As filed with the Securities and Exchange Commission on November 13, 2007
Registration No.
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ON
FORM S-4
ASCEND ACQUISITION CORP.
(Exact Name of Each Registrant as Specified in its Charter)
Delaware
6770
20-3881465
(State or other jurisdiction of
incorporation or organization)
(Primary standard industrial
classification code number)
(I.R.S. Employer
Identification Number)
435 Devon Park Drive, Bldg. 400,
Wayne, Pennsylvania 19087
(610) 519-1336
(Address,
including zip code, and telephone number, including area code, of each registrant’s principal executive offices)
Don K. Rice
Chairman
435
Devon Park Drive, Bldg. 400,
Wayne, Pennsylvania 19087
(610) 519-1336
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
David Alan Miller, Esq.
Graubard Miller
The Chrysler
Building
405 Lexington Avenue
New York, New York 10174
Telephone: (212) 818-8800
Fax: (212) 818-8881
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement
becomes effective and all other conditions to the merger contemplated by the merger agreement described in the included proxy statement/prospectus have been satisfied or waived.
If any of the securities being registered on this form are to be offered in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box:
¨
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
CALCULATION OF
REGISTRATION FEE
Title of each Class of Security being registered
Amount being
Registered(1)(4)
Proposed Maximum
Offering Price Per
Security(2)
Proposed Maximum
Aggregate Offering
Price(2)
Amount of
Registration
Fee
Common stock
8,566,667 shares
$5.64
$48,316,002
$1,483
Common stock purchase warrants (“warrants”)(3)
14,133,334 warrants
$0.56
$7,914,667
$243
Common stock underlying the warrants(3)
14,133,334 shares
$5.00
$70,666,670
$2,169
Representative’s unit purchase option (“UPO”)
1
$100
$100.00
—(2)
Common stock issuable on exercise of the UPO(3)
300,000 shares
$7.50
$2,250,000
$69
Warrants issuable on exercise of the UPO(3)
600,000 warrants
—
—
—(2)
Common stock underlying the warrants included in the UPO(3)
600,000 shares
$5.00
$3,000,000
$92
Total
$132,147,439
$4,056
(1)
In connection with the redomestication merger described in the proxy statement/prospectus forming part of this registration statement, Ascend Acquisition Corp. (“Ascend”)
and Ascend’s wholly owned subsidiary, Ascend Company Limited (“ACL”), will merge for purposes of redomesticating Ascend’s jurisdiction of formation from Delaware to Bermuda. Under Bermuda law, Ascend and ACL will amalgamate, with
a single company resulting from the amalgamation (“Continuing Pubco”). The name of Continuing Pubco following the amalgamation will be “ePAK International Limited.” These securities represent the securities to be issued by
Continuing Pubco in exchange for the outstanding securities of Ascend Acquisition Corp. (“Ascend”).
(2)
Based on the market prices on November 6, 2007 of the common stock and warrants of Ascend Acquisition Corp. (the company to which ePAK International Limited will succeed after
the merger and resultant redomestication to Bermuda described in this registration statement and enclosed proxy statement) or the exercise price of such warrants for the purpose of calculating the registration fee pursuant to Rule 457(f)(1) and Rule
457(g)(1).
(3)
No fee pursuant to Rule 457(g).
(4)
There are also being registered such indeterminable additional securities as may be issued pursuant to Rule 416 to prevent dilution resulting from stock splits, stock dividends or
similar transactions under the provisions contained in the warrants.
The registrant hereby amends this registration statement
on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
Ascend Acquisition Corp.
435 Devon Park Drive, Building 400
Wayne, Pennsylvania 19087
(610) 519-1336
NOTICE OF SPECIAL
MEETING OF STOCKHOLDERS
TO BE HELD ON
, 2008
TO ALL STOCKHOLDERS OF ASCEND ACQUISITION CORP.:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Ascend Acquisition Corp., a
Delaware corporation (“Ascend”), will be held at 10:00 a.m., Eastern time, on , 2008, at the offices of our
general counsel, Graubard Miller, located at The Chrysler Building, 405 Lexington Avenue, 19
th
Floor, New York, New York 10174.
The purpose of the special meeting will be to consider and vote upon proposals relating to Ascend’s reincorporation and redomestication to Bermuda
via a merger with a wholly owned subsidiary, Ascend Company Limited, a Bermuda exempted company (“ACL”), with the continuing company after the merger (“Continuing Pubco” or “ePAK International”) acquiring, concurrently
with the merger, all of the outstanding capital stock of e.PAK Resources (S) Pte. Ltd., a Singapore limited company (“ePAK”). ePAK is a leading full-service designer, manufacturer and supplier of precision engineered products and
solutions for the automated transport and handling of semiconductor and electronics devices.
Holders of Ascend’s outstanding common
stock and warrants will receive in exchange therefor, on a one-for-one basis, shares of common stock and warrants of Continuing Pubco. Continuing Pubco will be a reporting company under the Securities Exchange Act of 1934, as amended. Continuing
Pubco will apply to have its common stock and warrants listed on the Nasdaq Global Market or Nasdaq Capital Market concurrently with the closing of the merger and acquisition of ePAK.
