UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number:
001-33704
WESTERN LIBERTY
BANCORP
(Exact name of registrant as
specified in its charter)
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Delaware
(State of
incorporation)
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26-0469120
(I.R.S. Employer
Identification No.)
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1370 Avenue of the Americas,
28th
Floor
New York, New York
(Address of principal
executive offices)
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10019
(Zip
code)
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Registrants telephone number, including area code:
(212) 445-7800
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class:
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Name of Each Exchange on Which Registered:
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Common Stock, $0.0001 Par Value Per Share
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NYSE Amex
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Warrants to Purchase Common Stock
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NYSE Amex
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Units, each consisting of one share of
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NYSE Amex
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Common Stock and one Warrant
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Securities Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Securities Exchange
Act). Yes þ No o
The aggregate market value of the registrants voting stock
held by non-affiliates of the registrant computed by reference
to the closing sales price for the registrants common
stock on June 30, 2009, the last business day of the
registrants most recently completed second fiscal quarter,
was approximately $309 million, as computed by reference to
the closing sales price for the registrants common stock
on the closing price as reported on the NYSE Amex (formerly the
American Stock Exchange). Shares of voting stock held by
officers, directors and holders of more than 10% of the
outstanding voting stock have been excluded from this
calculation because such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a
conclusive determination for other purposes. The number of
outstanding shares of the registrants Common Stock as of
February 8, 2010 was 10,959,169.
DOCUMENTS
INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement
pursuant to Regulation 14A within 120 days of the end
of the fiscal year ended December 31, 2009. The proxy
statement is incorporated herein by reference into the following
parts of this
Form 10-K:
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Part III,
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Item 10, Directors, Executive Officers and Corporate
Governance;
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Part III,
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Item 11, Executive Compensation;
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Part III,
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Item 12, Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
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Part III,
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Item 13, Certain Relationships and Related Transactions,
and Director Independence
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Part III,
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Item 14, Principal Accountant Fees and Services
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WESTERN
LIBERTY BANCORP
TABLE OF CONTENTS
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION
2
Forward-Looking
Statements
This report, and the information incorporated by reference in
it, include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act). Our
forward-looking statements include, but are not limited to,
statements regarding our expectations, hopes, beliefs,
intentions or strategies regarding the future. In addition, any
statements that refer to projections, forecasts or other
characterizations of future events or circumstances, including
any underlying assumptions, are forward-looking statements. The
words anticipates, believe,
continue, could, estimate,
expect, intend, may,
might, plan, possible,
potential, predict, project,
should, would and similar expressions
may identify forward-looking statements, but the absence of
these words does not mean that a statement is not
forward-looking. Forward-looking statements in this report may
include, for example, statements about our:
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ability to complete a combination with Service1st Bank
of Nevada, or one or more alternative target businesses;
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success in retaining or recruiting, or changes required in,
our management or directors following a business combination;
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limited pool of prospective target businesses in the event
the acquisition of Service1st Bank of Nevada is not
consummated;
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public securities limited liquidity and trading;
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delisting of our securities from the NYSE Amex or an
inability to have our securities listed on the NYSE Amex or
another nationally-recognized securities exchange following a
the acquisition of Service1st Bank of Nevada or an
alternative business combination; or
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financial performance.
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The forward-looking statements contained or incorporated by
reference in this report are based on our current expectations
and beliefs concerning future developments and their potential
effects on us and speak only as of the date of such statement.
There can be no assurance that future developments affecting us
will be those that we have anticipated. These forward-looking
statements involve a number of risks, uncertainties (some of
which are beyond our control) or other assumptions that may
cause actual results or performance to be materially different
from those expressed or implied by these forward-looking
statements. These risks and uncertainties include, but are not
limited to, those factors described under the heading Risk
Factors. Should one or more of these risks or
uncertainties materialize, or should any of our assumptions
prove incorrect, actual results may vary in material respects
from those projected in these forward-looking statements. We
undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable
securities laws.
References in this report to we, us
or our company refer to Western Liberty Bancorp.
(formerly known as Global Consumer Acquisition Corp.).
References to public stockholders refer to
purchasers of our securities by persons other than our founders
in, or subsequent to, our initial public offering.
3
PART I
Introduction
We were formerly known as Global Consumer Acquisition
Corp. and were a special purpose acquisition company,
formed under the laws of Delaware on June 28, 2007, to
consummate an acquisition, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business
combination with one or more businesses. On October 7,
2009, our stockholders approved our initial acquisition of
1st Commerce Bank, a Nevada-chartered non-member bank
(1st Commerce Bank) (such acquisition was
subsequently terminated by mutual agreement of the parties),
along with changing our name to Western Liberty
Bancorp, authorizing the distribution and termination of
our trust account and certain amendments to our Amended and
Restated Certificate of Incorporation removing certain
provisions specific to special purpose acquisition companies.
Specifically, certain restrictive provisions were removed from
our Amended and Restated Certificate of Incorporation, including
provisions (i) specifying the minimum fair market value of
our initial acquisition target, (ii) granting each public
stockholder the right to convert his or her shares into a pro
rata portion of the trust account containing the net proceeds
from our initial public offering and from the sale of warrants
to purchase shares of our common stock issued in a private
placement prior to our initial public offering (the
Private Warrants), (iii) requiring us to
terminate our existence by November 27, 2009, and liquidate
our trust account if our initial acquisition was not consummated
by that date, and (iv) entitling our stockholders to vote
with respect to our initial business combination. Our board of
directors has since approved the acquisition (the
Acquisition) of Service1st Bank of Nevada, a
Nevada-chartered non-member bank (Service1st).
See Managements Discussion and Analysis of
Financial Condition and Results of Operations
Termination of 1st Commerce Merger Agreement and
Service1st Merger Agreement.
In connection with the Acquisition, we have initiated a process
to become a bank holding company, which will enable us to
consummate the Acquisition and participate in financial lines of
business. Upon the consummation of the Acquisition, we will
operate as a new Nevada financial institution bank
holding company and will conduct our operations through our
wholly-owned subsidiary, Service1st. The consummation of the
Acquisition remains subject to such conditions as are customary
for acquisitions of such type, including without limitation,
obtaining all applicable governmental and other consents and
approvals. We expect to provide a full range of traditional
community banking services focusing on core commercial business
in the form of commercial real estate lending, small business
lending, consumer loans and a broad range of commercial and
consumer depository products. In addition, we intend to use cash
on hand to facilitate additional acquisitions, as and when
permitted by federal and state banking regulators, and to fund
prudent loan portfolio and deposit base growth.
The registration statement for our initial public offering was
declared effective on November 20, 2007. We sold
31,948,850 units in our initial public offering (including
1,948,850 units issued pursuant to the partial exercise of
the underwriters over-allotment option). Each unit
consists of one share of common stock and one warrant. Hayground
Cove Asset Management LLC, a New York-based investment
management firm and our former sponsor (Hayground
Cove), and our former Chief Executive Officer purchased an
aggregate of 8,500,000 Private Warrants (7,500,000 by Hayground
Cove, and 1,000,000 by our former Chief Executive Officer) at a
price of $1.00 per warrant for a total of $8.5 million in a
private placement that occurred immediately prior to our initial
public offering. A total of $314,158,960 of the net proceeds
from our initial public offering and the sale of Private
Warrants, including $9,584,655 of deferred underwriting
commissions payable to the underwriters in our initial public
offering was deposited into a trust account and the remaining
proceeds became available to be used for business, legal and
accounting due diligence on prospective business combinations
and continuing general and administrative expenses.
On October 7, 2009, our stockholders voted in favor of
liquidating the trust account immediately following such
stockholder vote and releasing the funds held in trust to us,
less the amount paid to stockholders who exercised their right
to convert their shares into their pro rata portion of the trust
account. As a result, we distributed $211,764,441 from our trust
account to stockholders who elected to convert their shares into
a pro rata portion of the trust account and the remaining
$105,014,080 to us, and there are currently 10,959,169
outstanding shares of our common stock. The remaining funds have
been used to pay fees and expenses of our advisors and to pay
deferred underwriting commissions payable to the underwriters in
our initial public offering, to pay acquisition consideration,
to pay transaction fees and expenses, including
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legal, accounting, due diligence fees and other transaction fees
directly related to acquisitions and for working capital and
general corporate purposes.
Our common stock, public warrants and units are listed on the
NYSE Amex under the trading symbol WLBC. On
October 20, 2009, we received notice from the staff of the
NYSE Amex indicating that the NYSE Amex believes that we no
longer comply with its continued listing standards due to the
recent amendments to our Amended and Restated Certificate of
Incorporation approved at our stockholder meeting on
October 7, 2009 and an have insufficient number of public
stockholders of our common stock. We have appealed this
determination and have been granted the right to a hearing
before a committee of the NYSE Amex on February 11, 2010.
In the event our securities are no longer listed on the NYSE
Amex, we plan to apply for our securities to be relisted on the
NYSE Amex or another nationally-recognized securities exchange
as soon as practicable after consummation of the Acquisition.
Management
and Board Expertise
Our executive officers and directors have extensive experience
as managers, principals or directors. The following are
biographies for our executive officers and directors:
Jason N. Ader has been our Chief Executive Officer since
December 2008 and the Chairman of the Board since our formation.
Mr. Ader also founded and serves as Chief Executive Officer
of Hayground Cove. Mr. Ader is the sole member of Hayground
Cove, the managing member of Hayground Cove Fund Management
LLC, which is the general partner of Hayground Cove Associates
LP, the investment manager for the funds and accounts managed by
Hayground Cove. Mr. Ader also serves as Chairman of
Hayground Coves Investment Committee and Co-Chairman of
Hayground Coves Risk Committee. Mr. Ader is
co-founder of Hayground Cove Capital Partners LLC, a merchant
bank focused on the real estate and consumer sectors which he
co-founded with Mr. Silvers in March 2009. Prior to
founding Hayground Cove, Mr. Ader was a Senior Managing
Director at Bear, Stearns & Co. Inc., from 1995 to
2003, where he performed equity and high yield research for more
than 50 companies in the gaming, lodging and leisure
industries. From 1993 to 1995, Mr. Ader served as a Senior
Analyst at Smith Barney covering the gaming industry. From 1990
to 1993, Mr. Ader served as a buy-side analyst at Baron
Capital, where he covered the casino industry. Mr. Ader was
rated as one of the top ranked analysts by Institutional
Investor Magazine for nine consecutive years from 1994 to 2002.
Mr. Ader has a Bachelor of Arts in Economics from New York
University and an M.B.A. in Finance from New York University,
Stern School of Business. Mr. Ader also sits on the board
of directors of the Las Vegas Sands Corp., and serves as
Executive Chairman of Reunion Hospitality Corp. and as Chairman
of the Board of India Hospitality Corp.
Daniel B. Silvers has been our President since April
2009. Mr. Silvers is co-founder and President of Hayground
Cove Capital Partners LLC, a merchant bank focused on the real
estate and consumer sectors which he co-founded with Jason N.
Ader, our Chief Executive Officer and Chairman of our Board, in
March 2009. Mr. Silvers is also President of Reunion
Hospitality Corp., a newly-formed company focused on investments
and acquisitions of operating entities, properties, debt and
other assets in the hospitality, lodging and leisure industries
and related businesses. He joined Hayground Cove Capital
Partners from Fortress Investment Group, a leading global
alternative asset manager, where he worked from October 2005 to
March 2009. At Fortress, Mr. Silvers primary focus
was to originate, oversee due diligence on and asset management
for gaming and real estate investments in the Fortress
Drawbridge Special Opportunities Fund. Prior to joining
Fortress, Mr. Silvers was a senior member of the real
estate, gaming and lodging investment banking group at Bear,
Stearns & Co. Inc. where he was from July 1999 to
October 2005. In this role, Mr. Silvers was integrally
involved in all aspects of the firms gaming and
hospitality industry investment banking practice, including
origination, analysis and transaction execution.
Mr. Silvers holds a Bachelor of Science in Economics and an
M.B.A. in Finance from The Wharton School of Business at the
University of Pennsylvania. Mr. Silvers serves on the Board
of Directors of Universal Health Services, Inc.
Andrew Nelson has been our Assistant Secretary since our
initial public offering in 2007 and a Director since December
2008. Mr. Nelson was our Chief Financial Officer from our
initial public offering in November 2007 until December 2009.
Mr. Nelson has also served as Chief Financial Officer at
Hayground Cove since September 2005, and as Chief Financial
Officer of Reunion Hospitality Corp. since January 2010. In
such capacity, Mr. Nelson is responsible for the finance
and accounting functions of the firm, provides financial
reporting and assists with risk management. Mr. Nelson is
also a member of Hayground Coves Risk Committee. From 2006
to 2007, Mr. Nelson also served as controller of India
Hospitality Corp. Prior to
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joining Hayground Cove, Mr. Nelson worked at Context
Capital Management, a hedge fund located in San Diego,
California specializing in the convertible arbitrage strategy,
as a Senior Operations Consultant from September 2004 to August
2005. Mr. Nelson holds a Bachelor of Science in Business
from the University of Vermont and an M.B.A. in Finance from New
York University, Stern School of Business. Mr. Nelson is a
CFA charterholder.
George A. Rosenbaum, Jr. currently serves as our
Chief Financial Officer and will serve as Executive Vice
President of Service1st upon the consummation of the
Acquisition. From May 2007 to December 2009, Mr. Rosenbaum
has served as Consultant for various financial entities,
including two groups starting de novo banks. From August
2003 to February 2007, Mr. Rosenbaum, served as Executive
Vice President, Chief Financial Officer and Secretary of the
board of directors of First Federal Banc of the Southwest, Inc.
From May 2002 to August 2003, Mr. Rosenbaum served as Chief
Financial Officer of Illini Corporation, a publicly traded
$280 million bank holding company. From July 2000 to May
2002, Mr. Rosenbaum worked as Senior Audit Manager at
McGladrey & Pullen LLP, working primarily on
accounting and audit matters relating to financial institutions.
Mr. Rosenbaum holds a Bachelor of Science in Accounting
from the National College of Business.
Richard A.C. Coles has been a member of our board of
directors since December 2008. Mr. Coles is a Managing
Principal of the Emmes Group of Companies and is a Member of
their Investment Committee. Mr. Coles joined Emmes in 1997,
became a Managing Director in 2004, and a Partner in 2005.
Mr. Coles is the primary Principal responsible for the
day-to-day
oversight of Emmes Asset Management Company LLC and Emmes Realty
Services LLC and plays a key role in the execution of the
property level value enhancing strategies undertaken by the firm
in respect of the assets owned
and/or
managed by the firm, as well as sourcing new acquisition
opportunities for the firm and its partners and clients. Prior
to joining Emmes, Mr. Coles worked as an asset manager and
a development director of the Enterprise Development Company,
overseeing numerous development and leasing projects for retail,
urban specialty and office assets. Mr. Coles is the
co-chair of The Enterprise Foundation, a leading non-profit
provider of affordable housing, New York City advisory board. In
addition, he is an active member of the Real Estate Board of New
York as well as the Pension Real Estate Association.
Mr. Coles holds a Bachelor of Arts from Boston College and
a M.B.A. in Finance and Accounting from New York University,
Stern School of Business.
Michael B. Frankel has been a member of our board of
directors since December 2008. Mr. Frankel has been a
private investor and advisor since June 2008. Prior to that
time, from 1982 to June 2008, Mr. Frankel was employed at
Bear, Stearns & Co. Inc. where he was a Senior
Managing Director since July 1990. While at Bear Stearns,
Mr. Frankel was responsible for establishing and managing
the Global Equity Capital Markets Group, was a member of the
Commitment Committee, and managed the investment
banking-research department relationship. Prior to joining Bear
Stearns, from 1958 to 1982, Mr. Frankel was employed at
L.F. Rothschild & Co. where he was a General Partner
since 1973. At L.F. Rothschild & Co, Mr. Frankel
managed the Institutional Equities Department. Mr. Frankel
holds a Bachelor of Science in Economics from Lafayette College.
Mark Schulhof has been a member of the WLBC board of
directors since December 2008. Mr. Schulhof is Chief
Executive Officer and President of Quadriga Art II, Inc., a
leading provider of services to the
non-profit
community worldwide since 1994. Mr. Schulhofs
responsibilities at Quadriga Art II, Inc. include the oversight
of all
day-to-day
operations and development of strategic growth initiatives in
all channels of the business. Mr. Schulhof holds a Bachelor
of Arts from Franklin & Marshall College and holds a
Masters in Politics and Public Policy from The Eagleton
Institute of Politics at Rutgers University.
Messrs. Nelson and Schulhof will no longer be members of
our board of directors upon the consummation of the Acquisition.
Mr. Silvers will no longer be our President upon the
consummation of the Acquisition
Employees
We currently have three executive officers: Jason N. Ader, our
Chief Executive Officer, Daniel Silvers, our President and
George A. Rosenbaum Jr., our Chief Financial Officer.
Mr. Ader serves on our Board of Directors. On
December 18, 2009, we entered into a second amended and
restated employment agreement with George A. Rosenbaum Jr.
Effective as of January 1, 2010, Mr. Rosenbaum serves
as our Chief Financial Officer and will serve as Executive Vice
President and Chief Financial Officer of Service1st upon
the consummation of the Acquisition. None of our other officers
have entered into employment agreements with us and none of our
officers are obligated to devote any specific number of hours to
our matters and intend to devote only as much time as they deem
necessary to our affairs.
6
Risks
Related to Our Business and the Financial Services
Industry
As a
newly-formed public bank holding company, we will incur
significant legal, accounting, compliance and other
expenses.
As a newly-formed public bank holding company, we will incur
significant legal, accounting and other expenses that were not
necessarily incurred by Service1st prior to the
Acquisition. There can be no assurances that the costs will not
be materially higher. For example, we will continue to be
required to prepare and file quarterly, annual and current
reports with the SEC, as well as comply with a myriad of rules
applicable to public companies, such as the proxy rules,
beneficial ownership reporting requirements and other
obligations. In addition, the Sarbanes-Oxley Act of 2002 and the
rules implemented by the SEC in response to that legislation
have required significant changes in corporate governance
practices of public companies. While we have had to comply with
such rules and regulations in the past, we expect these rules
and regulations to significantly affect legal and financial
compliance costs when we enter into the financial services
industry as a result of the Acquisition, and to make some
activities more time-consuming and costly than they had been
prior to the Acquisition.
Additionally, as a newly-formed bank holding company, we will be
required to prepare supplemental qualitative disclosure
regarding our assets and operations as set forth in
Article 9 of
Regulation S-X
and Industry Guide No. 3, which will include information
such as portfolio loan composition, yield, costs, loan terms,
maturities, re-pricing characteristics, credit ratings and risk
elements such as non-accrual and past due items, which will add
to our legal and compliance costs going forward.
As the
provider of financial services, our business and earnings will
be significantly affected by general business and economic
conditions, particularly in the real estate industry, and
accordingly, our business and earnings could be further harmed
in the event of a continuation or deepening of the current U.S.
recession or further market deterioration or
disruption.
The global and U.S. economies and the local economies in
the Nevada market, where substantially all of the
Service1st loan portfolio was originated, experienced a
steep decline between 2007 and 2009. The financial markets and
the financial services industry in particular suffered
unprecedented disruption, causing many financial institutions to
fail or require government intervention to avoid failure. These
conditions were largely the result of the erosion of the
U.S. and global credit markets, including a significant and
rapid deterioration of the mortgage lending and related real
estate markets. We give you no assurance that economic
conditions that have adversely affected the financial services
industry and the capital, credit, and real estate markets
generally, will improve in the near term.
Our business and earnings will be sensitive to general business,
economic and market conditions in the United States. These
conditions include changes in short-term and long-term interest
rates, inflation, deflation, fluctuation in the real estate and
debt capital markets, developments in national and regional
economies and changes in government policies and regulations.
Our business and earnings will be particularly sensitive to
economic and market conditions affecting the real estate
industry because a large portion of our loan portfolio will
consist of commercial real estate and construction loans. Real
estate values have been declining in Nevada, steeply in some
cases, which has affected collateral values and has resulted in
increased provisions for loan losses for Nevada banks.
While generally containing lower risk than unsecured loans,
commercial real estate and construction loans generally involve
a high degree of credit risk. Such loans also generally involve
larger individual loan balances. In addition, real estate
construction loans may be affected to a greater extent than
residential loans by adverse conditions in real estate markets
or the economy because many real estate construction
borrowers ability to repay their loans is dependent on
successful development of their properties, as well as the
factors affecting residential real estate borrowers. Risk of
loss on a construction loan depends largely upon whether the
initial estimate of the propertys value at completion of
construction equals or exceeds the cost of property construction
(including interest), the ability of the borrowers to stabilize
leasing or rental income to qualify for
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permanent financing and the availability of permanent take-out
financing, itself a market we believe that is largely
non-existent at present. During the construction phase, a number
of factors can result in delays and cost overruns. Construction
and commercial real estate loans also involve greater risk
because they may not be fully amortizing over the loan period,
but have a balloon payment due at maturity. A borrowers
ability to make a balloon payment may depend on the borrower
being able to refinance the loan, timely sell the underlying
property or liquidate other assets.
The current U.S. recession has resulted in a reduction in
the value of many of the real estate assets securing a large
portion of the loans that we are purchasing. Any increase in the
number of delinquencies or defaults would result in higher
levels of nonperforming assets, net charge-offs and provisions
for loan losses, adversely affecting our results of operations
and financial condition.
Future
acquisitions will require regulatory approval and may be on
terms that may not conform to our current business plan and our
asset portfolio.
Upon the consummation of the Acquisition, we will operate as a
new Nevada financial institution bank holding
company and will conduct our operations through our wholly-owned
subsidiary, Service1st. Service1st currently operates from
its main office and two branch locations with approximately
$137.0 million in gross loans and approximately
$185.3 million in deposits. Following the consummation of
the Acquisition, we intend to grow organically, and if approved
by the appropriate bank regulatory agencies, pursue additional
acquisitions, including government assisted transactions and
opportunities involving federally assisted bank acquisitions.
There is no assurance that we will receive the necessary
approvals for such acquisitions or that such acquisitions will
conform to our current business plan and asset portfolio.
Our
geographic concentration will be tied to business, economic and
regulatory conditions in Nevada.
Unfavorable business, economic or regulatory conditions in
Nevada, where we will conduct the majority of our business,
could have a significant adverse impact on our business,
financial condition and results of operations. In addition,
because our business will be concentrated in Nevada, and our
entire loan portfolio originated from Nevada, we could also be
adversely affected by any material change in Nevada law or
regulation and may be exposed to economic and regulatory risks
that are greater than the risks we would face if the business
were spread more evenly by geographic region.
Furthermore, the recent decline in Nevada in the value of real
estate assets and local business revenues, particularly in the
gaming and hospitality industries, could continue and would
likely have a significant adverse impact on business, financial
conditions and results of operations. There can be no assurance
that the real estate market or local industry revenues will not
continue to decline. Further erosion in asset values in Nevada
could impact our existing loans and could make it difficult for
us to find attractive alternatives to deploy our capital,
impeding our ability to grow our business.
The
Las Vegas market is substantially dependent on gaming and
tourism revenue, and the downturn in the gaming and tourism
industries has indirectly had an adverse impact on Nevada
banks.
The economy of the Las Vegas area is unique in the United States
for its level of dependence on services and industries related
to gaming and tourism. Regardless of whether a Nevada bank has
substantial customer relationships in the gaming and tourism
industries, the downturn in the Nevada economy adversely affects
the banks customers, resulting in an increase in loan
delinquencies and foreclosures, a reduction in the demand for
products and services, and a reduction of the value of
collateral for loans, with an associated adverse impact on the
banks business, financial condition, results of
operations, and prospects.
