2 Significant Accounting
Policies
Cash and Cash
Equivalents
The Company considers all short-term
investments with a maturity of three months or less when purchased to be cash equivalents.
Income
Taxes
The Company accounts for income taxes
under ASC 740 Income Taxes (ASC 740). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact
of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax
loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements and prescribes a recognition threshold and measurement process
for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to file income
tax returns in the United States (federal) and in various state and local jurisdictions. Based on the Companys evaluation, it has been concluded
that there are no significant uncertain tax positions requiring recognition in the Companys financial statements. Since the Company was
incorporated on April 19, 2013, the evaluation was performed for the upcoming 2013 tax year, which will be the only period subject to examination. The
Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in
a material change to its financial position.
The Companys policy for recording
interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts accrued for
penalties or interest as of
F-9
Table of Contents
or during the period from April 19,
2013 (inception) through June 30, 2013. Management is currently unaware of any issues under review that could result in significant payments, accruals
or material deviations from its position.
Loss Per
Share
Loss per share is computed by dividing
net loss by the weighted-average number of shares of common stock outstanding during the period, excluding shares of common stock subject to forfeiture
(Note 7).
Use of
Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting
Pronouncements
Management does not believe that any
recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial
statements.
Subsequent
Events
Management has evaluated subsequent
events to determine if events or transactions occurring through August 2, 2013, the date these financial statements were available to be issued,
require potential adjustment to or disclosure in the financial statements and has concluded that no subsequent events have occurred that would require
recognition in the financial statements or disclosure in the notes to the financial statements.
Note 3 Proposed Public Offering
The Proposed Public Offering calls for
the Company to offer for public sale up to 8,400,000 Units at a proposed offering price of $10.00 per Unit. In addition, the Company has granted the
Representative a 45-day option to purchase up to an additional 1,260,000 Units at a price of $10.00 per Unit, solely to cover over-allotments, if any.
Each Unit consists of one share of common stock and one Right. Each Right will automatically entitle the holder to receive one-tenth (1/10) of a share
of common stock on the consummation of an initial Business Combination. If the Company is unable to consummate a Business Combination, the Company will
redeem 100% of the common shares issued in the Proposed Public Offering using the funds in the Trust Account as described in Note 1. There are no
contractual penalties for failure to deliver securities to the holders of the Rights upon consummation of the Companys initial business
combination. Additionally, in no event will the Company be required to net cash settle the Right. In such events, the Rights will expire and will be
worthless.
There is presently no public market for
the Companys Units, common stock or Rights. The Company has applied to have its Units, common stock and Rights listed on NASDAQ on the Proposed
Public Offering. The common stock and Rights comprising the Units will begin separate trading on the 90th day after the date of the Proposed Public
Offering unless the Representative determines that an earlier date is acceptable. Upon consummation of an initial Business Combination, the Units will
cease trading and only the common stock will trade.
Note 4 Deferred Offering Costs
Deferred offering costs consist
principally of legal, accounting and underwriting costs incurred through the balance sheet date that are directly related to the Proposed Public
Offering and that will be charged to stockholders equity upon the receipt of the capital raised. Should the Proposed Public Offering prove to be
unsuccessful, these deferred costs as well as additional costs to be incurred will be charged to operations.
F-10
Table of Contents
Note 5 Note Payable to Affiliates
The Company issued a $65,000 principal
amount unsecured promissory note to Eric S. Rosenfeld, the Companys Chief Executive Officer and an Initial Stockholder, on June 26, 2013. The
note is non-interest bearing and payable on the earlier of (i) June 26, 2014, (ii) the consummation of the Proposed Public Offering or (iii) the date
on which the Company determines not to proceed with the Proposed Public Offering. Due to the short-term nature of the note, the fair value of the note
approximates the carrying amount.
Note 6 Commitments
The Company will pay the underwriters
in the Proposed Public Offering an underwriting discount of 3.25% of the gross proceeds of the Proposed Public Offering. The Company will also issue a
unit purchase option, for $100, to the Representative or its designees to purchase 420,000 Units at an exercise price of $11.75 per unit. The units
issuable upon exercise of this option are identical to the units being offered in the Proposed Public Offering. Accordingly, after the Business
Combination, the purchase option will be to purchase 462,000 shares of common stock (which includes 42,000 shares to be issued for the Rights included
in the units underlying the purchase option) for the same aggregate purchase price. The Company intends to account for the fair value of the unit
purchase option, inclusive of the receipt of $100 cash payment, as an expense of the Proposed Public Offering resulting in a charge directly to
stockholders equity. The Company estimates that the fair value of this unit purchase option is approximately $1,156,400 (or approximately $2.75
per unit) using a Black-Scholes option-pricing model. The fair value of the unit purchase option to be granted to the underwriter is estimated as of
the date of grant using the following assumptions: (1) expected volatility of 35.0%, (2) risk-free interest rate of 1.52% and (3) expected life of five
years. The purchase option may be exercised for cash or on a cashless basis, at the holders option, and expires five years from the date of the
Proposed Public Offering. The option and underlying securities have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up
pursuant to Rule 5110(g)(1) of FINRAs NASD Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or
hypothecated for a one-year period (including the foregoing 180-day period) following the date of this prospectus except to any underwriter and
selected dealer participating in the offering and their bona fide officers or partners. The option grants to holders demand and piggy back
rights for periods of five and seven years, respectively, from the date of the Proposed Public Offering with respect to the registration under the
Securities Act of the securities directly and indirectly issuable upon exercise of the option. The Company will bear all fees and expenses attendant to
registering the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and securities
issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or the Companys
recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of common stock at a price below its
exercise price.