Any event or state of affairs that adversely affects the gaming
or tourism industry adversely impacts the Las Vegas economy
generally. Gaming and tourism revenue is particularly vulnerable
to fluctuations in the economy. Virtually any development or
event that dissuades travel or spending related to gaming and
tourism adversely affects the Las Vegas economy. The Las Vegas
economy is more susceptible than the economies of many other
cities to such issues as higher gasoline and other fuel prices,
increased airfares, unemployment levels, recession, rising
interest rates, and other economic conditions, whether domestic
or foreign. Gaming
8
and tourism are also susceptible to political conditions or
events, such as military hostilities and acts of terrorism,
whether domestic or foreign. In addition, Las Vegas competes
with other areas of the country and other parts of the world for
gaming revenue, and it is possible that the expansion of gaming
operations in other states, such as California, and other
countries would significantly reduce gaming revenue in the Las
Vegas area.
The
soundness of other financial institutions with which we do
business could adversely affect us.
The financial services industry and the securities markets have
been materially adversely affected by significant declines in
values of almost all asset classes and by extreme lack of
liquidity in the capital and credit markets. Financial
institutions specifically have been subject to increased
volatility and an overall loss in investor confidence. Financial
institutions are interrelated as a result of trading, clearing,
counterparty, investment, or other relationships, including loan
participations, derivatives, and hedging transactions and
investments in securities or loans originated or issued by
financial institutions or supported by the loans they originate.
Many of these transactions expose a financial institution to
credit or investment risk arising out of default by the
counterparty. In addition, a banks credit risk may be
exacerbated if the collateral it holds cannot be realized or is
liquidated at prices not sufficient to recover the full amount
of the loan or other exposure. These circumstances could lead to
impairments or write-downs in a banks securities portfolio
and periodic gains or losses on other investments under
mark-to-market
accounting treatment. We could incur additional losses to our
securities portfolio in the future as a result of these issues.
These types of losses could have a material adverse effect on
our business, financial condition or results of operation.
Furthermore, if we are unable to ascertain the credit quality of
certain potential counterparties, we may not pursue otherwise
attractive opportunities and we may be unable to effectively
grow our business.
Our
earnings may be significantly affected by the fiscal and
monetary policies of the federal government and its
agencies.
The Federal Reserve regulates the supply of money and credit in
the United States. Its policies determine in large part cost of
funds for lending and investing and the return earned on those
loans and investments, both of which impact net interest margin,
and can materially affect the value of financial instruments,
such as debt securities. Its policies can also affect borrowers,
potentially increasing the risk that they may fail to repay
their loans. Changes in Federal Reserve policies will be beyond
our control and difficult to predict or anticipate. To the
extent that changes in Federal Reserve policies have a
disproportionate effect on our cost of funding or on the health
of our borrowers, such changes could materially affect our
operating results.
If
there was a depletion of the FDICs Deposit Insurance Fund,
the FDIC could impose additional assessments on the banking
industry.
If there was a depletion of the FDICs Deposit Insurance
Fund, we believe that the FDIC would impose additional
assessments on the banking industry. In such case,
Service1sts profitability would be reduced by any special
assessments from the FDIC to replenish the Deposit Insurance
Fund.
The
financial services industry is heavily regulated by federal and
state agencies.
Federal and state regulation is to protect depositors, federal
deposit insurance funds and the banking system as a whole, not
security holders. Congress and federal regulatory agencies
continually review banking laws, regulations and policies for
possible changes. Changes to statutes, regulations or regulatory
policies, including changes in interpretation or implementation
of statutes, regulations or policies, could affect the business
going forward in substantial and unpredictable ways including
limiting the types of financial services and products we may
offer and/or
increasing the ability of nonbanks to offer competing financial
services and products. Failure to comply with laws, regulations
or policies could result in sanctions by regulatory agencies and
damage to our reputation.
9
Potential acquisitions through government-assisted transactions
are ultimately decided upon by many of the agencies that will
regulate us. To the extent that our regulators took actions that
were not in our interests, it could have a negative impact on
our growth prospects. Additionally, there can be no assurance
that regulatory approvals will be granted and the Acquisition
will be consummated.
We
operate in a highly regulated environment and changes in the
laws and regulations that govern our operations, changes in the
accounting principles that are applicable to us, and our failure
to comply with the foregoing, may adversely affect
us.
We will be subject to extensive regulation, supervision, and
legislation that governs almost all aspects of our operations.
The laws and regulations applicable to the banking industry
could change at any time and are primarily intended for the
protection of customers, depositors, and the deposit insurance
funds, not stockholders. Changes in these laws or in applicable
accounting principles could make it more difficult and expensive
for us to comply with laws, regulations, or accounting
principles and could affect the way we conduct business.
Moreover, the United States, state, and foreign governments have
taken or are considering extraordinary actions to deal with the
worldwide financial crisis and the severe decline in the global
economy. Many of these actions have been in effect for only a
limited time and have produced limited or no relief to the
capital, credit, and real estate markets. We cannot assure you
that these actions or other actions under consideration will
ultimately be successful. Although we cannot reliably predict
what effect any presently contemplated or future changes in the
laws or regulations or their interpretations would have on us,
these changes could be materially adverse to our investors and
stockholders. Compliance with the initiatives may increase our
costs and limit our ability to pursue business opportunities.
A
stockholder with a 5% or greater interest in Western Liberty
Bancorp could, under certain circumstances, be subject to
regulation as a bank holding company.
Any entity (including a group composed of natural
persons) owning 25% or more of the outstanding Western Liberty
Bancorp common stock, or 5% or more if such stockholder
otherwise exercises a controlling influence over
Western Liberty Bancorp, may be subject to regulation as a
bank holding company in accordance with the Bank
Holding Company Act of 1956, as amended (the
BHCA). In addition, (1) any bank holding
company or foreign bank with a U.S. presence may be
required to obtain the approval of the Federal Reserve Board
under the BHCA to acquire or retain 5% or more of the
outstanding Western Liberty Bancorp common stock and
(2) any person other than a bank holding company may be
required to obtain the approval of the Federal Reserve Board
under the Change in Bank Control Act to acquire or retain 10% or
more of the outstanding Western Liberty Bancorp common stock.
Becoming a bank holding company imposes certain statutory and
regulatory restrictions and burdens. In addition, because a bank
holding company is required to provide managerial and financial
strength for its bank subsidiary, such stockholder may be
required to divest investments that may be deemed incompatible
with bank holding company status, such as a material investment
in a company unrelated to banking. Each stockholder is
responsible for monitoring their ownership level to determine
whether they will become subject to regulation as a bank
holding company. Furthermore, although we will actively
work with such stockholders to make sure they are in compliance
with these obligations, we may not receive the requisite bank
regulatory approvals for the Acquisition if any such stockholder
refuses to register as a bank holding company or divest itself
of certain investments.
Any
current or future litigation, regulatory investigations,
proceedings, inquiries or changes could have a significant
impact on the financial services industry.
The financial services industry has experienced unprecedented
market value declines caused primarily by the current
U.S. recession and real estate market deterioration. As a
result of the current market perceptions of stockholder advocacy
groups as well as the current U.S. Administration in
Washington, D.C., litigation, proceedings, inquiries or
regulatory changes are all distinct possibilities for financial
institutions. Such actions or changes could result in
significant costs. Because we will be a relatively new financial
institution, any costs
10
and/or
burdens imposed by such actions or changes could affect us
disproportionately from how they affect our competitors.
The
Emergency Economic Stabilization Act of 2008 (EESA) and the
American Recovery and Reinvestment Act of 2009 (ARRA) may not
stabilize the financial services industry or the U.S.
economy.
The EESA was signed into law on October 3,
2008. The legislation was intended to alleviate
the financial crisis affecting the U.S. banking system. A
number of programs have been and are being developed and
implemented under EESA. The EESA may not have the intended
effect and therefore the condition of the financial services
industry may worsen instead of improve. The failure of the EESA
to improve the condition of the U.S. banking system could
significantly adversely impact business, financial condition,
financial results
and/or
access to funding or capital, as well as the trading price of
common stock after consummation of the Acquisition.
The ARRA was signed into law on February 17, 2009. The
legislation was intended to provide immediate and long-term
solutions to the current U.S. recession. The ARRA may not
have the intended effect; therefore, the current
U.S. recession and the condition of the financial services
industry may worsen instead of improve. The failure of the ARRA
to improve the current U.S. recession
and/or
improve the condition of the U.S. banking system could
significantly adversely impact business, financial condition,
financial results
and/or
access to funding or capital, as well as the trading price of
common stock after consummation of the Acquisition.
Current
market volatility and industry developments may adversely affect
business and financial results.
The volatility in the capital and credit markets along with the
housing declines during the last year have resulted in
significant pressure on the financial services industry. If
current volatility and market conditions continue or worsen,
there can be no assurance that the financial services industry,
results of operations or the business will not continue to be
significantly adversely impacted. We may have further increases
in loan losses, deterioration of capital or limitations on their
access to funding or capital, if needed.
Further, if other financial institutions fail to be adequately
capitalized or funded, it may negatively impact business and
financial results. In the past, Service1st has routinely
interacted with numerous financial institutions in the ordinary
course of business and has therefore been exposed to operational
and credit risk to those institutions. Failures of such
institutions may significantly adversely impact our operations
going forward.
Strategies
to manage interest rate risk may yield results other than those
anticipated.
Changes in the interest rate environment are difficult to
predict. Net interest margins can expand or contract, and this
can significantly impact overall earnings. Changes in interest
rates can also adversely affect the application of critical
management estimates, their projected returns on investments, as
well as the determination of fair values of certain assets. We
have certain assets and liabilities with fixed interest rates.
Unexpected and dramatic changes in interest rates may materially
impact our operating results.
Negative
public opinion could damage our reputation and adversely impact
our business and revenues.
Financial institutions earnings and capital are subject to
risks associated with negative public opinion. Negative public
opinion could result from actual, alleged or perceived conduct
in any number of activities, including lending practices, the
failure of any product or service to meet customers
expectations or applicable regulatory requirements, corporate
governance, acquisitions, as a defendant in litigation, or from
actions taken by government regulators or community
organizations. Negative public opinion could adversely affect
our ability to attract
and/or
retain customers and can expose us to litigation or regulatory
action. Negative public opinion could also affect our credit
ratings, which are important for access to certain sources of
wholesale borrowings, thereby increasing the cost or reducing,
or eliminating, the availability of these sources of funding. We
are highly dependent on our customer relationships. Any negative
perception of us which impacted our customer relationships could
materially affect our business prospects by reducing our deposit
base. We will not
11
have controlled Service1st prior to the closing of the
Acquisition. As such, there may be actions, that we are unaware
of, which have been taken by Service1st in the past that
could cause a negative public opinion of us in the future.
Disruptions
in our ability to access capital markets may negatively affect
our capital resources and liquidity.
In managing their consolidated balance sheet, financial
institutions depend on access to capital markets to provide them
with sufficient capital resources and liquidity to meet their
commitments and business needs, and to accommodate the
transaction and cash management needs of their customers. Other
sources of funding available, and upon which they rely as
regular components of their liquidity risk management strategy,
include deposits, inter- bank borrowings, repurchase agreements
and borrowings from banks and the Federal Reserve discount
window. Any occurrence that may limit access to the capital
markets, such as a decline in the confidence of depositors, debt
purchasers, or counterparties participating in the capital
markets, or a downgrade of their debt ratings, may adversely
affect our borrowing costs and liquidity going forward.
Changes
in interest rates could adversely affect our profitability,
business and prospects.
Most of the assets and liabilities of a bank holding company are
monetary in nature, exposed to significant risks from changes in
interest rates that can affect net income and the valuation of
assets and liabilities. Increases or decreases in prevailing
interest rates could have an adverse effect on our business,
asset quality, and prospects. Our operating income and net
income will depend to a great extent on our net interest margin,
the difference between the interest yields we receive on loans,
securities, and other interest-earning assets and the interest
rates we pay on interest-bearing deposits, borrowings, and other
liabilities. These rates are highly sensitive to many factors
beyond our control, including competition, general economic
conditions, and monetary and fiscal policies of various
governmental and regulatory authorities, including the Federal
Reserve. If the rate of interest we pay on interest-bearing
deposits, borrowings, and other liabilities increases more than
the rate of interest we receive on loans, securities, and other
interest-earning assets, our net interest income and therefore
our earnings could be adversely affected. Our earnings could
also be adversely affected if the rates on our loans and other
investments fall more quickly than those on our deposits and
other liabilities.
In addition, loan volumes are affected by market interest rates
on loans. Rising interest rates generally are associated with a
lower volume of loan originations while lower interest rates are
usually associated with increased loan originations. Conversely,
in rising interest rate environments loan repayment rates
decline and in a falling interest rate environment loan
repayment rates increase. We cannot assure you that we will be
able to minimize our risk exposure to changing interest rates.
In addition, an increase in the general level of interest rates
may adversely affect the ability of certain borrowers to pay the
interest on and principal of their obligations.
Interest rates also affect how much money we can lend. When
rates rise, the cost of borrowing increases. Accordingly,
changes in market interest rates could materially and adversely
affect our net interest spread, asset quality, loan origination
volume, business, financial condition, results of operations,
and cash flows.
Increasing
our existing market share may depend on market acceptance and
regulatory approval of new products and services.
We will assume the market share of Service1st. Our ability to
increase that market share will depend, in part, on our ability
to create and adapt products and services to evolving industry
standards. There is increasing pressure on financial services
companies to provide products and services at lower prices. This
can reduce net interest margin and revenues from fee-based
products and services. In addition, the widespread adoption of
new technologies, including internet-based services, could
require us to make substantial expenditures to modify or adapt
the existing products and services we are assuming. We may not
successfully introduce new products and services, achieve market
acceptance of products and services
and/or be
able to develop and maintain loyal customers. Market share
expansion will also require fixed asset (branch) expansion
12
to service a larger customer base and to access broader markets.
There is no guaranty of a positive return on these expenditures.
Risks
Related to the Acquisition
The
Acquisition is subject to the receipt of consents and approvals
from regulatory authorities that may impose conditions that
could have an adverse effect on us or, if not obtained, could
prevent completion of the Acquisition.
Before the Acquisition may be completed, various approvals and
consents must be obtained from the Federal Reserve, the FDIC and
the Nevada Financial Institutions Division. As a corporation not
currently subject to bank supervisory regulation, our
applications to become a bank holding company for a Nevada-based
community bank are subject to different statutory approval
processes maintained by several federal and state bank
regulatory agencies with supervisory oversight and jurisdiction
of the contemplated transactions and the banks that are parties
to the contemplated transactions. Approval terms granted by
these federal and state bank regulatory agencies may include
terms and conditions more onerous than our management
contemplates, and approval may not be granted in the timeframes
desired by the parties to the contemplated transactions. Bank
regulatory approval, if granted, may contain terms that relate
to deteriorating real estate lending both nationally and in
Nevada; bank regulatory supervisory reactions to the current
economic difficulties may not be specific to WLBC itself.
Additionally, these regulators may impose conditions on the
completion of the Acquisition or require changes to the terms of
the Acquisition. Any such conditions or changes could have the
effect of delaying or prohibiting completion of the Acquisition
or imposing additional costs on or limiting the revenues
following the Acquisition. There can be no assurances that
regulatory approvals will be granted and the Acquisition
consummated. Any future acquisitions will also be subject to
regulatory approvals, and there is no assurance that such
approvals will be obtained or that any future acquisitions will
conform to WLBCs business plan and asset portfolio.
Additionally, there is no requirement that we bring any future
acquisitions to a vote of stockholders, other than as required
under Delaware or other applicable law, or pursuant to stock
exchange rules.
As a
result of the Acquisition, the ownership interest of WLBCs
current stockholders will be substantially reduced, resulting in
a dilution of WLBCs current stockholders voting
power.
In connection with the consummation of the Acquisition, we will
issue shares of our common stock to the holders of
Service1st common stock. The issuance of these shares of
our common stock will dilute our existing stockholders
voting interest. While a majority of the proposed members of our
post-Acquisition board of directors are considered
independent under the listing standards of the NYSE
Amex, our post-Acquisition board of directors will contain three
directors designated by Service1st. In addition, certain
officers of Service1st will remain officers of
Service1st and/or
become officers of WLBC post-Acquisition. These directors and
officers may align their interests with those of the former
stockholders of Service1st rather than those of the
stockholders of WLBC prior to the Acquisition. In addition,
following the Acquisition, WLBCs outstanding common stock
will be subject to substantial potential dilution by outstanding
Service1st options and warrants that will be exercisable
for shares of WLBC common stock.
Our
board of directors has approved the award of post-closing
transaction related equity awards, which, if issued, would
increase the number of shares eligible for future resale in the
public market and result in dilution of our
stockholders.
Our board of directors has approved the award of up to
1.5 million shares of restricted stock in connection with
the Acquisition, which may be awarded to certain members of our
management and our consultants, in connection with the
Acquisition. The Compensation Committee will meet to determine
which members of our management and our consultants will receive
equity grants and the allocation of such grants. No decision has
been made by our current board of directors as to whether these
shares will be awarded at all, how many of such shares may be
awarded, when such shares may be awarded or to whom
13
such shares may be awarded. All such determinations will be made
solely by the Compensation Committee in place upon consummation
of the Acquisition. Any future awards of these restricted stock
will not be subject to the approval of stockholders. To the
extent such grants are allocated post-closing, 1.5 million
additional shares of our common stock may be issued, which will
result in the dilution of the ownership of the holders of our
common stock and an increase in the number of shares eligible
for resale in the public market. Sales of substantial numbers of
such shares in the public market could adversely affect the
market price of our common stock.
The
value of our capital stock could be adversely affected to the
extent we fail to effectively integrate Service1st and realize
the expected benefits of the Acquisition.
The Acquisition will involve the merger of Merger Sub with and
into Service1st. It is possible that this will result in the
loss of key employees, the disruption of ongoing business or
inconsistencies in standards, controls, procedures and policies
that adversely affect our ability to maintain relationships with
customers and employees. As with any financial institution
acquisition, there also may be disruptions that cause us to lose
customers or cause customers to take deposits out of banks.
Our financial results and condition after the Acquisition may be
affected by factors different from those currently affecting our
current financial results and condition. Although we believe
that the Acquisition will create financial, operational and
strategic benefits for the combined company and our
stockholders, these benefits may not be achieved. The
Acquisition, even if conducted in an efficient, effective and
timely manner, may not result in combined financial performance
that is better than what we would have achieved if the
Acquisition had not occurred or if we entered into liquidation.
Service1st
may not be able to obtain the approval of its stockholders,
which is required to consummate the Acquisition.
Under the applicable Nevada corporate statutes, the consummation
of the Acquisition will require the approval of the holders of a
majority of the outstanding shares of capital stock of
Service1st (the Service1st Stockholder
Approval). Although holders of approximately 24% of
Service1sts outstanding shares have agreed to vote their
shares in favor of the Acquisition in accordance with the Voting
Agreement, there can be no assurance that Service1st will
be able to obtain the Service1st Stockholder Approval. If
the Service1st Stockholder Approval is not obtained, we
will not be able to consummate the Acquisition.
If the
Acquisitions benefits do not meet the expectations of
financial or industry analysts, the market price of our
securities may decline.
The market price of our securities may decline as a result of
the Acquisition if:
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we do not achieve the perceived benefits of the Acquisition as
rapidly as, or to the extent anticipated by, financial or
industry analysts; or
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the effect of the Acquisition on our financial results is not
consistent with the expectations of financial or industry
analysts.
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Accordingly, investors may experience a loss as a result of a
decreasing stock price and we may not be able to raise future
capital, if necessary, in the equity markets.
Our
current directors and executive officers have certain interests
in consummating the Acquisition that may have influenced their
decision to approve the Acquisition.
Certain of our current directors and executive officers comprise
certain of our private stockholders, private warrantholders and
holders of restricted stock, and have approved the Acquisition.
These financial interests of those private stockholders, private
warrantholders and holders of restricted stock, who are our
current directors or officers may have influenced their decision
to approve the Acquisition and to continue to pursue the
14
Acquisition. In considering the recommendations of our board of
directors to vote for the Acquisition Proposal and other
proposals, our stockholders should consider these interests.
The
historical financial information included in this proxy
statement/prospectus is not necessarily indicative of our future
performance.
The historical financial information for
Service1st included in this proxy statement/prospectus is
not necessarily indicative of what our financial position,
results of operations and cash flows would have been if we had
been a public bank holding company during those periods. The
results of future periods may be different as a result of, among
other things, the additional costs associated with being a
public bank holding company and the pace of growth of our
business in the future, which is likely to differ from the
historical growth reflected in Service1sts financial
information presented herein.
Service1st
has experienced significant losses since it began operations in
January of 2007. There is no assurance that it will become
profitable.
Service1st commenced operations as a commercial bank on
January 16, 2007, with initial capital of
$50.0 million. Since inception, Service1st has not
been profitable. To some extent, the lack of profitability is
attributable to the
start-up
nature of its business; time is required to build assets
sufficient to generate enough interest income to cover operating
expenses. However, in addition to the customary challenges of
building profitability for a
start-up
bank, Service1st has experienced deterioration in the
quality of its loan portfolio, largely as a result of the
challenging economic conditions in the Nevada market during the
last two years. As a result, Service1st experienced losses
of $4.2 million in 2007, $5.1 million in 2008 and
$17.4 million in 2009. Although Service1sts initial
capital was sufficient to absorb these losses and
Service1st remains well capitalized under applicable
regulatory criteria, at the end of 2009, Service1sts
capital of $24.5 million was nearly half the level of its
original capital.
Despite the guidance we expect to receive from certain
executives of Service1st who will remain with the company
and join our board of directors, we expect to incur certain
transitional expenses that may be large in proportion to the
scale of our operations. In addition, we have no earnings
history and there is no guarantee that we will ever be
profitable or be able to successfully implement an effective
business model. In order for Service1st to become
profitable, we believe that we will need to attract a larger
amount of deposits and a larger portfolio of loans than it
currently has. We must avoid further deterioration in its loan
portfolio and increase the amount of its performing loans so
that the combination of its net interest income and non-interest
income, after deduction of its provision for loan losses,
exceeds its non-interest expense. The source of the majority of
Service1sts loan losses can be traced primarily to real
estate loans that were reliant on continuation of a growing and
prosperous economic environment. Beginning in early to mid-2008,
increased emphasis on underwriting standards and risk selection
was introduced, which effectively discontinued the making of
construction, land development, other land loans and any other
loans in which the primary source of repayment was subject to
greater risk than our current standards would require (such as
repayment from proceeds from sales, rentals, leases or
refinancing, including permanent take out financing) or based
upon projections, unless such loans were accompanied by
additional financial support from the borrowers or guarantors.
In 2009, Service1st also took charge offs of
$12.2 million (including $7.7 million for
construction, land development and other land loans and
$4.4 million for commercial and industrial loans) based on
its assessment of the inherent losses in its loan portfolio. Its
future profitability may also be dependent on numerous other
factors, including the success of the Nevada economy and
favorable government regulation. The Nevada economy has
experienced a significant decline in recent years due to the
current economic climate. This economy, in which all of
Service1sts loans have been made, continues to exhibit
weakness, and there can be no assurance that further material
losses will not be experienced in the portfolio. It will also be
a highly regulated institution. Our ability to grow and achieve
profitability may be adversely affected by state and federal
regulations that limit a banks ability to make loans and
purchase securities. Continued deterioration of the national
and/or local
economies, adverse government regulation or our inability to
grow our business could affect our ability to become profitable.