The Company presently occupies office
space provided by an affiliate of the Companys Chairman and Chief Executive Officer. Such affiliate has agreed that until the Company consummates
a Business Combination, they will make such office space, as well as certain office and secretarial services, available to the Company as may be
required by the Company from time to time. The Company has agreed to pay an aggregate of $10,000 per month for such services commencing on the
effective date of the Proposed Public Offering.
Certain of the Initial Stockholders of
the Company and the Representative have committed to purchase 542,500 Insider Units at $10.00 per unit (for an aggregate purchase price of $5,425,000)
from the Company. These purchases will take place simultaneously with the consummation of the Proposed Public Offering. In addition, certain of the
Initial Stockholders and the Representative have also agreed that if the over-allotment option is exercised by the underwriters in full or in part,
they will purchase from the Company at a price of $10.00 per unit the number of Insider Units (up to a maximum of 65,625 Insider Units) that is
necessary to maintain in the Trust Account an amount equal to approximately $10.20 per share sold to the public in the Proposed Public Offering. All of
the proceeds received from the sale of the Insider Units will be placed in the Trust Account. The Insider Units will be identical to the Units being
offered in the Proposed Public Offering, except that the holders have agreed (i) to vote the shares of common stock included therein in favor of
any
F-11
Table of Contents
proposed Business Combination, (B)
not to propose, or vote in favor of, an amendment to the Companys amended and restated certificate of incorporation with respect to pre-Business
Combination activities prior to the consummation of such a Business Combination, (iii) not to convert any shares of common stock included therein into
the right to receive cash for the Trust Account in connection with a stockholder vote to approve the proposed initial Business Combination and (iv)
that the shares of common stock included therein shall not participate in any liquidating distribution upon winding up if a Business Combination is not
consummated. Additionally, the holders have agreed not to transfer, assign or sell any of the units or underlying securities (except to certain
permitted transferees) until the completion of the initial Business Combination.
The Initial Stockholders and the
holders of the Insider Units (or underlying shares of common stock) will be entitled to registration rights with respect to the founding shares and the
Insider Units (or underlying shares of common stock) pursuant to an agreement to be signed prior to or on the effective date of the Proposed Public
Offering. The holders of the majority of the founding shares are entitled to demand that the Company register these shares at any time commencing three
months prior to the first anniversary of the consummation of a Business Combination. The holders of the Insider Units (or underlying shares of common
stock) are entitled to demand that the Company register these securities at any time after the Company consummates a Business Combination. In addition,
the Initial Stockholders and holders of the Insider Units (or underlying shares of common stock) have certain piggy-back registration
rights on registration statements filed after the Companys consummation of a Business Combination.
The Company has engaged the
Representative on a non-exclusive basis, to act as its advisor and investment banker in connection with its initial Business Combination to provide it
with assistance in negotiating and structuring the terms of its initial Business Combination. The Company will pay the Representative a cash fee equal
to 3.75% of the total gross proceeds raised in the Proposed Public Offering for such services upon the consummation of its initial Business
Combination.
Note 7 Stockholder Equity
Preferred
Stock
The Company is authorized to issue
1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time
to time by the Companys board of directors. As of June 30, 2013, there are no shares of preferred stock issued or outstanding.
Common
Stock
The Company is authorized to issue
15,000,000 shares of common stock with a par value of $0.0001 per share. In connection with the organization of the Company, a total of 2,012,500
shares of the Companys shares of Class A common stock were sold to the Initial Stockholders at a price of approximately $0.01242 per share for an
aggregate of $25,000.
Effective September 9, 2013, the
Companys Board of Directors authorized a stock dividend of 0.2 shares of Class A common stock for each outstanding share of Class A common stock.
On October 3, 2013, the Company amended its certificate of incorporation to reclassify its authorized capital into a single class of common stock such
that each share of Class A common stock became a share of common stock and to increase the authorized shares of common stock to 15,000,000 shares. All
references in the accompanying financial statements to the number of shares of common stock have been retroactively restated to reflect these
transactions.
As of June 30, 2013, 2,415,000 shares
of common stock were issued and outstanding, of which 315,000 shares are subject to forfeiture to the extent that the underwriters over-allotment
option is not exercised in full so that the Companys Initial Stockholders will own 20% of the issued and outstanding common shares after the
Proposed Public Offering, excluding shares of common stock included in the Insider Units. All of these shares will be placed into an escrow account on
the Effective Date. Subject to certain limited exceptions, these shares will not be released from escrow until with respect to 50% of the shares, the
earlier of one year after the date of the consummation of an initial Business Combination and the date on which the closing price
F-12
Table of Contents
of the common stock exceeds $12.50
per share for any 20 trading days within a 30-trading day period following the consummation of an initial Business Combination and, with respect to the
remaining 50% of the shares, one year after the date of the consummation of an initial Business Combination, or earlier if, subsequent to the
Companys initial Business Combination, the Company consummates a subsequent liquidation, merger, share exchange or other similar transaction
which results in all of the Companys stockholders having the right to exchange their shares of common stock for cash, securities or other
property.
F-13
Table of Contents
Until November 22, 2013, all dealers
that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in
addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or
subscriptions.
No dealer, salesperson
or any other person is authorized to give any information or make any representations in connection with this offering other than those contained in
this prospectus and, if given or made, the information or representations must not be relied upon as having been authorized by us. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities offered by this prospectus, or an offer to
sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which the offer or solicitation is not authorized or is
unlawful.
$84,000,000
Quartet Merger Corp.
8,400,000 Units
EarlyBirdCapital, Inc.
Aegis Capital Corp
Pangaea Logistics Solutions Ltd. (NASDAQ:QTETU)
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