If this happens, there continues to be a risk that it will not
operate on a profitable basis in the near or long-term, and it
may never become profitable.
15
The
Service1st loan portfolio and any other loan portfolios we may
acquire after the closing of the Acquisition may not perform as
expected.
Our performance and prospects after the consummation of the
Acquisition will be dependent to a significant extent on the
performance of the loan portfolio of Service1st, constituting a
total of 201 loans totaling approximately $137.0 million in
gross, and other loan portfolios we may acquire following the
consummation of the Acquisition, and ultimately on the financial
condition of our borrowers and other customers. The
Service1st loan portfolio and any other loan portfolios we
may acquire after consummation of the Acquisition may differ to
some extent in the types of borrowers, industries and credits
represented. In addition, there may be differences in the
documentation, classifications, risk grading and management of
the portfolios, and we may acquire loans from various geographic
locations following the Acquisition. None of these loans will
have historically been serviced or maintained by our employees
or management. As a result, our overall loan portfolio after the
consummation of the Acquisition may have a different risk
profile than the loan portfolio of Service1st before the
consummation of the Acquisition. The performance of our loan
portfolio could be adversely affected if any of such factors are
worse than currently anticipated. In addition, to the extent
that present customers are not retained or additional expenses
are incurred in retaining them, there could be adverse effects
on our future consolidated results of operations following the
consummation of the Acquisition. Realization of improvement in
profitability is dependent, in part, on the extent to which the
revenues of Service1st are maintained and enhanced.
Further
deterioration in the quality of Service 1sts loan
portfolio may result in additional charge-offs which will
adversely effect our operating results.
During the last two years, Service 1st suffered from a
deterioration in the quality of its loan portfolio. Net
charge-offs to average loans outstanding was 8.43% at
December 31, 2009 as compared to 1.44% at December 31,
2008 and 0.03% at December 31, 2007. The depressed economic
conditions in Nevada which contributed significantly to this
deterioration are expected to continue into 2010. As of
December 31, 2009, performing loans that are classified as
potential problem loans constituted approximately 26.41% of
total loans. As a result, while Service 1st has implemented
various measures to address the current economic situation and
took significant charge-offs in 2009, there may be further
deterioration in its loan portfolio which will require
additional charge-offs. Additional charge-offs will adversely
affect our operating results and financial condition.
Most
of the loans being acquired have been originated in the last
three years and may have experienced performance which may not
be representative of credit defaults in the
future.
All of Service1sts loans were originated in the past three
years. A portfolio of older loans will often behave more
predictably than a newer portfolio. The average age of its loan
portfolio, excluding loan renewals, is 1.7 years, and the
current level of delinquencies and defaults may not be
representative of the level that will prevail in the event we
make loans with longer maturity periods. As of December 31,
2009, 30 to 89 days delinquent and accruing loans were $0,
90 plus days delinquent and accruing loans were $0 million
and non-accrual loans were $7.8 million. If delinquencies
and defaults increase, we may be required to increase our
provision for loan losses, which would adversely affect our
results of operations and financial condition. Current
appraisals (6 months or less) were available on all of
Service1sts non-performing real estate loans. All
appraisal valuations in file were assessed and updated based on
current market conditions, cap rates and varying degrees of
stress testing based on property type, location, lease
maturities, vacancy factors and tenant strength.
A
substantial portion of Service1sts loan portfolio consists
of loans maturing within one year, and there is no guarantee
that these loans will be replaced upon maturity or renewed on
the same terms or at all.
Approximately 44% of
Service1sts
loan portfolio consists of loans maturing within one year. As a
result, we will either need to renew or replace these loans
during the course of the year. There is no guarantee that these
loans will be originated or renewed by borrowers on the same
terms or at all, as demand for such loans may decrease.
Furthermore, there is no guarantee that borrowers will qualify
for new loans or that existing
16
loans will be renewed by us on the same terms or at all, as
collateral values may be insufficient or the borrowers
cash flow maybe materially less than when the loan originated.
This could result in a significant decline in the performance of
our loan portfolio.
Service1st
relies upon independent appraisals to determine the value of the
real estate which secures a significant portion of its loans,
and the values indicated by such appraisals may not be
realizable if Service 1st is forced to foreclose upon such
loans.
A significant portion of Service 1sts loan portfolio
consists of loans secured by real estate. As of
December 31, 2009, approximately 65.8% of its loans were
secured by real estate. Service 1st relies upon independent
appraisers to estimate the value of the real estate which
secures its loans. Appraisals may reflect the estimated value of
the collateral on an as-is basis, an
as-stabilized basis or an
as-if-developed basis, depending upon the loan type
and collateral. Raw land generally is appraised at its
as-is value. Income producing property may be
appraised at its as-stabilized value, which takes
into account the anticipated cash flow of the property based
upon expected occupancy rates and other factors. The collateral
securing construction loans may be appraised at its
as-if-developed value, which approximates the
post-construction value of the collateralized property assuming
that such property is developed. As-if-developed
values on construction loans often exceed the immediate sales
value and may include anticipated zoning changes, and successful
development by the purchaser.
Appraisals are only estimates of value and the independent
appraisers may make mistakes of fact or judgment which adversely
affect the reliability of their appraisal. In addition, events
occurring after the initial appraisal may cause the value of the
real estate to decrease. With respect to appraisals conducted on
an as-if-developed basis, if a loan goes into
default prior to development of a project, the market value of
the property may be substantially less than the
as-if-developed appraised value. As a result of any
of these factors, there may be less security than anticipated at
the time the loan was originally made. If there is less security
and a default occurs, Service1st may not recover the
outstanding balance of the loan.
As a
de novo bank Service1st is subject to restrictions that may
inhibit growth and initiatives not within its existing business
plan.
Service1st is subject to customary conditions applicable to
newly chartered (so called, de novo) banks
for a probationary period of seven years. During such
probationary period, Service1st must maintain a Tier 1
capital leverage ratio of not less than 8.0%. (At
December 31, 2009, its Tier 1 capital leverage ratio
was 11.00%.) In addition, during the seven-year period,
Service1st is required to operate within the parameters of
a business plan submitted to the FDIC (an amended version of
which was most recently submitted during the fourth quarter of
2009), and to provide the FDIC 60 days advance notice
of any proposed material change or material deviation from the
business plan, before making any such change or deviation.
During the seven-year de novo period,
Service1st will remain on a
12-month
risk management examination cycle and be subject to enhanced
supervision for compliance examinations and Community
Reinvestment Act evaluations. Consequently, Service1st will
be under a high degree of regulatory scrutiny, at least through
the end of 2013, and proposed initiatives not included in the
business plan submitted to the FDIC will require prior FDIC
approval. As a result, Service1st may not be able to
implement new business initiatives, and its ability to grow may
be inhibited.
Service1st
is subject to a Memorandum of Understanding and to regulatory
restrictions that may affect its ability to obtain regulatory
approval for future initiatives requiring such approval and to
hire and retain qualified senior management.
In May of 2009, Service1st entered into a Memorandum of
Understanding (MOU) with the FDIC and the
Nevada Financial Institutions Division. Pursuant to the MOU,
Service1st agreed, among other initiatives, to develop and
submit a comprehensive strategic plan covering at least a
three-year operating period; to reduce the level of adversely
classified assets and review loan grading criteria and
procedures to ensure accurate risk ratings; to develop a plan to
strengthen credit administration of construction and land loans
(including the reduction of concentration limits in land,
construction and development loans and the improvement of stress-
17
testing of commercial real estate loan concentrations); to
review its methodology for determining the adequacy of the
allowance for loan and lease losses; and to correct apparent
violations listed in its most recent report of examination.
Management believes that Service1st is in full compliance
with the terms of the MOU and reports compliance with the
components of the MOU to its board of directors monthly and the
FDIC and the Nevada Financial Institutions Division at the end
of each calendar quarter. The MOU reflects a heightened degree
of concern by the bank regulators regarding the matters as to
which Service1st has agreed to take action, and these
underlying concerns, unless fully addressed over time, could
adversely affect the ability of Service1st to obtain
approval for initiatives requiring approval.
In addition, since mid-2009, Service1st has been required
(i) to provide the FDIC with at least 30 days
prior notice before appointing any new director or senior
executive officer or changing the responsibilities of any senior
executive officer; and (ii) to obtain FDIC approval before
making (or agreeing to make) any severance payments (except
pursuant to a qualified pension or retirement plan and certain
other employee benefit plans). The FDIC is likely to use the
prior notice requirement in practice as a means of objecting to
the appointment of new directors or senior executives (or
changes in the responsibilities of senior executives) it deems
not qualified for the positions sought (or to changes in the
responsibilities of senior executives it deems not qualified for
the new responsibilities proposed). These requirements will
apply as well to WLBC upon the acquisition of Service1st. These
regulatory requirements could make it more difficult for
Service1st and WLBC to retain and hire qualified senior
management. The MOU and these regulatory restrictions will
remain in effect until modified or terminated by the regulators.
Risks
Related to Western Liberty Bancorp
Although
we are required to use our commercially reasonable efforts to
have an effective registration statement covering the issuance
of the shares of common stock underlying exercisable warrants at
the time that our warrant holders exercise their warrants, we
cannot guarantee that a registration statement will be
effective, in which case our warrant holders may not be able to
exercise our warrants.
Although we have undertaken in the Amended and Restated Warrant
Agreement (as defined in the section entitled
Description of Securities
Warrants below), and therefore have a contractual
obligation, to use our commercially reasonable efforts to
maintain a current registration statement covering the shares of
common stock underlying our outstanding warrants following the
consummation of a business combination to the extent required by
federal securities laws, and we intend to comply with our
undertaking, we cannot assure that we will be able to do so. In
addition, we have agreed to use our commercially reasonable
efforts to register the shares of common stock underlying the
warrants under the blue sky laws of the states of residence of
the existing warrant holders, to the extent an exemption is not
available. The value of the warrants may be greatly reduced if a
registration statement covering the shares of common stock
issuable upon the exercise of the warrants is not kept current
or if the securities are not qualified, or exempt from
qualification, in the states in which the holders of warrants
reside. Holders of warrants who reside in jurisdictions in which
the shares of common stock underlying the warrants are not
qualified and in which there is no exemption will be unable to
exercise their warrants and would either have to sell their
warrants in the open market or allow them to expire unexercised.
If and when the warrants become redeemable by us, we may
exercise our redemption right even if we are unable to qualify
the underlying securities for sale under all applicable state
securities laws.
We may
choose to redeem our outstanding warrants at a time that is
disadvantageous to our warrant holders.
Subject to there being a current prospectus under the Securities
Act of 1933, as amended (the Securities Act),
with respect to the common stock issuable upon exercise of the
warrants, we may redeem the warrants issued as a part of our
units at any time after the warrants become exercisable in whole
and not in part, at a price of $0.01 per warrant, upon a minimum
of 30 days prior written notice of redemption, if and
only if, the last sales price of our common stock equals or
exceeds $21.00 per share for any 20 trading days within a
30-trading-day period ending three business days before we send
the notice of redemption. In addition, we may not redeem the
warrants unless the warrants comprising the units sold in our
initial public offering and the shares of common stock
underlying those warrants are covered by an effective
registration statement from the
18
beginning of the measurement period through the date fixed for
the redemption. Redemption of the warrants could force the
warrant holders to (i) exercise the warrants and pay the
exercise price at a time when it may be disadvantageous for the
holders to do so, (ii) sell the warrants at the then
current market price when they might otherwise wish to hold the
warrants, or (iii) accept the nominal redemption price
which, at the time the warrants are called for redemption, is
likely to be substantially less than the market value of the
warrants. We expect most purchasers of our warrants will hold
their securities through one or more intermediaries and
consequently you are unlikely to receive notice directly from us
that the warrants are being redeemed. If you fail to receive
notice of redemption from a third party and your warrants are
redeemed for nominal value, you will not have recourse to us.
Our
outstanding warrants may be exercised in the future, which would
increase the number of shares eligible for future resale in the
public market and result in dilution of our
stockholders.
Outstanding redeemable warrants to purchase an aggregate of
(i) 31,948,850 shares of our common stock with respect
to our warrants issued in our initial public offering
(Public Warrants) and (ii) up to
16,118,908 shares of our common stock with respect to our
Private Warrants (assuming the Private Warrants held by
Hayground Cove or its affiliates are no longer under Hayground
Coves or any of its affiliates control) will become
exercisable after the consummation of the Acquisition. These
warrants likely will be exercised only if the per share exercise
price is below the market price of the shares of our common
stock. To the extent such warrants are exercised, 48,067,758
additional shares of our common stock will be issued, which will
result in the dilution of the ownership of the holders of our
common stock and an increase in the number of shares eligible
for resale in the public market. Sales of substantial numbers of
such shares in the public market could adversely affect the
market price of our common stock.
The
NYSE Amex may delist our securities on its exchange, which could
limit investors ability to make transactions in our
securities and subject us to additional trading
restrictions.
On October 20, 2009, we received notice from the staff of
the NYSE Amex, where our securities are currently listed,
indicating that the NYSE Amex believes that we no longer comply
with its continued listing standards due to the recent
amendments to our Amended and Restated Certificate of
Incorporation approved at our stockholder meeting on
October 7, 2009 and an insufficient number of public
stockholders of our common stock.
We have appealed this determination and have been granted the
right to a hearing before a committee of the NYSE Amex on
February 11, 2010. If our securities remain on the NYSE
Amex, we will be required to meet their respective continued
listing requirements to remain listed. We may not be able to
maintain those listing requirements.
If the NYSE Amex delists our securities from trading, we could
face significant material adverse consequences, including:
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a limited availability of market quotations for our securities;
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reduced liquidity with respect to our securities;
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a significant devaluation of our securities, which could result
in a determination that our shares of common stock have become
penny stock, which will require brokers trading in
our shares of common stock to adhere to more stringent rules,
possibly resulting in a reduced level of trading activity in the
secondary trading market for the shares of common stock;
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a limited amount of news and analyst coverage; and
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a decreased ability to issue additional securities or obtain
additional financing in the future.
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In addition, if the NYSE Amex delists our securities, we cannot
assure you as to when we will be able to relist such securities
on a national securities exchange.
19
Our
stock price could fluctuate and could cause you to lose a
significant part of your investment.
Following consummation of the Acquisition, the market price of
our securities may be influenced by many factors, some of which
are beyond our control, including those described above and the
following:
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changes in our perceived ability to increase our assets and
deposits;
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changes in financial estimates by analysts;
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announcements by us or our competitors of significant contracts,
productions, acquisitions or capital commitments;
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fluctuations in our quarterly financial results or the quarterly
financial results of companies perceived to be similar to us;
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general economic conditions;
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changes in market valuations of similar companies;
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terrorist acts;
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changes in our capital structure, such as future issuances of
securities or the incurrence of additional debt;
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future sales of our common stock;
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regulatory developments in the United States, foreign countries
or both;
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litigation involving us, our subsidiaries or our general
industry; and
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additions or departures of key personnel.
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We do
not expect to present any additional or alternative acquisitions
to our stockholders for a vote, except as required under
Delaware or other applicable law, or pursuant stock exchange
rules. Furthermore, if the Acquisition is not approved, we will
have unrestricted funds which we intend to use to make an
alternative acquisition. As a result, you will possibly not have
the opportunity to evaluate a potential acquisition, which would
make your investment in us more speculative.
We do not expect to present any additional or alternative
acquisitions to our stockholders for a vote, except as required
under Delaware or other applicable law or pursuant to stock
exchange rules. This includes, among other things, the right to
vote upon certain direct mergers involving the Company and the
right to vote upon any sale, lease or exchange of all or
substantially all of our assets. In general, no vote of our
stockholders is required under our Second Amended and Restated
Certificate of Incorporation or Delaware law to authorize the
purchase by us of the assets of another entity (including, for
example, assets purchased from a troubled financial institution
as part of a sale by the FDIC or other regulator) or to
authorize acquisitions effected through a merger in which we are
the surviving corporation, each share of our stock outstanding
immediately prior to the effectiveness of the merger is an
identical share of the surviving corporation, and our authorized
unissued shares or treasury shares to be issued or delivered
under the relevant merger agreement do not exceed 20% of the
shares of our common stock outstanding immediately prior to the
effective date of the merger. Any future acquisition structured
as a purchase of the assets of another entity in exchange for
cash would not require a stockholder vote under Delaware law.
Likewise, any acquisition by us of another company that is
structured as a forward triangular merger or a
reverse triangular merger (which, in each case,
would involve a merger between the target entity and a
wholly-owned subsidiary of WLBC), or a direct merger between us
and the target in which we offer as consideration shares
representing less than 20% of our outstanding stock prior to the
merger, would not require a stockholder vote under Delaware law.
Such matters could be authorized by our board of directors,
which is charged with directing our business and affairs, and we
do not expect to consult holders of our securities prior to
effecting these acquisitions. Although our management and board
of directors will use their best efforts to select targets that
will produce the best returns on our stockholders equity,
there is no guarantee that the acquisition of banking assets in
the future will produce managements and the board of
directors intended results.
20
If the Acquisition is not approved by our stockholders
and/or the
stockholders of Service1st, or if the Acquisition Proposal is
approved but the Acquisition cannot be consummated or is
terminated due to, among other things, our inability to obtain
the requisite regulatory approvals, we will have no immediate
source of revenue. Our Second Amended and Restated Certificate
of Incorporation does not contain any restrictions on our use of
funds in connection with the pursuit and consummation of an
alternative acquisition. Furthermore, we do not expect to
present any alternative acquisition to our stockholders for a
vote, except as required under Delaware or other applicable law,
or pursuant to stock exchange rules. As a result, you may not
have the opportunity to review and approve any alternate
acquisition, which would make your investment in us more
speculative.
If we
are unable to effectively maintain a system of internal control
over financial reporting, we may not be able to accurately or
timely report financial results, which could materially
adversely affect our business.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that
a public company evaluate the effectiveness of its internal
control over financial reporting as of the end of each fiscal
year, and to include a management report assessing the
effectiveness of its internal control over financial reporting
in its annual report on
Form 10-K
for that fiscal year. Section 404 also requires that a
public companys independent registered public accounting
firm attest to, and report on, the effectiveness of the
companys internal control over financial reporting.
Our ability to comply with the annual internal control report
requirements of Section 404 upon consummation of the
Acquisition will depend on the effectiveness of our financial
reporting and data systems and controls across our operations,
including Service1st, which has not historically made
evaluations and assessments in accordance with Section 404.
We expect the implementation of these systems and controls at
Service1st to involve significant expenditures, and our
systems and controls will become increasingly complex after the
consummation of the Acquisition. To effectively implement these
systems at Service1st and manage this complexity, we will
likely need to continue to improve our operational, financial
and management controls and our reporting systems and procedures.
If we are not able to implement the required new or improved
controls, or encounter difficulties in the implementation or
operation of these controls, our independent registered public
accounting firm may be required to issue an adverse opinion on
the effectiveness of our internal control over financial
reporting. This failure could cause us to be unable to report
our financial information on a timely basis and thereby become
subject to adverse regulatory consequences, including sanctions
by the SEC or violations of applicable stock exchange listing
rules. There could also be a negative reaction in the financial
markets due to a loss of investor confidence in us and the
reliability of our financial statements. Confidence in the
reliability of our financial statements also could suffer if our
management team or our independent registered public accounting
firm were to report a material weakness in our internal control
over financial reporting. If any of these events were to occur,
our business could be adversely affected.
Following
the consummation of the Acquisition, our allowance for loan
losses may not be adequate to cover actual loan losses, which
may require us to take a charge to our earnings and adversely
impact our financial condition and results of
operations.
Following the consummation of the Acquisition, we will maintain
an allowance for estimated loan losses that we believe is
adequate for absorbing the inherent losses in our loan
portfolio. As of December 31, 2009, the allowance for loan
and lease losses for Service1st was $6.4 million on a
total of approximately $137.0 million gross loans. Based on
these amounts, the percentage of allowance to total loans for
Service1st was 4.68% and the allowance for loan losses as a
percentage of
non-performing
loans for Service1st was 82.11%.
Pursuant to the acquisition method of accounting for business
combinations, the allowance for loan losses from the acquired
entities does not transfer to the acquiring entity. In addition,
the acquiring bank should establish loan loss allowances for the
acquired
held-for-investment
loans in periods after the acquisition, but
21
only for losses incurred on these loans due to credit
deterioration after acquisition. Therefore, management will
determine the provision for loan losses based upon an analysis
of general market conditions, credit quality of the loan
portfolios, and performance of customers relative to their
financial obligations. The amount of future losses is
susceptible to changes in economic, operating, and other
conditions, including changes in interest rates that may be
beyond our control and such losses may exceed the allowance for
estimated loan losses. Although we expect that the allowance for
estimated loan losses will be adequate to absorb any inherent
losses on existing loans that may become uncollectible, there
can be no assurance that the allowance will prove sufficient to
cover actual loan losses in the future. Significant increases to
the provision for loan losses may be necessary if material
adverse changes in general economic conditions occur or the
performance of the loan portfolio deteriorates. Additionally,
banking regulators, as an integral part of their supervisory
function, periodically review the allowance for estimated loan
losses. If these regulatory agencies require us to increase the
allowance for estimated loan losses, it could have a negative
effect on our results of operations and financial condition.
Following
the consummation of the Acquisition, if we are unable to recruit
and retain experienced management personnel and recruit and
retain additional qualified personnel, our business and
prospects could be adversely affected.
Our success following the Acquisition will depend in significant
part on our ability to retain senior executives and other key
personnel in technical, marketing and staff positions. There can
be no assurance that we will be able to successfully attract and
retain highly qualified key personnel, either in existing
markets and market segments or in new areas that we may enter.
If we are unable to recruit and retain an experienced management
team or recruit and retain additional qualified personnel, our
business, and consequently our sales and results of operations,
may be materially adversely affected.
Upon consummation of the Acquisition, Service1st will have
approximately 47 full-time equivalent, non-union employees.
Service1st seeks to employ adequate staffing commensurate
with levels of banking activities and customer service
requirements for a community bank.
Our success following the completion of the Acquisition will
depend in part on our ability to retain key customers, and to
hire and retain management and employees and successfully manage
the broader organization resulting from the Acquisition.
Competition for qualified individuals may be intense and key
individuals may depart because of issues relating to the
uncertainty and difficulty of integration or a general desire
not to remain with us after the Acquisition. Furthermore, we
will face challenges inherent in efficiently managing an
increased number of employees. Accordingly, no assurance can be
given that we will be able to attract and retain key customers,
management or employees or successfully manage the acquired
organization, which could result in disruption to our business
and negatively impact our operations and financial condition,
which in turn could cause us not to realize the benefits
anticipated to result from the Acquisition.
We are
exposed to risk of environmental liabilities with respect to
properties to which we take title.
In the course of our business we may foreclose and take title to
real estate, potentially becoming subject to environmental
liabilities associated with the properties. We may be held
liable to a governmental entity or to third parties for property
damage, personal injury, investigation and
clean-up
costs or we may be required to investigate or clean up hazardous
or toxic substances or chemical releases at a property. Costs
associated with investigation or remediation activities can be
substantial. If we are the owner or former owner of a
contaminated site, we may be subject to common law claims by
third parties based on damages and costs resulting from
environmental contamination emanating from the property. These
costs and claims could adversely affect our business and
prospects.
22
Changing
tax laws, rules and regulations are subject to interpretation by
applicable taxing authorities. If interpretations or tax laws,
rules and regulations were to change, this may adversely affect
our business, financial condition and results of operations
after the consummation of the Acquisition.
We are subject to various domestic tax laws, rules and
regulations. These regulations are subject to change, and
applicable laws, rules and regulations are subject to
interpretation by the applicable taxing authorities. We attempt
to be in compliance with all applicable tax provisions. However,
compliance with these tax provisions is not necessarily clear in
all cases and taxing authorities may take a contrary position.
Such positions could have an adverse effect on our businesses,
financial condition and results of operations. If the tax laws,
rules and regulations were amended or if current interpretations
of the laws were to change adversely to our interests, the
results could have an adverse affect on our business, results of
operations and financial condition.
Compliance
with governmental regulations and changes in laws and
regulations and risks from investigations and legal proceedings
could be costly and could adversely affect operating
results.
Following the consummation of the Acquisition, our operations
could be impacted by changes in the legal and business
environments in which we could operate, as well as the outcome
of ongoing government and internal investigations and legal
proceedings. Also, as a result of new laws and regulations or
other factors, we could be required to curtail or cease certain
operations. Changes that could impact the legal environment
include new legislation, new regulation, new policies,
investigations and legal proceedings and new interpretations of
the existing legal rules and regulations. Changes that impact
the business environment include changes in accounting
standards, changes in environmental laws, changes in tax laws or
tax rates, the resolution of audits by various tax authorities,
and the ability to fully utilize any tax loss carry forwards and
tax credits. Compliance-related issues could limit our ability
to do business in certain countries. These changes could have a
significant financial impact on our future operations and the
way we conduct, or if we conduct, business in the affected
countries.
We may
need to raise additional capital in the future and such capital
may not be available when needed or at all.
We may need to raise additional capital in the future to provide
us with sufficient capital resources and liquidity to satisfy
our commitments and business needs, capital might not be
available on terms acceptable to us or at all. Our ability to
raise additional capital, if needed, will depend on, among other
things, conditions in the capital markets at that time, which
are outside of our control, and our financial performance. The
ongoing liquidity crisis and the loss of confidence in financial
institutions may increase our cost of funding and limit our
access to some of our customary sources of capital, including
but not limited to inter-bank borrowings, repurchase agreements,
and borrowings from the discount window of the Federal Reserve.
We cannot assure you that capital will be available to us on
acceptable terms or at all. Any occurrence that limits our
access to the capital markets, such as a decline in the
confidence of debt purchasers, depositors of subsidiary banks,
or counterparties participating in the capital markets, could
adversely affect our capital costs and our ability to raise
capital and, in turn, our liquidity. The inability to raise
additional capital on acceptable terms when needed could have a
materially adverse effect on our businesses, financial
condition, and results of operations.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
We maintain our principal executive offices at 1370 Avenue of
the Americas, 28th Floor, New York, NY 10019.
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Item 3.
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Legal
Proceedings
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None.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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Not applicable.
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Our equity securities trade on the NYSE Amex. Each of our units
consists of one share of common stock and one warrant and trades
on the NYSE Amex under the symbol WLBC.U. Our public
warrants (Public Warrants) and public shares
(Public Shares) of common stock trade separately on
the NYSE Amex under the symbols WLBC.WS and
WLBC, respectively. Each warrant entitles the holder
to purchase one share of our common stock at a price of $12.50
commencing on the consummation of our initial business
combination. The Public Warrants expire on the date that is the
seven year anniversary from the date of our initial acquisition
or earlier upon redemption.
The following table sets forth, for the fourth quarter of the
year ended December 31, 2007 and each quarter in the years
ended December 31, 2009 and 2008, the high and low sales
price of our units, Public Shares and Public Warrants as
reported on the NYSE Amex. Prior to November 27, 2007,
there was no established public trading market for our
securities.
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Units
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Common Stock
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Warrants
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Quarter Ended
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High
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Low
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High
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Low
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High
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Low
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2007
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Fourth Quarter (from November 27, 2007)
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$
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10.10
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$
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9.75
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$
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9.05
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$
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9.05
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$
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0.90
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$
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0.90
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2008
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
10.00
|
|
|
$
|
9.66
|
|
|
$
|
9.20
|
|
|
$
|
9.00
|
|
|
$
|
0.92
|
|
|
$
|
0.71
|
|
Second Quarter
|
|
$
|
10.53
|
|
|
$
|
9.67
|
|
|
$
|
9.30
|
|
|
$
|
9.03
|
|
|
$
|
1.04
|
|
|
$
|
0.57
|
|
Third Quarter
|
|
$
|
10.00
|
|
|
$
|
9.30
|
|
|
$
|
9.49
|
|
|
$
|
9.22
|
|
|
$
|
0.90
|
|
|
$
|
0.25
|
|
Fourth Quarter
|
|
$
|
9.24
|
|
|
$
|
8.49
|
|
|
$
|
9.18
|
|
|
$
|
8.40
|
|
|
$
|
0.30
|
|
|
$
|
0.05
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
9.55
|
|
|
$
|
9.15
|
|
|
$
|
9.48
|
|
|
$
|
9.14
|
|
|
$
|
0.17
|
|
|
$
|
0.08
|
|
Second Quarter
|
|
$
|
9.76
|
|
|
$
|
9.48
|
|
|
$
|
9.69
|
|
|
$
|
9.44
|
|
|
$
|
0.23
|
|
|
$
|
0.09
|
|
Third Quarter
|
|
$
|
10.70
|
|
|
$
|
9.90
|
|
|
$
|
9.89
|
|
|
$
|
9.65
|
|
|
$
|
1.20
|
|
|
$
|
0.20
|
|
Fourth Quarter
|
|
$
|
10.30
|
|
|
$
|
7.75
|
|
|
$
|
9.83
|
|
|
$
|
6.42
|
|
|
$
|
1.20
|
|
|
$
|
0.55
|
|
24
Performance
Graph
The graph below is a comparison of the cumulative total return
of our common stock from December 28, 2007, the date that
our common stock first became separately tradable, through
January 31, 2010 with the comparable cumulative return for
two indices, the S&P 500 Index and the Dow Jones Industrial
Average Index. The graph plots the growth in value of an initial
investment of $100 in each of our common stock, the S&P 500
Index and the Dow Jones Industrial Average Index over the
indicated time periods, and assuming reinvestment of all
dividends, if any, paid on the securities. We have not paid cash
dividends and, therefore, the cumulative total return
calculation for us is based solely upon stock price appreciation
and not upon reinvestment of cash dividends. The stock price
performance shown on the graph is not necessarily indicative of
future price performance.
Holders
of Common Equity
On February 8, 2010, there was approximately one holder of
record of our units, approximately one holder of record of our
Public Warrants and approximately two holders of record of our
Public Shares. Such numbers do not include beneficial owners
holding shares, warrants, or units through nominee names, or
holders of our shares issued in a private placement prior to our
initial public offering (the Private Shares)
or Private Warrants. On February 8, 2010, there were
approximately 22 holders of record of our Private Shares and 22
holders of our Private Warrants.
Dividends
We have not paid any dividends on our common stock to date and
we do not intend to pay cash dividends prior to the consummation
of our initial business combination. If we complete the
Acquisition, the payment of dividends will depend on our
revenues and earnings, if any, capital requirements and general
financial condition. The payment of dividends after any business
combination will be within the discretion of our then-board of
directors. Our board of directors currently intends to retain
any earnings for use in our business operations and,
accordingly, we do not anticipate the board declaring any
dividends prior to a business combination.
Recent
Sales of Unregistered Securities
On July 16, 2007, we issued an aggregate amount of
8,575,000 shares, at a purchase price of $0.001 per share,
in private placement transactions. On August 1, 2007, we
issued 25,000 shares, at a purchase price of $0.001 per
share, in a private placement. On September 28, 2007, we
issued 25,000 shares, at a purchase price
25
of $0.001 per share, in a private placement. In total, prior to
our initial public offering we issued 8,625,000 shares of
our common stock for an aggregate amount of $8,625 in cash. Of
those shares, 637,786 were redeemed because the underwriters did
not fully exercise their over-allotment option, resulting in a
total of 7,987,214 shares outstanding after the redemption.
On August 1, 2007, our former Chief Executive Officer
agreed to purchase 1,000,000 of our warrants to purchase one
share of our common stock at a price of $1.00 per warrant. Our
former Chief Executive Officer purchased such warrants from us
immediately prior to the consummation of our initial public
offering on November 27, 2007.
On October 19, 2007, Hayground Cove agreed to purchase
7,500,000 of our warrants to purchase one share of our common
stock at a price of $1.00 per warrant. Hayground Cove purchased
such warrants from us immediately prior to the consummation of
our initial public offering on November 27, 2007. The
warrants purchased by our former Chief Executive Officer and
Hayground Cove initially comprised the Private Warrants.
The sales of the above securities were deemed to be exempt from
the registration under the Securities Act of 1933 in reliance on
Section 4(2) of the Securities Act as transactions by an
issuer not involving a public offering. In each such
transaction, such entity represented its intention to acquire
the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate
legends were affixed to the instruments representing such
securities issued in such transactions.
On July 20, 2009, we entered into a Private
Shares Restructuring Agreement (the Private
Shares Restructuring Agreement) with Hayground Cove,
pursuant to which 7,618,908, or over 95%, of our Private Shares,
including all of the Private Shares held by Hayground Cove and
the funds, accounts and shares it or its affiliates control
including shares held by current and past limited partners and
investors, were cancelled and exchanged for Private Warrants,
resulting in 368,306 Private Shares currently outstanding.
Pursuant to this exchange, Hayground Cove and the funds and
accounts it or its affiliates control no longer own any of our
common stock. Each new Private Warrant is governed by the
Amended and Restated Warrant Agreement (defined below) and have
terms identical to those of the restructured Private Warrants.
The Private Shares Restructuring Agreement provides that no
warrant held by Hayground Cove or any of its affiliates,
including their Private Warrants, is exercisable at any time
while under Hayground Coves or any of its affiliates
control. In addition, Hayground Cove is required to obtain an
opinion of bank regulatory counsel that the transfer of any
warrants will not make the transferee a bank holding
company under the Bank Holding Company Act or subject the
transferee to prior approval by the Federal Reserve under the
Change in Bank Control Act. Pursuant to a separate agreement
between us and Hayground Cove, Hayground Cove and its affiliates
may only transfer their warrants to an unaffiliated third party
transferee if: (i) the transfer is part of a widespread
distribution of such warrants; (ii) the transferee controls
more than 50% of our voting securities prior to affecting the
warrant transfer or (iii) the warrants transferred would
not constitute more than 2% of any class of our voting
securities. In consideration for entering into the Private
Shares Restructuring Agreement, we agreed to indemnify
Hayground Cove and each participating former holder of Private
Shares for any claims that arise out of or are based upon the
restructuring of the Private Shares and shall indemnify
Hayground Cove and its affiliates for any of their obligations
with respect to the Private Shares. The Private Shares
Restructuring Agreement also provides that none of our warrants
held by Hayground Cove or its affiliates may be exercisable at
any time while under Hayground Coves or its
affiliates control.
On July 20, 2009, we entered in the Amended and Restated
Warrant Agreement (the Amended and Restated Warrant
Agreement) with Continental, as further amended on
October 7, 2009, which amends certain terms of our Public
Warrants and our Private Warrants. The terms of the Amended and
Restated Warrant Agreement include (i) a new strike price
of $12.50 per share of our common stock, par value $0.0001,
(ii) an expiration occurring on the earlier of
(x) seven years from the consummation of the Acquisition or
another business combination or (y) the date fixed for
redemption of the warrants set forth in the original warrant
agreement, (iii) a redemption price of $0.01 per warrant,
provided that (x) all of the warrants are redeemed,
(y) the last sales price of the common stock has been equal
to or greater than $21.00 per share on each of 20 trading days
within any
30-day
trading period ending on the third business day prior to the
date on which notice of redemption is given and (z) there
is an effective registration statement in place
26
with respect to the common stock underlying the warrants,
(iv) mandatory downward adjustment of the strike price for
each warrant to reflect any cash dividends paid with respect to
the outstanding common stock, until
26.1
such date as our publicly traded common stock trades at $18.00
or more per share on each of 20 trading days within any
30-trading-day period; and (v) in the event an effective
registration statement is not in place on the date the warrants
are set to expire, the warrants will remain outstanding until
90 days after an effective registration statement is filed.
If we have not filed an effective registration statement within
90 days after the expiration date, the warrants shall
become exercisable for cash consideration. Additionally, the
warrants shall not be exercisable by any warrant holder to the
extent that, after giving effect to such exercise, any warrant
holder or its affiliates would beneficially own in excess of
9.99% of the common stock outstanding immediately after giving
effect to such exercise and no warrants held by Hayground Cove
or any of its affiliates will be exercisable at any time while
under Hayground Coves or any of its affiliates
control. In addition, Hayground Cove will be required to obtain
an opinion of bank regulatory counsel that the transfer of any
warrants will not make the transferee a bank holding
company under the Bank Holding Company Act or subject the
transferee to prior approval by the Federal Reserve under the
Change in Bank Control Act. In connection with the foregoing, on
August 13, 2009, we entered into a Letter Agreement with
Hayground Cove, whereby Hayground Cove agreed that it and its
affiliates may only transfer any of our warrants they hold to an
unaffiliated third party transferee if: (i) the transfer is
part of a widespread public distribution of such warrants;
(ii) the transferee controls more than 50.0% of our voting
securities without any transfer from Hayground Cove or any of
its affiliates or (iii) the warrants transferred to a
transferee (or group of associated transferees) would not
constitute more than 2.0% of any class of our voting securities.
On October 7, 2009, we entered into an Amendment No. 1
to the Amended and Restated Warrant Agreement (the Warrant
Agreement Amendment) with Continental Stock
Transfer & Trust Company, as warrant agent. The
Warrant Agreement Amendment (i) amends the definition of
Business Combination as set forth in the Warrant
Agreement to allow for the exercise of WLBCs warrants
immediately upon consummation of an initial business
combination, subject to certain requirements as set forth in the
Amended and Restated Warrant Agreement.
Our stockholders have approved the grant of 50,000 restricted
stock units to each of Richard A.C. Coles and Michael B.
Frankel, who currently serve on our board of directors and will
continue to serve on our board of directors upon the
consummation of the Acquisition, Mark Schulhof, who currently
serves on our board of directors, and Daniel B. Silvers, who
currently serves as our President (a total of 200,000 restricted
stock units), and a one-time grant of restricted stock equal to
$250,000 divided by the closing price of our common stock on the
closing date of the Acquisition (the Closing Date)
to George A. Rosenbaum Jr., who, effective as of January 1,
2010, serves as our Chief Financial Officer and will serve as
Executive Vice President of Service1st upon the
consummation of the Acquisition. These restricted stock grants
are subject to the consummation of our initial acquisition.
We shall also issue restricted stock with respect to shares of
our common stock to each of William E. Martin, who will become a
member of our board of directors and serve as our Chief
Executive Officer and as Chief Executive Officer of Service1st,
and John S. Gaynor, who will serve as our President and Chief
Operating Officer and as the President and Chief Operating
Officer of Service1st. Each of Messrs. Martin and Gaynor
will be issued restricted shares of our common stock in an
amount equal to $1.0 million divided by the closing price
of our common stock on the closing date of the Acquisition in
consideration for his future services.
Securities
Authorized for Issuance Under Equity Compensation
Plans
We have no compensation plans under which equity securities are
authorized for issuance. However, our board of directors has
approved the award of up to 1.5 million shares of
restricted stock in connection with the Acquisition, which may
be awarded to certain members of our management and our
consultants subject to Compensation Committee approval and
allocation. The Compensation Committee will meet to determine
whether or not to make such grants, and if so which members of
our management and our consultants will receive equity grants
and the allocation of such grants. No decision has been made by
our current board of directors as to whether these shares will
be awarded at all, how many of such shares may be awarded, when
such shares may be awarded or to whom such shares may be
awarded. All such determinations will be made solely by the
Compensation Committee in place upon consummation of the
Acquisition.
27
|
|
Item 6.
|
Selected
Financial Data
|
The following table summarizes the relevant financial data for
our business and should be read with our financial statements,
which are included in this report. Our only operations to date
have been to consummate one or more business combinations, so
only balance sheet data is presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
88,520,440
|
|
|
$
|
318,395,203
|
|
|
$
|
315,466,234
|
|
Total liabilities
|
|
|
628,493
|
|
|
|
10,266,712
|
|
|
|
10,410,149
|
|
Value of common stock which may be redeemed for cash
|
|
|
|
|
|
|
94,983,921
|
|
|
|
94,538,357
|
|
Stockholders equity
|
|
|
87,891,947
|
|
|
|
213,144,570
|
|
|
|
210,517,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(inception) to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statement of Operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(15,037,455
|
)
|
|
$
|
(7,243,995
|
)
|
|
$
|
(357,620
|
)
|
Net (loss) income attributable to common stockholders
|
|
$
|
(14,994,281
|
)
|
|
$
|
(1,998,110
|
)
|
|
$
|
290,152
|
|
Basic (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(0.45
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share
|
|
$
|
(0.45
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(0.45
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share
|
|
$
|
(0.45
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read the following discussion and analysis in
conjunction with our combined and consolidated financial
statements and related notes thereto included in or incorporated
into Part II, Item 8 of this Annual Report on
Form 10-K
and the Risk Factors included in Part I, Item 1A of
this Annual Report on
Form 10-K,
as well as other cautionary statements and risks described
elsewhere in this Annual Report on
Form 10-K.
The information in this section contains forward-looking
statements. Our actual results may differ significantly from the
results suggested by these forward-looking statements and our
historical results. Some factors that may cause our results to
differ are described in Risk Factors under
Part I, Item 1A of this Annual Report on
Form 10-K.
We wish to caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date
made.
Overview
Upon the consummation of the Acquisition, we will operate as a
new Nevada financial institution bank holding
company and will conduct our operations through our wholly-owned
subsidiary, Service1st.
Post-acquisition, Service1st will provide a full range of
traditional community banking services focusing on core
commercial business in the form of commercial and commercial
real estate lending, small business lending, consumer loans and
a broad range of commercial and consumer depository products.
Following the consummation of the Acquisition, we intend to
pursue additional acquisitions and to fund the growth of our
loan portfolio and deposit base.
28
Following the approval of the Acquisition, we do not expect to
present any additional acquisitions to our stockholders for a
vote, except as required under Delaware or other applicable law,
or stock exchange rules, including any acquisition of a troubled
financial institution as part of a sale by the FDIC or other
regulator. If the Acquisition is not consummated, we do not
expect to present alternative acquisition targets to a vote of
stockholders, except as required under Delaware or other
applicable law, or stock exchange rules. In general, no vote of
our stockholders is required under our Second Amended and
Restated Certificate of Incorporation or Delaware law to
authorize the purchase by us of the assets of another entity
(including, for example, assets purchased from a troubled
financial institution as part of a sale by the FDIC or other
regulator) or to authorize acquisitions effected through a
merger in which we are the surviving corporation, each share of
our stock outstanding immediately prior to the effectiveness of
the merger is an identical share of the surviving corporation,
and our authorized unissued shares or treasury shares to be
issued or delivered under the relevant merger agreement do not
exceed 20% of the shares of our common stock outstanding
immediately prior to the effective date of the merger. Such
matters could be authorized by our board of directors, which is
charged with directing our business and affairs.
Recent
Economic Developments
The global and U.S. economies, and the economies of the
local communities in which we operate, experienced a rapid
decline between 2007 and today. The financial markets and the
financial services industry in particular suffered unprecedented
disruption, causing many major institutions to fail or require
government intervention to avoid failure. These conditions were
brought about largely by the erosion of U.S. and global
credit markets, including a significant and rapid deterioration
of the mortgage lending and related real estate markets. We
believe that we are well-positioned to exploit the current
conditions in the financial markets as a result of, what we
expect to be, our well-capitalized balance sheet.
The United States, state and foreign governments have taken or
are taking extraordinary actions in an attempt to deal with the
worldwide financial crisis and the severe decline in the
economy. In the United States, the federal government has
adopted the Emergency Economic Stabilization Act of 2008
(enacted on October 3, 2008) and the American Recovery
and Reinvestment Act of 2009 (enacted on February 17,
2009). Among other matters, these laws:
|
|
|
|
|
provide for the government to invest additional capital into
banks and otherwise facilitate bank capital formation (commonly
referred to as the Troubled Asset Relief Program, or
TARP);
|
|
|
|
increase the limits on federal deposit insurance; and
|
|
|
|
provide for various forms of economic stimulus, including to
assist homeowners in restructuring and lowering mortgage
payments on qualifying loans.
|
We expect to evaluate FDIC-assisted bank opportunities in the
future, subject to prior approval of regulatory agencies while,
at the same time, pursuing financially sound borrowers whose
financing sources are unable to service their current needs as a
result of liquidity or other concerns. We believe that such
borrowers are not only an excellent source of lending business,
but also present opportunities to efficiently gather deposits.
Although there can be no assurance that we will be successful,
we will seek to take advantage of the current disruption in our
markets to grow market share, assets and deposits in a prudent
fashion, subject to applicable regulatory limitations.
We are interested in participating with the U.S. Government
and the State of Nevada to the extent that additional depository
institutions in Nevada, or the Southwest United States, fail or
become further distressed. Any such participation will be
subject to all required regulatory approvals. We can make no
assurance that we will obtain the necessary approvals.
Off-Balance
Sheet Arrangements
We have no obligations, assets or liabilities that would be
considered off-balance sheet arrangements. We do not participate
in transactions that create relationships with unconsolidated
entities or financial partnerships, often referred to as
variable interest entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements.
29
We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities,
guaranteed any debt or commitments of other entities, or entered
into any non-financial assets.
Contractual
Obligations, Commitments and Contingencies
We do not have any long-term debt, capital lease obligations,
operating lease obligations or long-term liabilities. We
previously paid a monthly fee of $10,000 for office space and
general and administrative services payable to Hayground Cove.
We began incurring this fee on November 27, 2007, and
incurred this fee through August 31, 2009.
Results
of Operations
For the fiscal years ended December 31, 2009 and 2008, we
had a net loss of $14,994,281 and $1,998,110 ($14,898,434 and
$1,552,546 before the adjustment of $95,847 and $445,564 of net
interest attributable to common stock subject to redemption),
respectively . Since we did not have any revenue all of our
income was derived from interest income, most of which was
earned on funds held in our trust account. Our operating
expenses for the fiscal years ended December 31, 2009 and
2008 were $15,037,455 and $7,243,995, respectively, and
consisted primarily of expenses related to stock based
compensation, legal and accounting professional fees, insurance
costs, pursuing a business combination and due diligence.
Settlement
Agreement with our Former Chief Executive Officer
On December 23, 2008, we entered into a settlement
agreement (the Settlement Agreement), with our
former Chief Executive Officer in connection with his
termination as our Chief Executive Officer and his resignation
from our Board of Directors. The Settlement Agreement provides
that his employment terminated without cause effective as of
December 23, 2008. He received a severance payment from us
in the sum of $247,917, less applicable withholding taxes. The
Settlement Agreement also provides that: (i) he irrevocably
and unconditionally retains his option to purchase
495,000 shares of our common stock from Hayground Cove at
an exercise price of $0.001 per share under the terms of his
employment agreement and his termination under the terms of the
Settlement Agreement shall not constitute a forfeiture of any
part of his option; (ii) he shall be deemed to be fully
vested in the option as of the effective date of the Settlement
Agreement, provided however that he shall not be entitled to
exercise all or any portion of the option until on or after the
date that is six months after the closing date of a business
combination and that he shall have the right to exercise the
option at any time on or after such date; (iii) he
irrevocably and unconditionally retains all rights and title to
the 25,000 founder shares he received in connection with his
service on our Board of Directors under his employment agreement
and that we irrevocably and unconditionally relinquish any and
all rights under his employment agreement or otherwise to redeem
or repurchase these shares; (iv) he irrevocably and
unconditionally retains all rights and title to the 1,000,000
Private Warrants he purchased and the we irrevocably and
unconditionally relinquish any and all rights under his
employment agreement or otherwise to redeem or repurchase the
warrants; (v) we shall maintain directors and
officers liability insurance that names him as an insured
under such policies for a period of six years following the
effective date of the Settlement Agreement at a level
commensurate with that which is then applicable to our most
senior executives and directors; (vi) he acknowledges that
his non-solicitation obligations under his employment agreement
survive the termination thereof, and he therefore may not, for a
period of two years commencing on the date of his termination,
solicit our employees, personnel, consultants, advisers or
contractors or encourage in any manner our customers or clients
to reduce their relationship with us; and (vii) he
acknowledges that his option, the shares of our stock he may
acquire upon exercise of his option, the shares he received as a
member of our Board of Directors and his warrants will all be
subject to the terms of a
lock-up
agreement, dated October 3, 2007, between Hayground Cove
and us. The Settlement Agreement also provides for a mutual
general release of claims he has or may have against us or our
officers, directors and affiliates or we have or may have
against him.
30
Sponsor
Support Agreement
Pursuant to the Second Amended and Restated Sponsor Support
Agreement, dated as of August 13, 2009, between us and
Hayground Cove (the Sponsor Support
Agreement), we have agreed that neither we nor
Hayground Cove (or any affiliates of Hayground Cove) will enter
into any private negotiations to purchase any of our securities,
or solicit tenders of any of our securities. We have agreed to
indemnify Hayground and its affiliates for any liabilities
arising from the Sponsor Support Agreement or otherwise in their
capacity as our affiliate.
1st
Commerce Merger Agreement
On July 13, 2009, we entered into a Merger Agreement (the
1st Commerce Merger Agreement) with WL Interim
Bank, a Nevada corporation (1st Commerce Merger
Sub), 1st Commerce Bank, Capitol Development Bancorp
Limited V, a Michigan corporation, and Capitol Bancorp
Limited, a Michigan corporation, which provided for the merger
of 1st Commerce Merger Sub with and into 1st Commerce
Bank, with 1st Commerce Bank being the surviving entity and
becoming our wholly-owned subsidiary. However, on
November 12, 2009, the parties to the 1st Commerce
Merger Agreement entered into a letter agreement (the
Letter Agreement) confirming the mutual termination
of the 1st Commerce Merger Agreement in accordance with the
terms specified therein. Pursuant to the Letter Agreement, the
parties agreed to make certain reimbursements which amounted to
$25,000 for transaction-related expenses. No party shall have
any further obligation or liability of any nature whatsoever
under the 1st Commerce Merger Agreement, other than with
respect to the confidentiality and public announcement
provisions therein.
Service1st
Merger Agreement
On November 6, 2009, we entered into a merger agreement
with WL-S1 Interim Bank, a Nevada corporation (Merger
Sub), Service1st Bank of Nevada, a Nevada-chartered
non-member bank (Service1st) and Curtis W. Anderson,
as representative of the former stockholders of Service1st,
which provides for the merger of Merger Sub with and into
Service1st, with Service1st being the surviving entity and
becoming our wholly-owned subsidiary.
In connection with the Acquisition, we intend to continue the
process to become a bank holding company, which will enable us
to participate in financial lines of business. Our banking
operations will be conducted through Service1st, which will be
the surviving entity pursuant to the merger agreement and will
retain the Service1st name. Founded in 2007,
Service1st holds a Nevada bank charter and will continue to
operate following the consummation of the Acquisition. As a
result of the Acquisition, all of the outstanding shares of
Service1st common stock will be cancelled and automatically
converted into the right of the holders of
Service1st common stock to receive shares of our common
stock.
The Acquisition is expected to be consummated upon the
fulfilment of certain conditions, including (a) obtaining
all necessary approvals from governmental agencies and other
third parties that are required for the consummation of the
transactions contemplated by the merger agreement, (b) the
preparation and filing of a registration statement (which shall
contain a proxy statement/prospectus) to register, under the
Securities Act, our common shares that will constitute the
merger consideration, (c) the receipt of the affirmative
vote of Service1sts stockholders the receipt of the
affirmative vote of our stockholders to adopt the merger
agreement and (d) other customary closing conditions. There
is no guarantee when all of the conditions precedent to the
consummation of the Acquisition will be satisfied.
As a result of the Acquisition, all of the outstanding shares of
Service1st common stock will be cancelled and automatically
converted into the right of the holders of
Service1st common stock to receive shares of our common
stock. The base merger consideration shall be the greater of
(a) $35 million and (b) the agreed upon tangible
book value of Service1st on the last day of the calendar
month immediately preceding the month in which the all
regulatory approvals for the consummation of the Acquisition
have been received (the Valuation Date), less the
sum of (x) a portion of Service1sts transaction
expenses (y) $1 million and (z) the amount, if
any, by which $29,166,667 exceeds the agreed upon tangible book
value of Service1st as of the Valuation Date (the
Base Merger Consideration). Furthermore, on or prior
to the second anniversary of the Closing
31
Date, if the closing price of our common stock of exceeds $12.75
per share for 30 consecutive trading days, then an additional
earn out provision of 20.0% of the agreed upon
tangible book value of Service1st at the close of business
on the Valuation Date would be added to the purchase price;
provided, however, that if the agreed upon tangible book value
of Service1st as of the Valuation Date is less than
$35 million, then the earn out provision shall
be equal to 120% of the agreed upon tangible book value of the
Service1st as of the Valuation Date minus $35 million
(if the result is positive) (the Contingent Merger
Consideration). The number of shares to be issued to the
stockholders of Service1st as of the Closing Date will be
determined by dividing (a) the Base Merger Consideration by
(b) the product of (x) the number of outstanding
shares of Service1st common stock as of the Closing Date
and (y) the average closing price of our common stock for
the five trading days immediately prior to and after the date on
which all regulatory approvals for the Acquisition have been
received (subject to certain adjustments as set forth in the
merger agreement) (the Exchange Ratio). The number
of additional shares to be issued to the former stockholders of
Service1st as of the date any earn out consideration is due
will be determined by dividing (a) the Contingent Merger
Consideration by (b) the product of (x) the number of
outstanding shares of Service1st common stock as of the
Closing Date and (y) the average of the closing price of
our common stock for the first 30 consecutive trading days on
which the closing price of our common stock shall have been more
than $12.75.
Additionally, all outstanding Service1st options and
warrants shall be converted into options and warrants of similar
tenor to purchase additional shares of our common stock in
amounts equal to the product of (a) the number of shares of
Service1st common stock that would be issuable upon
exercise of such option or warrant immediately prior to the
Closing Date and (b) the Exchange Ratio. The per share
exercise price for the warrants and options will be equal to the
quotient determined by dividing (x) the per share exercise
price for such option or warrant immediately prior to the
Closing Date by (y) the Exchange Ratio. The shares of those
Service1st stockholders who do not exercise their
dissenters rights under Nevada law will be cancelled and
extinguished and exchanged for each stockholders pro rata
portion of the overall merger consideration. In addition, we
have agreed to make a capital contribution of $15 million
to Service1st on the Closing Date.
Employment
Agreement with William E. Martin
On February 8, 2010, we entered into an amended and
restated employment agreement with William E. Martin. The
employment agreement provides that he will become our Chief
Executive Officer and remain Chief Executive Officer of
Service1st upon the consummation of the Acquisition. In
addition, our board of directors will appoint Mr. Martin to
our board of directors upon the consummation of the Acquisition.
Pursuant to the terms of the his employment agreement,
Mr. Martins employment shall commence as of the
Closing Date of the Acquisition, and continue for an initial
term of three years with one or more additional automatic one
year renewal periods thereafter. Mr. Martin will be
entitled to a base salary of $325,000. In addition, subject to
approval by our stockholders, Mr. Martin will receive a
one-time grant of restricted stock equal to $1 million
divided by the closing price of our common stock on the Closing
Date. All restricted stock will vest 20% on each of the first,
second, third, fourth and fifth anniversaries of the Closing
Date, subject to Mr. Martins continuous employment
through each vesting date. Such restricted stock shall be
subject to restrictions on transfer for a period of one year
following each vesting date. Mr. Martin is also eligible to
receive additional equity and long-term incentive awards under
any equity-based incentive compensation plans adopted by us for
which our senior executives are generally eligible, and an
annual discretionary incentive payment upon the attainment of
one or more pre-established performance goals established by the
Compensation Committee of our board of directors.
Mr. Martin shall be entitled to employee benefits in
accordance with our employee benefits programs. In addition,
Mr. Martin shall be entitled to receive a one-time payment
equal to his prior years salary in the event there is a
change in control at Service1st and Mr. Martin remains
the Chief Executive Officer of such through the closing of the
change in control. Mr. Martins employment agreement
contains customary representations, covenants and termination
provisions.
32
Employment
Agreement with John S. Gaynor
On February 8, 2010, we entered into an amended and
restated employment agreement with John S. Gaynor. The
employment agreement provides that he will become our President
and Chief Operating Officer and remain President and Chief
Operating Officer of Service1st upon the consummation of
the Acquisition.
Pursuant to the terms of the his employment agreement,
Mr. Gaynors employment shall commence as of the
Closing Date, and continue for an initial term of three years
with one or more additional automatic one year renewal periods
thereafter. Mr. Gaynor will be entitled to a base salary of
$300,000. In addition, subject to approval by our stockholders,
Mr. Gaynor will receive a one-time grant of restricted
stock equal to $1 million divided by the closing price of
our common stock on the Closing Date. All restricted stock will
vest 20% on each of the first, second, third, fourth and fifth
anniversaries of the Closing Date, subject to
Mr. Gaynors continuous employment through each
vesting date. Such restricted stock shall be subject to
restrictions on transfer for a period of one year following each
vesting date. Mr. Gaynor is also eligible to receive
additional equity and long-term incentive awards under any
equity-based incentive compensation plans adopted by us for
which our senior executives are generally eligible, and an
annual discretionary incentive payment upon the attainment of
one or more pre-established performance goals established by the
Compensation Committee of our board of directors.
Mr. Gaynor shall be entitled to employee benefits in
accordance with our employee benefits programs. In addition,
Mr. Gaynor shall be entitled to receive a one-time payment
equal to his prior years salary in the event there is a
change in control at Service1st and Mr. Gaynor remains
the President and Chief Operating Officer of such through the
closing of the change in control. Mr. Gaynors
employment agreement contains customary representations,
covenants and termination provisions.
Employment
Agreement with Richard Deglman
On November 6, 2009, we entered into an employment
agreement with Richard Deglman. The employment agreement
provides that he will become the Chief Credit Officer of
Service1st upon the consummation of the Acquisition.
Mr. Deglman is currently the Chief Credit Officer of
Service1st.
Pursuant to the terms of his employment agreement,
Mr. Deglmans employment shall commence as of the
Closing Date, and continue for an initial term of three years
with one or more additional automatic one-year renewal periods
thereafter. Mr. Deglman will be entitled to a base salary
of not less than $250,000. Mr. Deglman is eligible to
receive equity and long-term incentive awards under any
equity-based incentive compensation plans adopted by us for
which our senior executives are generally eligible, and an
annual discretionary incentive payment upon the attainment of
one or more pre-established performance goals established by the
Compensation Committee of our board of directors.
Mr. Deglman shall be entitled to employee benefits in
accordance with our employee benefits programs. In addition,
Mr. Deglman shall be entitled to receive a one-time payment
equal to his prior years salary in the event there is a
change in control at Service1st and Mr. Deglman
remains the Chief Credit Officer of such through the closing of
the change in control. Mr. Deglmans employment
agreement contains customary representations, covenants and
termination provisions.
Employment
Agreement with George A. Rosenbaum Jr.
On December 18, 2009, we entered into a second amended and
restated employment agreement with George A.
Rosenbaum, Jr., pursuant to which Mr. Rosenbaum became
our Chief Financial Officer. The employment agreement also
provides that Mr. Rosenbaum will become the Executive Vice
President of Service1st upon the consummation of the
Acquisition.
Pursuant to the terms of the employment agreement,
Mr. Rosenbaums employment as our Chief Financial
Officer commenced on January 1, 2010 (the Effective
Date) and will continue for an initial term of three
years, with one or more additional automatic one year renewal
periods. Mr. Rosenbaum will be entitled to a base salary of
not less than $200,000. In addition, Mr. Rosenbaum will
receive a one time grant of restricted stock equal to $250,000
divided by the closing price of our common stock on the Closing
Date. The restricted stock will vest 20% on each of the first,
second, third, fourth and fifth anniversaries of the Closing
Date, subject to Mr. Rosenbaums continuous employment
through each vesting date. Such restricted stock shall be
33
subject to restrictions on transfer for a period of one year
following each vesting date. Within 10 days following the
Effective Date, Mr. Rosenbaum was entitled to receive a
transaction bonus equal to a pro rata amount of his base salary
for the period from the signing of his original employment
agreement on July 28, 2009 through the Effective Date. As
of January 1, 2010, Mr. Rosenbaum has received $67,000
as a portion of his transaction bonus. Mr. Rosenbaum is
also eligible to receive an annual discretionary incentive
payment, upon the attainment of one or more pre-established
performance goals established by our board of directors or its
Compensation Committee. Mr. Rosenbaum shall be entitled to
employee benefits in accordance with any employee benefits
programs and policies adopted by us.
Voting
Agreement
On January 28, 2010, certain stockholders of
Service1st (the Stockholders) entered
into an Amended and Restated Voting Agreement with us, (the
Voting Agreement), whereby the Stockholders
agreed to vote all of the shares of Service1st common stock
currently beneficially owned by them or acquired by them after
such date in favor of approval of the approval of the
Acquisition. The Voting Agreement contains restrictions limiting
the ability of the Stockholders to sell or otherwise transfer
the shares of Service1st beneficially owned by them. The
Voting Agreement terminates upon the earliest to occur of
(i) the date of the effectiveness of the Acquisition and
(ii) the date of the termination of the merger agreement in
accordance with its terms.
Liquidity
and Capital Resources
On November 27, 2007, we consummated our initial public
offering of 31,948,850 units (including
1,948,850 units issued pursuant to the partial exercise of
the underwriters over-allotment option) at a price of $10
per unit. Each unit consists of one share of common stock, par
value $0.0001 per share, and one warrant to purchase one share
of common stock, at an exercise price of $7.50 per share. We
received net proceeds of approximately $305,658,960 million
from our initial public offering.
Simultaneously with the consummation of our initial public
offering, we consummated a private placement of 8,500,000
Private Warrants to Hayground Cove and our former Chief
Executive Officer, at a purchase price of $1.00 per Private
Warrant. We received net proceeds of $8,500,000 from the sale of
the Private Warrants.
A total of $314,158,960 of the net proceeds from the sale of the
Private Warrants and our initial public offering, including
$9,584,655 of deferred underwriting discount, were deposited
into our trust account established for the benefit of our public
stockholders.
On October 7, 2009, our stockholders authorized the
Continental Stock Transfer & Trust Company, as
trustee, (the Trustee) to distribute and terminate
our trust account immediately following stockholder approval of
the Acquisition. As a result, the Trustee distributed
$211,764,441 from our trust account to stockholders who elected
to convert their shares into a pro rata portion of the trust
account. The Trustee distributed the remaining $105,014,080 to
us from the trust account. The funds are available for working
capital.
As of December 31, 2009, we had unrestricted cash and cash
equivalents of $87,969,242, net of all payments made to
underwriters, advisors, consultants in connection with our
initial public offering and operations thereafter. In October
2009, we made a one-time payment of $2,600,000 to Hayground Cove
for due diligence and other services related to various
acquisition opportunities and other activities since our
inception. Proceeds from the payment were disbursed by Hayground
Cove to certain of its employees, affiliates and consultants
(some of whom also serve as our officers and/or directors) that
provided support to us in connection with our efforts in finding
and pursuing potential transactions. Prior to the consummation
of our initial public offering, our primary source of liquidity
was a $139,025 loan made to us in August 2007 by Hayground Cove.
This loan was repaid out of the proceeds of the offering. All
liabilities were related to costs associated with the offering.
We may apply the cash released to us from the trust account to
acquire one or more target businesses, including identifying and
evaluating prospective target businesses, selecting one or more
target businesses and
34
structuring, negotiating and consummating the Acquisition. We
may also apply the cash released to us for general corporate
purposes, including for maintenance or expansion of operations
of Service1st, the payment
34.1
of principal or interest due on indebtedness incurred in
consummating the Acquisition, to fund the purchase of other
companies or for working capital.
Assuming that the Acquisition is not consummated, we anticipate
making the following expenditures during the time period:
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legal, accounting and other expenses attendant to the due
diligence investigations, structuring and negotiating of a
business combination, including without limitation third-party
fees for assisting us in performing due diligence investigations
of prospective target businesses
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legal and accounting fees relating to our SEC reporting
obligations (including the proxy statement in connection with a
business combination);
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expenses and fees relating to certain general and administrative
services; and
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general working capital that will be used for miscellaneous
expenses, including reimbursement of any
out-of-pocket
expenses incurred by our founding stockholders, directors and
officers in connection with activities on our behalf, director
and officer liability and other insurance premiums and, if we
must dissolve and liquidate, further expenditures for
dissolution and liquidation costs.
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Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements, the
disclosure of contingent assets and liabilities in the financial
statements and the accompanying notes, and the reported amounts
of revenue and expenses during the periods presented. Actual
amounts and results could differ from those estimates. If we
were to effect a business combination, estimates and assumptions
would be based on historical factors, current circumstances and
the experience and judgment of our management, and we would
evaluate these assumptions and estimates on an ongoing basis and
may employ outside experts to assist in our evaluations. The
estimates and assumptions that management believes are the most
significant in preparing our financial statements are described
below.
Income
(loss) Per Common Share
Basic income (loss) per common share is computed by dividing net
income (loss) applicable to common stockholders by the weighted
average number of common shares for the period. Diluted income
(loss) per share reflects the potential dilution that could
occur if derivative securities were to be exercised or converted
and would otherwise result in the issuance of common stock.
For the year ended December 31, 2009 and 2008 and for the
period from June 28, 2007 (inception) to December 31,
2007, we had potentially dilutive securities in the form of
48,067,758 warrants, including 8,500,000 sponsors warrants
issued in a private placement, 7,618,908 warrants from shares
restructured into warrants and 31,948,850 warrants issued as
part of the units in our initial public offering. For the year
ended December 31, 2009, we also had potentially dilutive
securities in the form of 200,000 restricted stock units granted
to certain members of our board of directors and our president.
We use the treasury stock method to calculate
potential dilutive shares, as if they were redeemed for common
stock at the beginning of the period.
For the fiscal ended December 31, 2009, potentially
dilutive securities are excluded from the computation of fully
diluted earnings per share as their effects are anti-dilutive.
Our statements of operations for the year ended
December 31, 2008 and for the period from June 28,
2007 (inception) to December 31, 2007 include a
presentation of income (loss) per common share subject to
possible redemption in a manner similar to the two class method
of income (loss) per common share. Basic and diluted income per
common share amount for the maximum number of common shares
subject to possible redemption is calculated by dividing the net
interest attributable to common shares subject to redemption by
the weighted average number of common shares subject to possible
redemption. Basic and diluted income per share amount for the
common shares outstanding not subject to possible redemption is
calculated by dividing
35
the net income exclusive of the net interest income attributable
to common shares subject to redemption by the weighted average
number of common shares not subject to possible redemption.
Fair
value of financial instruments
We do not enter into financial instruments or derivative
contracts for trading or speculative purposes. The carrying
amounts of financial instruments classified as current assets
and liabilities approximate their fair value due to their
short-term maturities.
Income
Taxes
We also comply with the provisions of the Financial Accounting
Standards Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, (FIN 48).
FIN 48 prescribed a recognition threshold and measurement
process for recording in the financial statements uncertain tax
positions taken or expected to be taken in a tax return.
FIN 48 also provides guidance on
de-recognition,
classification interest and penalties, accounting in interim
periods, disclosures and transitions. We adopted FIN 48 on
the inception date, June 28, 2007. We did not recognize any
adjustments for uncertain tax positions during the fiscal year
ended December 31, 2009.
Accounting
for Uncertainty in Income Taxes
A tax position is recognized as a benefit only if it is
more likely than not that the tax position would be
sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the more
likely thank not test, no tax benefit is recorded.
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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Market risk is a broad term for the risk of economic loss due to
adverse changes in the fair value of a financial instrument.
These changes may be the result of various factors, including
interest rates, foreign exchange rates, commodity prices
and/or
equity prices. We are not and, until such time as we consummate
the Acquisition or another business combination, we will not be,
exposed to risks associated with foreign exchange rates,
commodity prices, equity prices or other market-driven rates or
prices. The net proceeds of our initial public offering held in
our trust account may be invested by the trustee only in United
States government securities within the meaning of
Section 2(a)(16) of the Investment Company Act of 1940
having a maturity of 180 days or less, or in registered
money market funds meeting certain conditions under
Rule 2a-7
promulgated under the Investment Company Act of 1940. Given our
limited risk in our exposure to government securities and money
market funds, we do not view the interest rate risk to be
significant.
We have not engaged in any hedging activities since our
inception. We do not currently expect to engage in any hedging
activities with respect to the market activities to which we are
exposed.
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Item 8.
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Financial
Statements and Supplementary Data
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See Part IV, Item 15 of this Annual Report
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Item 9.
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Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
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The personnel of Hays & Company LLP, Global Consumer
Acquisition Corp.s (the Company) independent
registered public accounting firm, recently joined with Crowe
Horwath LLP, resulting in the resignation of Hays &
Company LLP as the independent registered public accounting firm
for the Company. Crowe Horwath LLP was appointed as the
Companys independent registered public accounting firm
going forward on June 5, 2009.
The audit reports of Hays & Company LLP regarding the
Companys financial statements as of and for the fiscal
years ended December 31, 2008 and 2007 did not contain an
adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principles.
36
The decision to engage Crowe Horwath LLP was approved by both
our Board of Directors and our Audit Committee.
During the Companys two most recent fiscal years ended
December 31, 2008 and 2007 and through June 8, 2009,
the Company did not consult with Crowe Horwath LLP regarding
either (i) the application of accounting principles to a
specific transaction, either completed or proposed or
(ii) the type of audit opinion that may be rendered by
Crowe Horwath LLP on the Companys financial statements.
Neither a written report or oral advice was provided by Crowe
Horwath LLP to the Company that was an important factor
considered by the Company in reaching a decision as to any
accounting, auditing or financial reporting issue. The Company
has not consulted with Crowe Horwath LLP regarding any matter
that was either the subject of a disagreement (as such term is
defined in Item 304(a)(1)(iv) and the related instructions
to such item) or a reportable event (as such term is
defined in Item 304(a)(1)(v) of
Regulation S-K).
In connection with the audits of the financial statements of the
Company for each of the fiscal years ended December 31,
2008 and 2007, the review of the interim financial statements
for the period ended March 31, 2009 and through the date of
this current report on
Form 8-K,
there were no disagreements between Hays & Company LLP
and the Company on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the
satisfaction of Hays & Company LLP, would have caused
Hays & Company LLP to make reference to the subject
matter of the disagreements in connection with their reports on
the Companys financial statements for such years.
During the fiscal years ended December 31, 2007 and
December 31, 2008, the interim period ended March 31,
2009 and through the date of this current report on
Form 8-K,
there were no reportable events (as such term is
defined in Item 304(a)(1)(v) of
Regulation S-K).
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Item 9A.
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Controls
and Procedures
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Evaluation
of Disclosure Controls and Procedures
We evaluated the effectiveness of our disclosure controls and
procedures, as defined in the Exchange Act, as of the end of the
period covered by this Annual Report on
Form 10-K.
Jason N. Ader, our Chief Executive Officer, and George
Rosenbaum, our Chief Financial Officer, participated in this
evaluation. Based upon that evaluation, Mr. Ader and
Mr. Rosenbaum concluded that our disclosure controls and
procedures were effective as of the end of the period covered by
the report.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting and for the
assessment of the effectiveness of internal control over
financial reporting. As defined by the Securities and Exchange
Commission (the SEC), internal control over
financial reporting is a process designed by, or under the
supervision of our principal executive and principal financial
officers and effected by our Board of Directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
financial statements in accordance with U.S. generally
accepted accounting principles.
Our internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect our transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the financial
statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management
and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
37
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we carried out an evaluation of the
effectiveness of our internal control over financial reporting
based on the criteria in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and concluded that our
internal control over financial reporting was effective as of
December 31, 2009.
Crowe Horwath, LLP, the independent registered public accounting
firm that audited our financial statements included in this
report, has issued their report on the effectiveness of internal
control over financial reporting as of December 31, 2009, a
copy of which is included herein.
Changes
in Internal Controls over Financial Reporting
As a result of the evaluation completed by Mr. Ader and
Mr. Nelson, we have concluded that there were no changes
during the fiscal year ended December 31, 2009 in our
internal controls over financial reporting, which have
materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
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Item 9B.
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Other
Information
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Not applicable.
PART III
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Item 10.
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Directors,
Executive Officers and Corporate Governance
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Pursuant to Paragraph G(3) of the General Instructions to
Form 10-K,
the information required by Part III, (Items 10, 11,
12, 13 and 14) is being incorporated by reference herein
from our definitive proxy statement (or an amendment to our
Annual Report on
Form 10-K)
to be filed with the SEC within 120 days of the end of the
fiscal year ended December 31, 2009 in connection with our
2010 Annual Meeting of Stockholders.
|
|
Item 11.
|
Executive
Compensation
|
See Item 10.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
See Item 10.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Indepencence
|
See Item 10.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
See Item 10.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as a part of this
report:
1. Financial Statements:
See Index to Financial statements immediately following
Signatures.
2. Financial Statement Schedule(s):
38
All schedules are omitted for the reason that the information is
included in the financial statements or the notes thereto or
that they are not required or are not applicable.
3. Exhibits:
We hereby file as part of this Annual Report on
Form 10-K
the Exhibits listed in the following Exhibit Index.
Exhibits which are incorporated herein by reference can be
inspected and copied at the public reference facilities
maintained by the SEC, 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. Copies of such
material can also be obtained from the Public Reference Section
of the SEC, 100 F Street, N.E., Washington, D.C.
20549, at prescribed rates.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of November 6, 2009,
by and among Western Liberty Bancorp., WL-S1 Interim Bank,
Service 1st Bank of Nevada and Curtis W. Anderson, as Former
Stockholders Representative (incorporated by reference to
Exhibit 2.1 to the Current Report on
Form 8-K,
File No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 9, 2009)
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 to the Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
October 9, 2007)
|
|
3
|
.2
|
|
By-laws (incorporated by reference to Exhibit 3.3 to
Form S-1,
File
No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
July 24, 2007)
|
|
4
|
.1
|
|
Specimen Unit Certificate (incorporated by reference to
Exhibit 4.6 to the
Form S-3,
filed by WLBC with the Securities and Exchange Commission on
November 16, 2009)
|
|
4
|
.2
|
|
Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.7 to the
Form S-3,
filed by WLBC with the Securities and Exchange Commission on
November 16, 2009)
|
|
4
|
.3
|
|
Specimen Warrant Certificate (incorporated by reference to
Exhibit 4.8 to the
Form S-3,
filed by WLBC with the Securities and Exchange Commission on
November 16, 2009)
|
|
4
|
.4
|
|
Registration Rights Agreement, dated as of November 27,
2007, among WLBC and the Private stockholders (incorporated by
reference to Exhibit 4.5 to the Quarterly Report on
Form 10-Q,
File No. 001-33704,
filed by WLBC with the Securities and Exchange Commission on
December 27, 2007)
|
|
4
|
.5
|
|
Letter Agreement, dated as of July 20, 2009, between Global
Consumer Acquisition Corp. and the signatories thereto
(incorporated by reference to Exhibit 4.1 the Current
Report on
Form 8-K,
File No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
July 22, 2009)
|
|
4
|
.6
|
|
Private Shares Restructuring Agreement, dated as of
July 20, 2009, between Global Consumer Acquisition Corp.
and Hayground Cove Asset Management LLC (incorporated by
reference to Exhibit 4.2 the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
July 22, 2009)
|
|
4
|
.7
|
|
Amended and Restated Warrant Agreement, dated as of
July 20, 2009, between Global Consumer Acquisition Corp.
and Continental Stock Transfer &Trust Company
(incorporated by reference to Exhibit 4.1 the Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
July 24, 2009)
|
|
4
|
.8
|
|
Amendment No. 1 to Amended and Restated Warrant Agreement,
dated as of October 7, 2009, by and between Global Consumer
Acquisition Corp. and Continental Stock Transfer &
Trust Company (incorporated by reference to
Exhibit 4.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
October 9, 2009)
|
|
10
|
.1
|
|
Form of Letter Agreement between WLBC and each of the Private
stockholders of WLBC (incorporated by reference to
Exhibit 10.9 to Amendment No. 3 to the
Form S-1,
File
No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
October 25, 2007)
|
|
10
|
.2
|
|
Letter Agreement, dated November 20, 2007, by and between
WLBC and Hayground Cove Asset Management LLC (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on
Form 10-Q,
File
No. 001-33704,
filed by WLBC with the Securities and Exchange Commission on
December 27, 2007)
|
39
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.3
|
|
Investment Management Trust Agreement, dated as of
November 27, 2007, by and between WLBC and Continental
Stock Transfer & Trust Company (incorporated by
reference to Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
December 4, 2007)
|
|
10
|
.4
|
|
Warrant Subscription Agreement, dated August 1, 2007, by
and between WLBC and Scott LaPorta (incorporated by reference to
Exhibit 10.7 to Amendment No. 1 to the
Form S-1,
File
No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
September 6, 2007)
|
|
10
|
.5
|
|
Warrant Subscription Agreement, dated July 19, 2007, by and
between WLBC and Hayground Cove Asset Management LLC
(incorporated by reference to Exhibit 10.4 to
Form S-1,
File
No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
July 24, 2007)
|
|
10
|
.6
|
|
Amendment No. 1 to the Warrant Subscription Agreement,
dated August 1, 2007, by and between WLBC and Hayground
Cove Asset Management LLC (incorporated by reference to
Exhibit 10.6 to Amendment No. 1 to the
Form S-1,
File
No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
September 6, 2007)
|
|
10
|
.7
|
|
Amendment No. 2 to the Warrant Subscription Agreement,
dated October 18, 2007, by and between WLBC and Hayground
Cove Asset Management LLC (incorporated by reference to
Exhibit 10.13 to Amendment No. 3 to the
Form S-1,
File
No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
October 25, 2007)
|
|
10
|
.8
|
|
Form of Founders Shares Subscription Agreement
(incorporated by reference to Exhibit 10.1 to
Form S-1,
File
No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
July 24, 2007)
|
|
10
|
.9
|
|
Promissory Note, dated August 31, 2007, issued to Hayground
Cove Asset Management LLC (incorporated by reference to
Exhibit 10.11 to Amendment No. 1 to the
Form S-1,
File No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
September 6, 2007)
|
|
10
|
.10
|
|
Form of Indemnification Agreement between WLBC and each of the
directors and officers of WLBC (incorporated by reference to
Exhibit 10.10 to Amendment No. 1 to the
Form S-1,
File
No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
September 6, 2007)
|
|
10
|
.11
|
|
Form of Director Agreement between WLBC and each of the
directors of WLBC (incorporated by reference to
Exhibit 10.12 to Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
December 29, 2008)
|
|
10
|
.12
|
|
Settlement Agreement and General Release, dated
December 23, 2008, between WLBC and Scott LaPorta
(incorporated by reference to Exhibit 10.13 to Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
December 29, 2008)
|
|
10
|
.13
|
|
Director Resignation Agreement, dated December 23, 2008,
between WLBC, Robert M. Foresman, Carl H. Hahn, Philip A.
Marineau and Steven Westly (incorporated by reference to
Exhibit 10.14 to Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
December 29, 2008)
|
|
10
|
.14
|
|
Officer Letter between Daniel Silvers and WLBC (incorporated by
reference to Exhibit 10.12 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
April 28, 2009)
|
|
10
|
.15
|
|
Second Amended and Restated Sponsor Support Agreement, dated as
of August 13, 2009, by and between Global Consumer
Acquisition Corp. and Hayground Cove Asset Management LLC
(incorporated by reference to Exhibit 10.1 to the Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
August 14, 2009)
|
|
10
|
.16
|
|
Letter Agreement, dated as of August 13, 2009, by and
between Global Consumer Acquisition Corp. and Hayground Cove
Asset Management LLC (incorporated by reference to
Exhibit 10.2 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
August 14, 2009)
|
40
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.17
|
|
Amendment No. 1 to the Investment Management
Trust Agreement, dated as of October 7, 2009, by and
between Global Consumer Acquisition Corp. and Continental Stock
Transfer & Trust Company (incorporated by
reference to Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
October 9, 2009)
|
|
10
|
.18
|
|
Employment Agreement, dated as of November 6, 2009, by and
between Western Liberty Bancorp and Richard Deglman
(incorporated by reference to Exhibit 10.4 to the Current
Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
November 9, 2009)
|
|
10
|
.19
|
|
Second Amended and Restated Employment Agreement, dated as of
December 18, 2009, by and between Western Liberty Bancorp
and George A. Rosenbaum, Jr. (incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
December 24, 2009)
|
|
10
|
.20
|
|
Amended and Restated Voting Agreement, dated as of
January 28, 2010, by and among Western Liberty Bancorp and
the Stockholders Party Thereto (incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K,
File
No. 001-33803,
filed by WLBC with the Securities and Exchange Commission on
January 29, 2010)
|
|
10
|
.21
|
|
Amended and Restated Employment Agreement, dated as of February
8, 2010, by and between Western Liberty Bancorp and
William E. Martin (incorporated by reference to Exhibit
10.1 to the Current Report on
Form 8-K,
File No. 001-33803, filed by the Company with the
Securities and Exchange Commission on February 8, 2010)
|
|
10
|
.22
|
|
Amended and Restated Employment Agreement, dated as of
February 8, 2010, by and between Western Liberty Bancorp
and John S. Gaynor (incorporated by reference to Exhibit
10.2 to the Current Report on
Form 8-K,
File No. 001-33803, filed by the Company with the
Securities and Exchange Commission on February 8, 2010)
|
|
14
|
.1
|
|
Code of Ethics (incorporated by reference to Exhibit 99.3
to Amendment No. 1 to the
Form S-1,
File No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
September 6, 2007)
|
|
31
|
.1*
|
|
Certification of Periodic Report by the Chief Executive Officer
pursuant to
Rule 13(a)-14(a)
of the Securities Exchange Act of 1934
|
|
31
|
.2*
|
|
Certification of Periodic Report by the Chief Financial Officer
pursuant to
Rule 13(a)-14(a)
of the Securities Exchange Act of 1934
|
|
32
|
.1*
|
|
Certification of Periodic Report by the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.2*
|
|
Certification of Periodic Report by the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
99
|
.1
|
|
Audit Committee Charter (incorporated by reference to
Exhibit 99.1 to Amendment No. 1 to the
Form S-1,
File
No. 333-144799,
filed by WLBC with the Securities and Exchange Commission on
September 6, 2007)
|
(c) Financial Statement Schedules
See Financial Statements immediately following Index to
Financial Statements. All schedules are omitted for the reason
that the information is included in the financial statements or
the notes thereto or that they are not required or are not
applicable.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York,
State of New York, on February 8, 2010.
WESTERN LIBERTY BANCORP.
Name: Jason N. Ader
|
|
|
|
Title:
|
Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed on
February 5, 2010 by the following persons on behalf of the
registrant and in the capacities indicated:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Jason
N. Ader
Jason
N. Ader
|
|
Chairman and Chief Executive Officer
|
|
|
|
/s/ George
A. Rosenbaum Jr.
George
A. Rosenbaum Jr.
|
|
Chief Financial Officer
|
|
|
|
/s/ Andrew
Nelson
Andrew
Nelson
|
|
Director
|
|
|
|
/s/ Richard
A.C. Coles
Richard
A.C. Coles
|
|
Director
|
|
|
|
/s/ Michael
B. Frankel
Michael
B. Frankel
|
|
Director
|
|
|
|
/s/ Mark
Schulhof
Mark
Schulhof
|
|
Director
|
42
WESTERN
LIBERTY BANCORP
FINANCIAL
STATEMENTS
PERIOD
FROM JUNE 28, 2007 (INCEPTION)
TO
DECEMBER 31, 2009
INDEX
43
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Western Liberty Bancorp
New York, New York
We have audited the accompanying balance sheet of Western
Liberty Bancorp (formally known as Global Consumer Acquisition
Corp.) as of December 31, 2009, and the related statements
of operations, changes in stockholders equity, and cash
flows for the year then ended. We also have audited Western
Liberty Bancorps internal control over financial reporting
as of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Western Liberty Bancorps management is responsible
for these financial statements, for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on these
financial statements and an opinion on the companys
internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audit of the financial statements included
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, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Western Liberty Bancorp as of December 31, 2009, and the
results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion,
Western Liberty Bancorp maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
COSO.
New York, New York
February 8, 2010
44
To the Board of Directors and Stockholders of
Western Liberty Bancorp
Report of
Independent Registered Public Accounting Firm
We have audited the accompanying balance sheet of Western
Liberty Bancorp (formerly known as Global Consumer Acquisition
Corp.) as of December 31, 2008 and the related statements
of operations, changes in stockholders equity and cash
flows for the year ended December 31, 2008 and the period
from June 28, 2007 (inception) to December 31, 2007.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. Our audits included consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Western Liberty Bancorp as of December 31, 2008 and the
results of its operations and its cash flows for year ended
December 31, 2008 and the period from June 28, 2007
(inception) to December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America.
New York, New York
March 16, 2009
45
WESTERN
LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
87,969,242
|
|
|
$
|
1,445,882
|
|
Investments held in trust
|
|
|
|
|
|
|
316,692,141
|
|
Prepaid expenses
|
|
|
551,198
|
|
|
|
257,180
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,520,440
|
|
|
$
|
318,395,203
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
628,493
|
|
|
$
|
682,057
|
|
Deferred underwriters commission
|
|
|
|
|
|
|
9,584,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
628,493
|
|
|
|
10,266,712
|
|
|
|
|
|
|
|
|
|
|
Common stock, subject to possible conversion, 0 and
9,584,654 shares stated at conversion value,
respectively
|
|
|
|
|
|
|
94,983,921
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 1,000,000 shares
authorized; None issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000,000 shares
authorized; 10,959,169 and 39,936,064 issued and outstanding,
respectively
|
|
|
1,096
|
|
|
|
3,036
|
|
Additional paid-in capital
|
|
|
103,730,471
|
|
|
|
214,082,720
|
|
Accumulated deficit
|
|
|
(15,839,620
|
)
|
|
|
(941,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
87,891,947
|
|
|
|
213,144,570
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,520,440
|
|
|
$
|
318,395,203
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are an integral part of these financial
statements
46
WESTERN
LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Inception) to
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
14,168,517
|
|
|
|
2,619,043
|
|
|
|
73,606
|
|
Stock based compensation
|
|
|
868,938
|
|
|
|
4,624,952
|
|
|
|
284,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(15,037,455
|
)
|
|
|
(7,243,995
|
)
|
|
|
(357,620
|
)
|
Interest income
|
|
|
139,021
|
|
|
|
5,691,449
|
|
|
|
968,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(14,898,434
|
)
|
|
$
|
(1,552,546
|
)
|
|
$
|
611,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(14,898,434
|
)
|
|
$
|
(1,552,546
|
)
|
|
$
|
611,360
|
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
$
|
(95,847
|
)
|
|
$
|
(445,564
|
)
|
|
$
|
(321,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(14,994,281
|
)
|
|
$
|
(1,998,110
|
)
|
|
$
|
290,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares subject to possible
conversion outstanding
|
|
|
|
|
|
|
9,584,654
|
|
|
|
9,584,654
|
|
Earnings per share common shares subject to possible conversion
|
|
|
|
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
Weighted average number of common shares outstanding
basic
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
14,451,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
diluted
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
54,900,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(0.45
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share
|
|
$
|
(0.45
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are an integral part of these financial
statements
47
WESTERN
LIBERTY BANCORP
PERIOD
FROM JUNE 28, 2007 (INCEPTION) TO DECEMBER 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Earnings
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
(Deficit)
|
|
|
Total
|
|
|
Common shares issued at $0.001 per share
|
|
|
8,625,000
|
|
|
$
|
863
|
|
|
$
|
7,762
|
|
|
$
|
|
|
|
$
|
8,625
|
|
Sale of 31,948,850 units, net of underwriters
commissions and offering expenses (includes
9,584,654 shares subject to possible conversion)
|
|
|
31,948,850
|
|
|
|
3,195
|
|
|
|
295,649,528
|
|
|
|
|
|
|
|
295,652,723
|
|
Proceeds subject to possible conversion of 9,584,654 shares
|
|
|
|
|
|
|
(958
|
)
|
|
|
(94,216,190
|
)
|
|
|
|
|
|
|
(94,217,148
|
)
|
Proceeds from issuance of private placement warrants
|
|
|
|
|
|
|
|
|
|
|
8,500,000
|
|
|
|
|
|
|
|
8,500,000
|
|
Redemption of common shares at $0.001 per share
|
|
|
(637,786
|
)
|
|
|
(64
|
)
|
|
|
(574
|
)
|
|
|
|
|
|
|
(638
|
)
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
284,014
|
|
|
|
|
|
|
|
284,014
|
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
|
|
|
|
|
|
|
|
|
(321,208
|
)
|
|
|
|
|
|
|
(321,208
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
611,360
|
|
|
|
611,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
39,936,064
|
|
|
|
3,036
|
|
|
|
209,903,332
|
|
|
|
611,360
|
|
|
|
210,517,728
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
4,624,952
|
|
|
|
|
|
|
|
4,624,952
|
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
|
|
|
|
|
|
|
|
|
(445,564
|
)
|
|
|
|
|
|
|
(445,564
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,552,546
|
)
|
|
|
(1,552,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
39,936,064
|
|
|
|
3,036
|
|
|
|
214,082,720
|
|
|
|
(941,186
|
)
|
|
|
213,144,570
|
|
Exchange of common shares at $0.0001 per share
|
|
|
(7,618,908
|
)
|
|
|
(762
|
)
|
|
|
(6,095
|
)
|
|
|
|
|
|
|
(6,857
|
)
|
Redemption of common shares at $9.915 per share, net of
$94,983,921 previously reserved for
|
|
|
(21,357,987
|
)
|
|
|
(1,178
|
)
|
|
|
(116,779,342
|
)
|
|
|
|
|
|
|
(116,780,520
|
)
|
Settlement of deferred underwriters commission in connection
with the offering
|
|
|
|
|
|
|
|
|
|
|
5,564,250
|
|
|
|
|
|
|
|
5,564,250
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
868,938
|
|
|
|
|
|
|
|
868,938
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,898,434
|
)
|
|
|
(14,898,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
10,959,169
|
|
|
$
|
1,096
|
|
|
$
|
103,730,471
|
|
|
$
|
(15,839,620
|
)
|
|
$
|
87,891,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are an integral part of these financial
statements
48
WESTERN
LIBERTY BANCORP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 28,2007
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Inception) to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(14,898,434
|
)
|
|
$
|
(1,552,546
|
)
|
|
$
|
611,360
|
|
Adjustments to reconcile net (loss) income to net cash used
in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
868,938
|
|
|
|
4,624,952
|
|
|
|
284,014
|
|
Interest earned on cash held in trust
|
|
|
(86,382
|
)
|
|
|
(5,664,250
|
)
|
|
|
(968,931
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(294,018
|
)
|
|
|
|
|
|
|
(257,180
|
)
|
Accrued expenses
|
|
|
(53,564
|
)
|
|
|
355,338
|
|
|
|
326,719
|
|
Accrued offering costs
|
|
|
|
|
|
|
(498,775
|
)
|
|
|
498,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(14,463,460
|
)
|
|
|
(2,735,281
|
)
|
|
|
494,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash withdrawn from trust account for working capital
|
|
|
316,778,521
|
|
|
|
4,100,000
|
|
|
|
|
|
Cash placed in trust account
|
|
|
|
|
|
|
|
|
|
|
(314,158,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
316,778,521
|
|
|
|
4,100,000
|
|
|
|
(314,158,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares of common stock to initial
stockholders, net
|
|
|
|
|
|
|
|
|
|
|
7,987
|
|
Proceeds from sale of warrants in private placement
|
|
|
|
|
|
|
|
|
|
|
8,500,000
|
|
Proceeds from initial public offering
|
|
|
|
|
|
|
|
|
|
|
319,488,500
|
|
Payment of redemption of common shares
|
|
|
(211,764,441
|
)
|
|
|
|
|
|
|
|
|
Payment of underwriters discount and offering costs
|
|
|
(4,027,260
|
)
|
|
|
|
|
|
|
(14,251,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(215,791,701
|
)
|
|
|
|
|
|
|
313,745,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and equivalents
|
|
|
86,523,360
|
|
|
|
1,364,719
|
|
|
|
81,163
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,445,882
|
|
|
|
81,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
87,969,242
|
|
|
$
|
1,445,882
|
|
|
$
|
81,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred interest on investments held in trust relating to
common shares subject to possible conversion
|
|
$
|
95,847
|
|
|
$
|
445,564
|
|
|
$
|
321,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred underwriter commissions included in proceeds from
initial public offering
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,584,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are an integral part of these financial
statements
49
WESTERN
LIBERTY BANCORP
PERIOD FROM JUNE 28, 2007 (INCEPTION)
TO DECEMBER 31, 2009
|
|
1.
|
ORGANIZATION
AND BUSINESS OPERATIONS
|
On October 7, 2009, Global Consumer Acquisition
Corp.s stockholders approved the proposal to change its
name to Western Liberty Bancorp (WLBC, us or we).
All references to Global Consumer Acquisition Corp. have been
changed to Western Liberty Bancorp.
General
We were formerly known as Global Consumer Acquisition
Corp. and were a special purpose acquisition company,
formed under the laws of Delaware on June 28, 2007, to
consummate an acquisition, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business
combination with one or more businesses. On October 7,
2009, our stockholders approved our initial acquisition of
1st Commerce Bank, a Nevada-chartered non-member bank
(1st Commerce Bank) (such acquisition was
subsequently terminated by mutual agreement of the parties),
along with certain amendments to our Amended and Restated
Certificate of Incorporation removing certain provisions
specific to special purpose acquisition companies, changing our
name to Western Liberty Bancorp and authorizing the
distribution and termination of our trust account. Effective
October 7, 2009, the Company began its business operations
and exited its development stage.
The registration statement for WLBCs initial public
offering (the Offering) was declared effective on
November 20, 2007. WLBC consummated the Offering on
November 21, 2007 and received net proceeds of $305,658,960
therefrom and $8,500,000 from the private placement sale of
Founders Warrants (Note 3). Substantially all of the net
proceeds of the Offering were intended to be generally applied
toward consummating a business combination. WLBCs
management had complete discretion in identifying and selecting
the target business. There was no assurance that WLBC would be
able to successfully effect a business combination. Management
agreed that 98.3% or $314,158,960 ($316,776,730 at
September 30, 2009 including accrued interest) of the gross
proceeds from the Offering would be held in a trust account
(Trust Account) until the earlier of
(i) the completion of a business combination and
(ii) liquidation of WLBC. The placing of funds in the
Trust Account did not necessarily protect those funds from
third party claims against WLBC. Although WLBC sought to have
all vendors, prospective target businesses or other entities it
engages execute agreements with WLBC waiving any right in or to
any monies held in the Trust Account, there was no
guarantee that they would execute such agreements. The remaining
unrestricted interest earned of $45,792 not held in the
Trust Account was used to pay for business, legal and
accounting due diligence on prospective acquisitions, and
initial and continuing general and administrative expenses.
WLBC, after signing a definitive agreement for the acquisition
of a target business, was required to submit such transaction
for stockholder approval, and could proceed with the initial
business combination only if a majority of the shares of common
stock voted by the public stockholders (the Public
Stockholders) voted in favor of the business combination.
All of WLBCs founding stockholders agreed to vote all
their shares of common stock owned by them prior to the Offering
in accordance with the majority of shares of common stock held
by public stockholders who voted at a meeting with respect to a
business combination and any shares of common stock acquired by
them in or after the Offering in favor of a business
combination. After consummation of a business combination, these
voting safeguards would no longer be applicable.
With respect to a business combination that is approved and
consummated, WLBC would redeem the common stock of its Public
Stockholders who elected to have their shares of common stock
converted into cash. The per share conversion price equaled the
amount in the Trust Account, calculated as of two business
days prior to the consummation of the proposed business
combination, less any remaining tax liabilities relating to
interest income, divided by the number of shares of common stock
held by Public Stockholders at
50
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
the consummation of the Offering. Public Stockholders who would
have converted their stock into their share of the
Trust Account would have retained their warrants.
1st
Commerce Merger Agreement
On July 13, 2009, WLBC entered into a Merger Agreement (the
1st Commerce Merger Agreement) with WL Interim
Bank, a Nevada corporation (1st Commerce Merger
Sub), 1st Commerce Bank, Capitol Development Bancorp
Limited V, a Michigan corporation, and Capitol Bancorp
Limited, a Michigan corporation, which provided for the merger
of 1st Commerce Merger Sub with and into 1st Commerce
Bank, with 1st Commerce Bank being the surviving entity and
becoming our wholly-owned subsidiary. However, on
November 12, 2009, the parties to the 1st Commerce
Merger Agreement entered into a letter agreement (the
Letter Agreement) confirming the mutual termination
of the 1st Commerce Merger Agreement in accordance with the
terms specified therein. Pursuant to the Letter Agreement, the
parties agreed to make certain reimbursements which amounted to
$25,000 for transaction-related expenses. No party shall have
any further obligation or liability of any nature whatsoever
under the 1st Commerce Merger Agreement, other than with
respect to the confidentiality and public announcement
provisions therein.
Warrant
and Private Shares Restructuring
On July 20, 2009, WLBC entered into a Letter Agreement (the
Warrant Restructuring Letter Agreement) with
warrantholders who have represented to WLBC that they
collectively hold at least a majority of its outstanding
warrants (the Consenting Warrantholders) confirming
the basis and terms upon which the parties agreed to amend the
Warrant Agreement, dated as of November 27, 2007 (the
Original Warrant Agreement), between WLBC and
Continental Stock Transfer & Trust Company, as
warrant agent (the Warrant Agent), previously filed
with the SEC on November 13, 2007. The terms of the Amended
and Restated Warrant Agreement include (i) a new strike
price of $12.50 per share of our common stock, par value
$0.0001, (ii) an expiration occurring on the earlier of
(x) seven years from the consummation of the Acquisition or
another business combination or (y) the date fixed for
redemption of the warrants set forth in the original warrant
agreement, (iii) a redemption price of $0.01 per warrant,
provided that (x) all of the warrants are redeemed,
(y) the last sales price of the common stock has been equal
to or greater than $21.00 per share on each of 20 trading days
within any
30-day
trading period ending on the third business day prior to the
date on which notice of redemption is given and (z) there
is an effective registration statement in place with respect to
the common stock underlying the warrants, (iv) mandatory
downward adjustment of the strike price for each warrant to
reflect any cash dividends paid with respect to the outstanding
common stock, until such date as our publicly traded common
stock trades at $18.00 or more per share on each of 20 trading
days within any 30-trading-day period; and (v) in the event
an effective registration statement is not in place on the date
the warrants are set to expire, the warrants will remain
outstanding until 90 days after an effective registration
statement is filed. If we have not filed an effective
registration statement within 90 days after the expiration
date, the warrants shall become exercisable for cash
consideration.
On July 20, 2009, WLBC also entered into a Private
Shares Restructuring Agreement with its former sponsor,
Hayground Cove Asset Management LLC (Hayground
Cove), pursuant to which Hayground Cove, on behalf of
itself and the funds and accounts it manages and Private Shares
that Hayground Cove or its affiliates control, agreed to cancel
at least 90.0% of the outstanding Private Shares in exchange for
one warrant per Private Share cancelled, each warrant identical
in terms and conditions to WLBCs restructured outstanding
warrants (except as set forth in the Amended and Restated
Warrant Agreement defined below). The cancelled Private Shares
include all such Private Shares currently held by Hayground Cove
and its affiliates.
In connection with the foregoing, on July 20, 2009, WLBC
and the Warrant Agent entered into an Amended and Restated
Warrant Agreement (the Amended and Restated Warrant
Agreement) to effect the amendments to the Original
Warrant Agreement as agreed between WLBC and the Consenting
Warrantholders
51
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
pursuant to the Warrant Restructuring Letter Agreement. In
addition, WLBC has received approval for listing of the amended
warrants by the New York Stock Exchange and certifications from
the applicable registered holders of such warrants certifying
the number of warrants held by the consenting warrantholders.
WLBC also filed and distributed a Schedule 14C Information
Statement in connection with the warrant restructuring on
September 17, 2009. The warrant restructuring and Private
Shares restructuring became effective on October 7, 2009
after the receipt of stockholder approval of the acquisition of
1st Commerce Bank and the COI Amendments.
Warrant
Letter Agreement with Sponsor
On August 13, 2009, WLBC entered into a Letter Agreement
with Hayground Cove, whereby Hayground Cove agreed that it and
its affiliates may only transfer any WLBC warrants they hold to
an unaffiliated third party transferee if: (i) the transfer
is part of a widespread public distribution of such warrants;
(ii) the transferee controls more than 50.0% of WLBCs
voting securities without any transfer from Hayground Cove or
any of its affiliates or (iii) the warrants transferred to
a transferee (or group of associated transferees) would not
constitute more than 2.0% of any class of WLBCs voting
securities.
Stockholder
Approval to Become Western Liberty Bancorp
On October 7, 2009, WLBCs stockholders approved
certain proposals to amend its Amended and Restated Certificate
of Incorporation (the COI Amendments) and its
existing Investment Management Trust Agreement and the
acquisition of 1st Commerce Bank at a special meeting of
its stockholders held on October 7, 2009 (the Special
Meeting).
Amendment
to Trust Agreement
At the Special Meeting, WLBCs stockholders authorized WLBC
and Continental Stock Transfer & Trust Company,
as trustee (the Trustee) to distribute and terminate
WLBCs trust account pursuant to an Amendment No. 1 to
the Investment Management Trust Agreement, dated
October 7, 2009 (the Trust Agreement
Amendment). The Trust Agreement Amendment amends the
Trust Agreement, which provided that the Trustee could only
liquidate the trust account upon the consummation of WLBCs
initial business combination or on November 27, 2009.
COI
Amendments
The COI Amendments were also approved at the Special Meeting.
The COI Amendments amended WLBCs Amended and Restated
Certificate of Incorporation as follows:
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amended the definition of Business Combination to
remove the requirement that WLBCs initial acquisition of
one or more assets or operating businesses needed to have a fair
market value of at least 80.0% of WLBCs net assets held in
trust (net of taxes and amounts disbursed for working capital
purposes and excluding the amount held in the trust account
representing a portion of the underwriters discount) at
the time of acquisition;
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removed the prohibition on the consummation of a business
combination if holders of an aggregate of 30.0% or more in
interest of the shares of WLBCs common stock issued in its
initial public offering (Public Shares) exercised
their conversion rights; and
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removed the requirement that only holders of Public Shares who
voted against WLBCs initial business combination could
covert their Public Shares into cash.
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changed WLBCs name from Global Consumer Acquisition
Corp. to Western Liberty Bancorp;
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52
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
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changed WLBCs corporate existence to perpetual, so WLBC
will not be required to liquidate on November 27, 2009;
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deleted the provision in the Certificate of Incorporation that
provided that in the event a business combination was not
consummated prior to November 27, 2009, WLBCs
corporate purpose would automatically have been limited to
effecting and implementing WLBCs dissolution and
liquidation and that WLBCs powers would be limited to
those set forth in Section 278 of the Delaware General
Corporation Law and as otherwise may be necessary to implement
the limited purpose; and
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deleted the following restrictions only applicable to special
purpose acquisition companies:
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the requirement that a business combination be submitted to
WLBCs stockholders for approval and authorized by the vote
of a majority of the Public Shares cast at a meeting of
stockholders to approve such business combination;
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the procedures for exercising conversion rights;
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the provision for when funds may be disbursed from WLBCs
trust account established in connection with its initial public
offering;
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the provision that no other business combination could be
consummated until WLBC initial business combination is
consummated; and
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the provision that holders of Public Shares would be entitled to
receive distributions from WLBCs trust account only in the
event of WLBCs liquidation or by demanding conversion.
|
Amendment
to Amended and Restated Warrant Agreement
On October 7, 2009, WLBC and the Warrant Agent entered into
an Amendment No. 1 (the Warrant Agreement
Amendment) to the Amended and Restated Warrant Agreement.
The Warrant Agreement Amendment (i) amends the definition
of Business Combination as set forth in the Warrant
Agreement to allow for the exercise of WLBCs warrants
immediately upon consummation of an initial business
combination, subject to certain requirements as set forth in the
Amended and Restated Warrant Agreement, and (ii) makes
certain technical amendments to the Insider Letters in
conformance with the COI Amendments and the Trust Agreement
Amendment.
Service1st
Merger Agreement
On November 6, 2009, WLBC, entered into a Merger Agreement
(the Merger Agreement) with WL-S1 Interim Bank, a
Nevada corporation (Merger Sub),
Service1st Bank of Nevada, a Nevada-chartered non-member
bank (Service1st) and Curtis W. Anderson, as
representative of the former stockholders of Service1st, which
provides for the merger (the Merger) of Merger Sub
with and into Service1st, with Service1st being the
surviving entity and becoming our wholly-owned subsidiary.
In connection with the Merger, WLBC intends to continue the
process to become a bank holding company, which will enable us
to participate in financial lines of business. WLBC banking
operations will be conducted through Service1st, which will be
the surviving entity pursuant to the Merger Agreement and will
retain the Service1st name. Founded in 2007,
Service1st holds a Nevada bank charter and will continue to
operate following the consummation of the Merger. As a result of
the Merger, all of the outstanding shares of
Service1st common stock will be cancelled and automatically
converted into the right of the holders of
Service1st common stock to receive shares of our common
stock.
The Merger is expected to be consummated upon the fulfillment of
certain conditions, including (a) obtaining all necessary
approvals from governmental agencies and other third parties
that are required for the consummation of the transactions
contemplated by the Merger Agreement, (b) the preparation
and filing of
53
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
a registration statement (which shall contain a proxy
statement/prospectus) to register, under the Securities Act of
1933, as amended, the common shares of WLBC that will constitute
the Merger consideration, (c) the receipt of the
affirmative vote of Service1sts stockholders the receipt
of the affirmative vote of WLBCs stockholders to adopt the
Merger Agreement and (d) other customary closing
conditions. There is no guarantee when all of the conditions
precedent to the consummation of the Merger will be satisfied.
As a result of the Merger, all of the outstanding shares of
Service1st common stock will be cancelled and automatically
converted into the right of the holders of
Service1st common stock to receive shares of WLBC common
stock. The base merger consideration shall be the greater of
(a) $35 million and (b) the agreed upon tangible
book value of Service1st on the last day of the calendar
month immediately preceding the month in which the all
regulatory approvals for the consummation of the Merger have
been received (the Valuation Date), less the sum of
(x) a portion of Service1sts transaction expenses
(y) $1 million and (z) the amount, if any, by
which $29,166,667 exceeds the agreed upon tangible book value of
Service1st as of the Valuation Date (the Base Merger
Consideration). Furthermore, on or prior to the second
anniversary of the consummation of the Merger (the Closing
Date), if the closing price of the common stock of WLBC
exceeds $12.75 per share for 30 consecutive trading days,
then an additional earn out provision of 20.0% of
the agreed upon tangible book value of Service1st at the
close of business on the Valuation Date would be added to the
purchase price; provided, however, that if the agreed upon
tangible book value of Service1st as of the Valuation Date
is less than $35 million, then the earn out
provision shall be equal to 120% of the agreed upon tangible
book value of WLBC as of the Valuation Date minus
$35 million (if the result is positive) (the
Contingent Merger Consideration). The number of
shares to be issued to the stockholders of Service1st as of
the Closing Date will be determined by dividing (a) the
Base Merger Consideration by (b) the product of
(x) the number of outstanding shares of
Service1st common stock as of the Closing Date and
(y) the average closing price of WLBCs common stock
for the five trading days immediately prior to and after the
date on which all regulatory approvals for the Merger have been
received (subject to certain adjustments as set forth in the
Merger Agreement) (the Exchange Ratio). The number
of additional shares to be issued to the former stockholders of
Service1st as of the date any earn out consideration is due
will be determined by dividing (a) the Contingent Merger
Consideration by (b) the product of (x) the number of
outstanding shares of Service1st common stock as of the
Closing Date and (y) the average of the closing price of
WLBCs common stock for the first 30 consecutive trading
days on which the closing price of WLBCs common stock
shall have been more than $12.75.
Additionally, all outstanding Service1st options and
warrants shall be converted into options and warrants of similar
tenor to purchase additional shares of WLBC common stock in
amounts equal to the product of (a) the number of shares of
Service1st common stock that would be issuable upon
exercise of such option or warrant immediately prior to the
Closing Date and (b) the Exchange Ratio. The per share
exercise price for the warrants and options will be equal to the
quotient determined by dividing (x) the per share exercise
price for such option or warrant immediately prior to the
Closing Date by (y) the Exchange Ratio. The shares of those
Service1st stockholders who do not exercise their
dissenters rights under Nevada law will be cancelled and
extinguished and exchanged for each stockholders pro rata
portion of the overall merger consideration. In addition, WLBC
has agreed to make a capital contribution of $15 million to
Service1st on the Closing Date.
Employment
Agreement with William E. Martin
On February 8, 2010, WLBC entered into an amended and
restated employment agreement with William E. Martin (the
Martin Employment Agreement), who will become the
Chief Executive Officer of WLBC and WLBCs Nevada banking
operations. In addition, WLBC and its board of directors shall
take such action as is necessary to appoint or elect
Mr. Martin to WLBCs board of directors upon the
consummation of the Merger. Mr. Martin is currently the
Vice Chairman and Chief Executive Officer of Service1st.
54
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
Pursuant to the terms of the Martin Employment Agreement,
Mr. Martins employment shall commence as of the
Closing Date, and continue for an initial term of three years
with one or more additional automatic one year renewal periods
thereafter. Mr. Martin will be entitled to a base salary of
not less than $325,000. In addition, subject to approval by
WLBCs stockholders, Mr. Martin will receive a
one-time grant of restricted stock equal to $1 million
divided by the closing price of WLBCs common stock on the
Closing Date. All restricted stock will vest 20% on each of the
first, second, third, fourth and fifth anniversaries of the
Closing Date, subject to Mr. Martins continuous
employment through each vesting date. Such restricted stock
shall be subject to restrictions on transfer for a period of one
year following each vesting date. Mr. Martin is also
eligible to receive additional equity and other long-term
incentive awards under any equity-based incentive compensation
plans adopted by WLBC for which WLBCs senior executives
are generally eligible, and an annual discretionary incentive
payment upon the attainment of one or more pre-established
performance goals established by the Compensation Committee of
WLBCs board of directors. Mr. Martin shall be
entitled to employee benefits in accordance with WLBCs
employee benefits programs. In addition, Mr. Martin shall
be entitled to receive a one-time payment equal to his prior
years salary in the event there is a change in control at
WLBCs Nevada banking operations and Mr. Martin
remains the Chief Executive Officer of such through the closing
of the change in control. The Martin Employment Agreement
contains customary representations, covenants and termination
provisions.
Employment
Agreement with John S. Gaynor
On February 8, 2010, WLBC entered into an amended and
restated employment agreement with John S. Gaynor (the
Gaynor Employment Agreement), who will become the
President and Chief Operating Officer of WLBC and WLBCs
Nevada banking operations upon consummation of the Merger.
Mr. Gaynor is currently the President and Chief Operating
Officer of Service1st.
Pursuant to the terms of the Gaynor Employment Agreement,
Mr. Gaynors employment shall commence as of the
Closing Date, and continue for an initial term of three years
with one or more additional automatic one year renewal periods
thereafter. Mr. Gaynor will be entitled to a base salary of
not less than $300,000. In addition, subject to approval by
WLBCs stockholders, Mr. Gaynor will receive a
one-time grant of restricted stock equal to $1 million
divided by the closing price of WLBCs common stock on the
Closing Date. All restricted stock will vest 20% on each of the
first, second, third, fourth and fifth anniversaries of the
Closing Date, subject to Mr. Gaynors continuous
employment through each vesting date. Such restricted stock
shall be subject to restrictions on transfer for a period of one
year following each vesting date. Mr. Gaynor is also
eligible to receive additional equity and other long-term
incentive awards under any equity-based incentive compensation
plans adopted by WLBC for which WLBCs senior executives
are generally eligible, and an annual discretionary incentive
payment upon the attainment of one or more pre-established
performance goals established by the Compensation Committee of
WLBCs board of directors. Mr. Gaynor shall be
entitled to employee benefits in accordance with WLBCs
employee benefits programs. In addition, Mr. Gaynor shall
be entitled to receive a one-time payment equal to his prior
years salary in the event there is a change in control at
WLBCs Nevada banking operations and Mr. Gaynor
remains the President and Chief Operating Officer of such
through the closing of the change in control. The Gaynor
Employment Agreement contains customary representations,
covenants and termination provisions.
Employment
Agreement with Richard Deglman
In connection with the Merger, on November 6, 2009, WLBC
entered into an employment agreement with Richard Deglman (the
Deglman Employment Agreement and, together with the
Martin Employment Agreement and the Gaynor Employment Agreement,
the Employment Agreements), who will become the
Chief Credit Officer of WLBCs Nevada banking operations
upon consummation of the Merger. Mr. Deglman is currently
the Chief Credit Officer of Service1st.
55
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
Pursuant to the terms of the Deglman Employment Agreement,
Mr. Deglmans employment shall commence as of the
Closing Date, and continue for an initial term of three years
with one or more additional automatic one year renewal periods
thereafter. Mr. Deglman will be entitled to a base salary
of not less than $250,000. Mr. Deglman is eligible to
receive additional equity and other long-term incentive awards
under any equity-based incentive compensation plans adopted by
WLBC for which WLBCs senior executives are generally
eligible, and an annual discretionary incentive payment upon the
attainment of one or more pre-established performance goals
established by the Compensation Committee of WLBCs board
of directors. Mr. Deglman shall be entitled to employee
benefits in accordance with WLBCs employee benefits
programs. In addition, Mr. Deglman shall be entitled to
receive a one-time payment equal to his prior years salary
in the event there is a change in control at WLBCs Nevada
banking operations and Mr. Deglman remains the Chief Credit
Officer of such through the closing of the change in control.
The Deglman Employment Agreement contains customary
representations, covenants and termination provisions.
Employment
Agreement with George Rosenbaum
On December 18, 2009, Western Liberty Bancorp
(WLB) entered into a second amended and restated
employment agreement with George A. Rosenbaum, Jr. (the
Second A&R Employment Agreement), pursuant to
which Mr. Rosenbaum became WLBCs Chief Financial
Officer. The Second A&R Employment Agreement also provides
that Mr. Rosenbaum will become the Executive Vice President
of Service1st upon the consummation of the Merger.
Pursuant to the terms of the Second A&R Employment
Agreement, Mr. Rosenbaums employment shall commence
as of January 1, 2010 (the Effective Date) and
continue for an initial term of three years with one or more
additional automatic one year renewal periods.
Mr. Rosenbaum will be entitled to a base salary of not less
than $200,000. In addition, Mr. Rosenbaum will receive a
one time grant of restricted stock equal to $250,000 divided by
the closing price of WLBs common stock on the Effective
Date. The restricted stock will vest 20% on each of the first,
second, third, fourth and fifth anniversaries of the Effective
Date, subject to Mr. Rosenbaums continuous employment
through each vesting date. Such restricted stock shall be
subject to restrictions on transfer for a period of one year
following each vesting date. Within 10 days following the
Effective Date, Mr. Rosenbaum was entitled to receive a
transaction bonus equal to a pro rata amount of his base salary
for the period from the signing of his original employment
agreement on July 28, 2009. As of January 1, 2010,
Mr. Rosenbaum has received $67,000 as a portion of his
transaction bonus. Mr. Rosenbaum is also eligible to
receive an annual discretionary incentive payment, upon the
attainment of one or more pre-established performance goals
established by the board of directors of WLBC or its
Compensation Committee. Mr. Rosenbaum shall be entitled to
employee benefits in accordance with any employee benefits
programs and policies adopted by WLBC. In addition, the Second
A&R Employment Agreement contains customary
representations, covenants and termination provisions.
Voting
Agreement
On January 28 2010, certain stockholders of Service1st (the
Stockholders) entered into an Amended and Restated
Voting Agreement with WLBC (the Voting Agreement),
whereby the Stockholders agreed to vote all of the shares of
Service1st common stock currently beneficially owned by
them or acquired by them after such date in favor of approval of
the approval of the Merger. The Voting Agreement contains
restrictions limiting the ability of the Stockholders to sell or
otherwise transfer the shares of Service1st beneficially
owned by them. The Voting Agreement terminates upon the earliest
to occur of (i) the date of the effectiveness of the Merger
and (ii) the date of the termination of the Merger
Agreement in accordance with its terms.
56
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
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2.
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SIGNIFICANT
ACCOUNTING POLICIES
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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 at
the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could
differ from those estimates.
Cash
and Cash Equivalents
WLBC considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents. Cash equivalents are carried at cost, which
approximates fair value.
At December 31, 2009, financial instruments that
potentially expose WLBC to credit risk consist of cash and cash
equivalents. WLBC maintains its cash balances in various
financial institutions. The Federal Deposit Insurance
Corporation insures balances in bank accounts up to $250,000 and
the Securities Investor Protection Corporation insures balances
up to $500,000 in brokerage accounts. WLBC has not experienced
losses on these accounts and management believes WLBC is not
exposed to significant risks on such accounts.
Stock
based compensation
WLBC records compensation expense associated with stock based
compensation measured at the grant date based on the fair value
of the award and is recognized as expense over the service
period. The terms and vesting schedules for stock-based awards
vary by type of grant. Generally, the awards vest based on
time-based or performance-based conditions.
Income
Taxes
We comply with SFAS No. 109, Accounting for Income
Taxes, which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible
amounts, based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is
more likely than not that the tax position would be
sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the more
likely thank not test, no tax benefit is recorded.
Earnings
per Share
Basic earnings per common share (Basic EPS) is
computed by dividing the net income available to common
stockholders by the weighted-average number of shares
outstanding. Diluted earnings per common share (Diluted
EPS) are computed by dividing the net income available to
common stockholders by the weighted average number of common
shares and dilutive common share equivalents then outstanding.
The 7,987,214 shares of common stock issued to WLBCs
initial stockholders were issued for $0.001 per share,
which is considerably less than the Offering per share price.
Such shares have been assumed to be retroactively outstanding
since July 27, 2007, inception. As of July 20, 2009,
7,618,908 of those shares were restructured into warrants and
368,305 of those shares remain outstanding.
57
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
For the years ended December 31, 2009 and 2008, potentially
dilutive securities are excluded from the computation of fully
diluted earnings per share as their effects are anti-dilutive.
The following table sets forth the computation of basic and
diluted per share information:
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Period from
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June 28, 2007
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Year Ended
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Year Ended
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(inception) to
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December 31, 2009
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December 31, 2008
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December 31, 2007
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Numerator:
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Net (loss) income available to common stockholders
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$
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(14,994,281
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)
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$
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(1,998,110
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)
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$
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290,152
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Denominator:
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Weighted-average common shares outstanding
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33,169,481
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39,936,064
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14,451,397
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Dilutive effect of warrants and Restricted Stock Units
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33,169,481
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39,936,064
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40,448,850
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Weighted-average common shares outstanding, assuming dilution
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33,169,481
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39,936,064
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54,900,247
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Net (loss) income per share
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Basic
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$
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(0.45
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)
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$
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(0.05
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)
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$
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0.02
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Diluted
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$
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0.01
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For the years ending December 31, 2009 and 2008, 48,067,758
and 31,948,850 warrants have been excluded from the computation
of dilutive earnings per share as their exercise prices were
greater than the average market price per common share and their
effect is antidilutive.
Fair
Value of Financial Instruments
The Company measures fair value in accordance with generally
accepted accounting principles. Fair value measurements are
applied under other accounting pronouncements that require or
permit fair value measurements. The provisions are to be applied
prospectively as of the beginning of the fiscal year in which it
is initially adopted, with any transition adjustment recognized
as a cumulative-effect adjustment to the opening balance of
retained earnings. The adoption of this standard had no
significant impact on the Companys financial statements.
Recently
Issued Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) issued the FASB Accounting Standards
Codification (the ASC). The ASC has become the
single source of non-governmental accounting principles
generally accepted in the United States (GAAP)
recognized by the FASB in the preparation of financial
statements. The ASC does not supersede the rules or regulations
of the Securities and Exchange Commission (SEC),
therefore, the rules and interpretive releases of the SEC
continue to be additional sources of GAAP for the Company. The
Company adopted the ASC as of June 30, 2009
Effective June 30, 2009, the Company adopted a new
accounting standard issued by the FASB related to the disclosure
requirements of the fair value of financial instruments. This
standard expands the disclosure requirements of fair value
(including the methods and significant assumptions used to
estimate fair value) of certain financial instruments to interim
period financial statements that were previously only required
to be disclosed in financial statements for annual periods. In
accordance with this standard, the disclosure
58
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
requirements have been applied on a prospective basis and did
not have a material impact on the Companys financial
statements.
Effective June 30, 2009, the Company adopted a newly issued
accounting standard related to accounting for and disclosure of
subsequent events in its financial statements. This standard
provides the authoritative guidance for subsequent events that
was previously addressed only in United States auditing
standards. This standard establishes general accounting for and
disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be
issued and requires the Company to disclose the date through
which it has evaluated subsequent events and whether that was
the date the financial statements were issued or available to be
issued. This standard does not apply to subsequent events or
transactions that are within the scope of other applicable GAAP
that provide different guidance on the accounting treatment for
subsequent events or transactions. The adoption of this standard
did not have a material impact on the Companys financial
statements.
In August 2009, the FASB issued an amendment to the accounting
standards related to the measurement of liabilities that are
recognized or disclosed at fair value on a recurring basis. This
standard clarifies how a company should measure the fair value
of liabilities and that restrictions preventing the transfer of
a liability should not be considered as a factor in the
measurement of liabilities within the scope of this standard.
This standard is effective for the Company on October 1,
2009. The Company does not expect the impact of its adoption to
be material to its financial statements.
Management does not believe that any other recently issued, but
not yet effective, accounting pronouncements, if currently
adopted, would have a material effect on WLBCs financial
statements.
|
|
3.
|
INITIAL
PUBLIC OFFERING
|
On November 27, 2007, WLBC sold 31,948,850 Units, including
1,948,850 Units from the partial exercise of the
underwriters over-allotment option, at an Offering price
of $10.00 per Unit. Each Unit consists of one share of
WLBCs common stock, $.0001 par value, and one
Redeemable Common Stock Purchase Warrant (Warrant).
Each Warrant entitles the holder to purchase from WLBC one share
of common stock at an exercise price of $7.50 per share
commencing the later of the completion of a Business Combination
or November 27, 2009 and expiring November 27, 2012.
WLBC may redeem the Warrants at a price of $0.01 per Warrant
upon 30 days notice after the Warrants become exercisable,
but only in the event that the last sale price of the common
stock is at least $14.25 per share for any 20 trading days
within a 30 trading day period ending three business days prior
to the date on which the notice of redemption is given. The
terms of the warrants were amended on July 20, 2009, as
described in Note 1.
WLBC agreed to pay the underwriters in the Offering an
underwriting commission of 7% of the gross proceeds of the
Offering. However, the underwriters agreed that approximately 3%
of the underwriting discount will not be payable unless and
until WLBC completes a Business Combination and have waived
their right to receive such payments upon WLBCs
liquidation if it is unable to complete a Business Combination.
As of December 31, 2009 WLBC paid $4,027,260 of the
deferred underwriters discount and has entered into mutual
releases with all of the underwriters. Pursuant to the
agreements, all obligations of WLBC to pay any fees
and/or
expenses to the underwriters were deemed fully satisfied.
On November 27, 2007, certain of the initial stockholders
purchased an aggregate of 8,500,000 warrants (the Private
Warrants) from WLBC in a private placement pursuant to the
exemption from registration contained in Section 4(2) of
the Securities of Act of 1933, as amended. The warrants were
sold for a total purchase price of $8,500,000, or $1.00 per
warrant. The private placement took place simultaneously with
the consummation of the Offering. Each warrant is exercisable to
one share of common stock. The exercise price on the warrants is
$7.50. The Private Warrants are also subject to a
lock-up
agreement with WLBCs underwriters and will not be
transferable before the consummation of a Business Combination.
The holders of
59
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
the Private Warrants are also entitled, at any time and from
time to time, to exercise the Private Warrants on a cashless
basis at the discretion of the holder. The proceeds from the
sale of the Private Warrants have been deposited into the trust
account, subject to a trust agreement. The terms of the warrants
were amended on July 20, 2009, as described in Note 1.
Based upon observable market prices, WLBC determined that the
grant date fair value of the Private Warrants was $1.10 per
warrant, $9,350,000 in the aggregate. The valuation was based on
all comparable initial public offerings by blank check companies
in 2007. WLBC recorded compensation expense of $850,000 over a
24 month service period in connection with the Private
Warrants, which is the amount equal to the grant date fair value
of the warrants minus the purchase price. WLBC estimated the
service period as the estimated time to complete a Business
Combination.
The holders of a majority of all of the Private Shares
(Note 6) and shares of common stock issuable upon
exercise of the Private Warrants will be entitled to make up to
two demands that WLBC register these securities pursuant to an
agreement signed in connection with the insider private
placement. Such holders may elect to exercise these registration
rights at any time after the date of the Offering. In addition,
these stockholders have certain piggy-back
registration rights with respect to registration statements WLBC
might file subsequent to the date of the Offering. WLBC will
bear the expenses incurred in connection with the filing of any
such registration statements.
|
|
4.
|
RELATED
PARTY TRANSACTIONS
|
Certain of WLBCs officers, directors and its Initial
Stockholders are also officers, directors, employees and
affiliated entities of Hayground Cove Asset Management LLC,
WLBCs sponsor.
Services
Agreement
WLBC agreed to pay Hayground Cove Asset Management LLC, $10,000
per month, plus
out-of-pocket
expenses not to exceed $10,000 per month, for office space and
services related to the administration of WLBCs
day-to-day
activities. This agreement was effective upon the consummation
of the Offering and terminated on August 31, 2009. WLBC
incurred $13,000 in connection with this agreement for the
period from June 28, 2007 (inception) to December 31,
2007, $120,000 for the year ended December 31, 2008 and
$80,000 for the year ended December 31, 2009.
Payment
for Due Diligence Services
In October 2009, WLBC made a one-time payment of $2,600,000 to
Hayground Cove Asset Management LLC for due diligence and other
services related to various acquisition opportunities and other
activities since WLBCs inception. Proceeds from the
payment were disbursed by Hayground Cove Asset Management LLC to
certain of its employees, affiliates and consultants (some of
whom also serve as WLBCs officers and/or directors) that
provided support to WLBC in connection with its efforts in
finding and pursuing potential transactions.
At December 31, 2009, WLBC had no federal income tax
expense or benefit but did have a federal tax net operating loss
carry-forward of approximately $13,335,848. The federal net
operating loss carry-forwards will begin to expire in 2027,
unless previously utilized. Pursuant to Internal Revenue Code
Sections 382 and 383, use of WLBCs net operating loss
carry-forwards may be limited if a cumulative change in
ownership of more than 50% occurs within a three-year period. No
assessment has been made as to whether such a change in
ownership has occurred.
60
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
Significant components of WLBCs net deferred tax assets at
December 31, 2009, 2008 and 2007 are shown below. A
valuation allowance of $5,215,000, $2,530,300 and $216,300 has
been established to offset the net deferred tax assets at
December 31, 2009, 2008 and 2007, respectively, as
realization of such assets is uncertain.
60.1
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Noncurrent net operating loss carryforwards
|
|
$
|
4,550,000
|
|
|
$
|
98,100
|
|
|
$
|
14,700
|
|
Start-up
costs
|
|
|
175,000
|
|
|
|
770,200
|
|
|
|
105,000
|
|
Other noncurrent
|
|
|
490,000
|
|
|
|
1,662,000
|
|
|
|
96,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
5,215,000
|
|
|
|
2,530,300
|
|
|
|
216,300
|
|
Deferred tax asset valuation allowance
|
|
|
(5,215,000
|
)
|
|
|
(2,530,300
|
)
|
|
|
(216,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, 2008 and 2007 no provision for
state and local income has been made since WLBC was formed as a
vehicle to effect a Business Combination and as a result does
not conduct operations and is not engaged in a trade or business
in any state.
The Companys policy is to include interest and penalties
related to unrecognized tax benefits within the Companys
provision for (benefit from) income taxes. The Company
recognized no amounts for interest and penalties related to
unrecognized tax benefits in 2009 and 2008 and as of
December 31, 2009 and 2008, had no amounts accrued for
interest and penalties.
The Company is subject to U.S. federal income tax and tax
years since June 27, 2007 (inception) remain open and
subject to examination by the appropriate governmental agencies
in the U.S.
Preferred
Stock
WLBC is authorized to issue 1,000,000 shares of blank check
preferred stock with such designations, voting and other rights
and preferences as may be determined from time to time by the
Board of Directors.
Common
Stock
WLBC issued 8,625,000 shares of common stock to the Initial
Stockholders for cash proceeds of $8,625 (the Private
Shares). In the event the 4,500,000 over-allotment Units
(Note 2) were not issued, the Initial Stockholders
would be required to redeem the Private Shares in an amount
sufficient to cause the amount of issued and outstanding Private
Shares to equal 20% of WLBCs aggregate amount of issued
and outstanding coming stock after giving effect to the issuance
of common stock in connection with the Offering. The
underwriters exercised 1,948,850 Units of the 4,500,000
over-allotment Units. The underwriters had 30 days from
November 27, 2007 to exercise their over-allotment option.
Therefore, as of December 27, 2007, 637,787 shares of
the Initial Stockholders Founder shares were redeemed.
On October 7, 2009, 21,357,987 shares of common stock
were redeemed and 7,618,908 shares of common stock were
restructured into warrants as a result of the shareholder
meeting (Note 1).
At December 31, 2008 and 2007, there were
40,448,339 shares of common stock reserved for issuance
upon exercise of WLBCs outstanding options and warrants.
At December 31, 2009, there were 48,267,758 shares of
common stock reserved for issuance upon exercise of WLBCs
outstanding options and warrants.
Restricted
Stock
Pursuant to Letter Agreements dated December 23, 2008
between WLBC and each of its independent directors, Richard A.C.
Coles, Michael B. Frankel and Mark Schulhof, and a letter
agreement dated as of April 28, 2009 between WLBC and
Daniel B. Silvers, WLBCs President, WLBC granted each
independent director and Mr. Silvers 50,000 restricted
stock units with respect to shares of WLBCs common stock,
subject
61
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
to certain terms and conditions. The restricted stock units
shall fully vest on the closing date of a business combination.
Settlement of vested restricted stock units will occur on the
date that is 180 calendar days after the vesting date.
Restricted stock units will be settled by delivery of one share
of WLBCs common stock for each restricted stock unit
settled. WLBC will incur compensation expense equal to the grant
date fair value of the restricted stock units. Based upon the
market price of WLBC common shares at grant date, WLBC
determined that the grant date fair value of the restricted
stock units was $9.25 per unit, $1,850,000 in the aggregate.
WLBC will record compensation expense of $1,850,000 over an
estimated vesting period of 266 days. WLBC estimated the
vesting period as the estimated number of days from the grant
date to the estimated closing date of the business combination.
WLBC recorded $587,688 in compensation expense due to the
restricted stock units for the year ended December 31,
2009. $1,262,312 remains unamortized.
WLBC will also provide a one-time grant of restricted stock
equal to $250,000 divided by the closing price of WLBCs
common stock on the closing date of the Merger to George A.
Rosenbaum Jr., WLBCs Chief Financial Officer. In addition,
WLBC shall also issue restricted stock with respect to shares of
our common stock to each of William E. Martin, who will become a
member of our board of directors and serve as our Chief
Executive Officer and as Chief Executive Officer of Service1st,
and John S. Gaynor, who will serve as WLBC President and Chief
Operating Officer and as the President and Chief Operating
Officer of Service1st. Each of Messrs. Martin and Gaynor
will be issued restricted shares of WLBC common stock in an
amount equal to $1.0 million divided by the closing price
of our common stock on the closing date of the Merger in
consideration for his future services, subject to the closing of
the Acquisition and the approval of the restricted stock
proposal by our stockholders.
|
|
7.
|
FAIR
VALUE MEASUREMENTS
|
The Company defines fair value as the amount at which an asset
(or liability) could be bought (or incurred) or sold (or
settled) in a current transaction between willing parties, that
is, other than in a forced or liquidation sale. The fair value
estimates presented in the table below are based on information
available to the Company as of December 31, 2009 and 2008.
The accounting standard regarding fair value measurements
discusses valuation techniques, such as the market approach
(comparable market prices), the income approach (present value
of future income or cash flow), and the cost approach (cost to
replace the service capacity of an asset or replacement cost).
The standard utilizes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value
into three broad levels. The following is a brief description of
those three levels:
|
|
|
|
|
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
|
|
|
|
Level 2: Inputs other than quoted prices
that are observable for the asset or liability, either directly
or indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
|
|
|
|
Level 3: Unobservable inputs that reflect
the reporting entitys own assumptions.
|
62
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
The carrying value and fair value of the Companys
significant financial assets and liabilities and the necessary
disclosures for the periods are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets at Fair Value as of December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in trust
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Cash and cash equivalents
|
|
|
87,969,242
|
|
|
|
87,969,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,969,242
|
|
|
$
|
87,969,242
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets at Fair Value as of December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in trust
|
|
$
|
316,692,141
|
|
|
$
|
|
|
|
$
|
316,692,141
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
316,692,141
|
|
|
$
|
|
|
|
$
|
316,692,141
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in Registered Money Market Funds
As of December 31, 2009, approximately $87,000,064 of the
Companys cash and cash equivalents were invested in the
Federated U.S. Treasury Cash Reserve Fund (UTIXX) and the
Goldman Sachs Financial Square Funds-Treasury Instruments Fund
(FTIXX). Both funds, under normal circumstances, invests their
assets exclusively in obligations of the U.S. Treasury,
including Treasury bills, bonds and notes and other obligations
issued or guaranteed by the U.S. Treasury.
The fair values of the Companys investments in money
market funds are determined through market, observable and
corroborated sources.
The carrying amounts reflected in the balance sheets for other
current assets and accrued expenses approximate fair value due
to their short-term maturities.
Investments
Previously Held in Trust
Prior to the liquidation of the Trust Account on
October 7, 2009, the Companys investments held in
trust were invested in the Federated U.S. Treasury Cash
Reserve Fund. For the period January 1, 2009 to
January 15, 2009, the Companys investments held in
trust were invested in the JP Morgan U.S. Treasury Plus
Money Market Fund. The Company recognized interest income of
$86,382 on these investments for the period from January 1,
2009 to October 7, 2009.
|
|
8.
|
COMMITMENTS
AND CONTINGENCIES
|
There is no material litigation currently pending against WLBC
or any members of its management team in their capacity as such.
The Initial Stockholders have waived their right to receive
distributions with respect to their Private Shares upon
WLBCs liquidation.
Pursuant to an employment agreement effective August 1,
2007 between WLBC and its former CEO, WLBCs former CEO
obtained an option to purchase 475,000 shares of Private
Shares at a purchase price of
63
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
$0.001 per share from WLBCs sponsor and its affiliates,
which option will vest on the date (the Trigger
Date) that is one year after the closing of a qualifying
Business Combination, but the vesting will occur only if the
appreciation of the per share price of WLBCs common stock
is either (i) greater than 1x the Russell 2000 hurdle rate
on the Trigger Date or (ii) exceeds the Russell 2000 hurdle
rate for 20 consecutive trading days after the Trigger Date. The
Russell hurdle rate means the Russell 2000 Index performance
over the period between the completion of the Offering and the
Trigger Date. The amount of the option was increased by the
amount of shares equal to 10,000 shares for each
$10,000,000 of gross proceeds from the exercise of the
underwriters over-allotment option. As a result the option was
increased to 495,000 shares due to the exercise of
1,948,850 Units of the underwriters over-allotment option.
WLBC determined that the fair value of the options on the date
of grant, November 27, 2007 was $4,573,597. The fair value
of the option is based on a Black-Scholes model using an
expected life of three years, stock price of $9.25 per share,
volatility of 33.7% and a risk-free interest rate of 4.98%.
However, because shares of WLBCs common stock did not have
a trading history, the volatility assumption is based on
information that was available to WLBC. WLBC believes that the
volatility estimate is a reasonable benchmark to use in
estimating the expected volatility of shares of WLBCs
common stock. In addition, WLBC believes a stock price of $9.25
per share is a fair assumption based on WLBCs observation
of market prices for comparable shares of common stock. This
assumption is based on all comparable initial public offerings
by blank check companies in 2007. The stock based compensation
expense will be recognized over the service period of
24 months. WLBC estimated the service period as the
estimated time to complete a business combination. However,
pursuant to a Settlement Agreement dated December 23, 2008,
the options were deemed to be fully vested as of the effective
date of the Settlement Agreement. As a result, the entire
remaining compensation expense was recognized by WLBC on
December 23, 2008. WLBC recognized $237,973 in stock based
compensation expense related to the options for the period from
June 28, 2007 (inception) to December 31, 2007,
$4,155,368 for the year ended December 31, 2008 and $0 for
the year ended December 31, 2009. The Company also, as
required under the terms of the Settlement Agreement, paid
$247,917 in compensation expenses related to a severance payment
to the former CEO during January 2009.
Indemnifications
WLBC has entered into agreements with its directors to provide
contractual indemnification in addition to the indemnification
provided in its amended and restated certificate of
incorporation. WLBC believes that these provisions and
agreements are necessary to attract qualified directors.
WLBCs bylaws also will permit it to secure insurance on
behalf of any officer, director or employee for any liability
arising out of his or her actions, regardless of whether
Delaware law would permit indemnification. WLBC has purchased a
policy of directors and officers liability insurance
that insures WLBCs directors and officers against the cost
of defense, settlement or payment of a judgment in some
circumstances and insures us against our obligations to
indemnify the directors and officers.
The Company has evaluated subsequent events through
February 8, 2010, the date on which the financial
statements were issued.
64
WESTERN
LIBERTY BANCORP
NOTES TO FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
SUMMARIZED
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
WLBCs unaudited condensed quarterly financial information
is as follows for the year ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
December 31, 2009
|
|
|
September 30, 2009
|
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
(6,489,150
|
)
|
|
$
|
(5,063,587
|
)
|
|
$
|
(2,562,515
|
)
|
|
$
|
(922,203
|
)
|
Interest income
|
|
|
51,912
|
|
|
|
5,925
|
|
|
|
10,562
|
|
|
|
70,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income for the period
|
|
$
|
(6,437,238
|
)
|
|
$
|
(5,057,662
|
)
|
|
$
|
(2,551,953
|
)
|
|
$
|
(851,581
|
)
|
Weighted average number of common shares outstanding not subject
to possible redemption, basic
|
|
|
33,169,481
|
|
|
|
39,936,064
|
|
|
|
39,936,064
|
|
|
|
39,936,064
|
|
Weighted average number of common shares outstanding not subject
to possible redemption, diluted
|
|
|
75,444,175
|
|
|
|
39,936,064
|
|
|
|
39,936,064
|
|
|
|
80,384,913
|
|
Net (loss) income per common share not subject to possible
redemption, basic
|
|
$
|
(0.19
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
Net (loss) income per common share not subject to possible
redemption, diluted
|
|
|
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
December 31, 2008
|
|
|
September 30, 2008
|
|
|
June 30, 2008
|
|
|
March 31, 2008
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
(3,998,364
|
)
|
|
$
|
(1,176,160
|
)
|
|
$
|
(1,150,529
|
)
|
|
$
|
(918,942
|
)
|
Interest income
|
|
|
431,067
|
|
|
|
1,750,226
|
|
|
|
1,481,237
|
|
|
|
2,028,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income for the period
|
|
$
|
(3,567,297
|
)
|
|
$
|
574,066
|
|
|
$
|
330,708
|
|
|
$
|
1,109,977
|
|
Weighted average number of common shares outstanding not subject
to possible redemption, basic
|
|
|
39,936,063
|
|
|
|
39,936,063
|
|
|
|
39,936,063
|
|
|
|
39,936,063
|
|
Weighted average number of common shares outstanding not subject
to possible redemption, diluted
|
|
|
80,384,913
|
|
|
|
80,384,913
|
|
|
|
80,384,913
|
|
|
|
80,384,913
|
|
Net (loss) income per common share not subject to possible
redemption, basic
|
|
$
|
(0.09
|
)
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
Net loss income per common share not subject to possible
redemption, diluted
|
|
$
|
(0.09
|
)
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
65