At the meeting, you will be asked to consider and vote upon the following proposals:
1. To approve an agreement and plan of reorganization, dated as of July 30, 2007 (the “acquisition agreement”), among
Ascend, ACL, ePAK, and ePAK’s parent company and sole stockholder, ePAK Holdings Limited (“EHL”), and the transactions contemplated thereby, including the acquisition (the “acquisition”) of ePAK by Continuing Pubco. We refer
to this as the “acquisition proposal.”
2. To approve the merger (the “redomestication merger”) of
Ascend and ACL for the purposes of (a) moving the domicile of our public company from Delaware to Bermuda and (b) concurrently with the redomestication merger acquiring ePAK in the acquisition. We refer to this as the “redomestication
proposal.”
3. To approve the 2007 Equity Incentive Plan (“2007 incentive plan”) on behalf of Continuing
Pubco. We refer to this as the “2007 incentive plan proposal.”
Stockholders also would be asked to consider and vote upon a
proposal to adjourn the special meeting to a later date or dates to permit further solicitation and voting of proxies if, based upon the tabulated vote at the time of the special meeting, the vote necessary to approve the above proposals has not
been obtained. We refer to this as the “adjournment proposal.”
The board of directors has fixed the close of business on
, 200 (“record date”) as the date for which Ascend’s stockholders are entitled to receive
notice of, and to vote at, the special meeting. Only the
1
holders of record of Ascend common stock on that date are entitled to have their votes counted at the special meeting. Ascend will not transact any other
business at the special meeting, except for business properly brought before the special meeting.
We will not consummate the transactions
described in proposals 1, 2 and 3, above, unless all of those proposals are approved. Accordingly, the approval of each such proposal is a condition to the adoption of each other proposal. Approval of the acquisition proposal will require the
affirmative vote of the holders of a majority of the shares of Ascend common stock issued in its initial public offering (“Public Shares”), including holders who purchase Public Shares subsequent to the initial public offering
(“IPO”), and voted on the matter. Approval of the redomestication proposal will require the affirmative vote of the holders of a majority of the outstanding shares of Ascend common stock. Approval of the 2007 incentive plan proposal will
require the affirmative vote of holders of a majority of the shares of Ascend’s common stock present in person or by proxy at meeting.
Each holder of Public Shares has the right to vote against the acquisition proposal and at the same time demand that Ascend convert such stockholder’s Public Shares into cash equal to a pro rata portion of the funds held in the trust
account into which a substantial portion of the net proceeds of Ascend’s IPO was deposited. These Public Shares will be converted into cash only if the acquisition is consummated. However, if the holders of 20% or more of the Public Shares
(
i.e.,
1,380,000 shares or more) vote against the acquisition proposal and demand conversion of their Public Shares, then Ascend will not consummate the redomestication merger or the acquisition or adopt the 2007 incentive plan. Ascend’s
initial stockholders who purchased their shares of common stock prior to its IPO and presently own an aggregate of 1,666,667 shares of common stock, or approximately 19.5% of the outstanding shares of Ascend, have agreed to vote all of their shares
on the acquisition proposal as the majority of the Public Shares are voted, and have indicated that they intend to vote “for” the redomestication proposal and 2007 incentive plan proposal.
Enclosed is a proxy statement/prospectus containing detailed information concerning the acquisition agreement and the transactions contemplated thereby,
the redomestication merger and the 2007 incentive plan. Whether or not you plan to attend the special meeting, we urge you to read this material carefully.
Your vote is important. Whether or not you plan on attending the special meeting, please sign, date and return your proxy card as soon as possible to make sure that your shares are represented at the special
meeting.
If you are a stockholder of record of Ascend common stock as of the record date, you may also cast your vote in person at the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct your
broker or bank on how to vote your shares. If you do not vote or do not instruct your broker or bank how to vote, it will have the same effect as voting against the acquisition and redomestication merger proposals. Only an affirmative vote against
the acquisition proposal will permit a stockholder to pursue its conversion rights. A non-vote is not sufficient to permit conversion rights to be exercised.
The board of directors of Ascend unanimously recommends that you vote
“
FOR
”
the approval of each of the acquisition proposal, the redomestication proposal and the 2007 incentive plan
proposal. A proxy card that is returned without an indication of how to vote on a particular matter will be voted “FOR” each such proposal.
Very truly yours,
Don K. Rice
Chairman of the Board
2
SEE THE SECTION ENTITLED “RISK FACTORS,” IMMEDIATELY FOLLOWING THE SECTION ENTITLED
“SUMMARY,” FOR A DISCUSSION OF VARIOUS FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE PROPOSALS AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The information in this proxy statement/prospectus is not complete and may be changed. We may not issue these
securities until the registration statement filed with the Securities and Exchange Commissions is effective. This proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 13, 2007
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS OF
ASCEND ACQUISITION CORP.
PROSPECTUS FOR UP TO 23,600,001 SHARES OF COMMON STOCK AND
14,733,334 WARRANTS OF ePAK INTERNATIONAL LIMITED
AND ONE PURCHASE OPTION
EXERCISABLE FOR 300,000 SHARES OF COMMON STOCK AND 600,000 WARRANTS OF ePAK INTERNATIONAL LIMITED
The board of directors of each of Ascend Acquisition Corp., a Delaware corporation (“Ascend”), and Ascend’s wholly owned subsidiary, Ascend
Company Limited, a Bermuda exempted company (“ACL”), has unanimously approved the merger of Ascend and ACL (“redomestication merger”), with the company continuing after the redomestication merger being a Bermuda exempted company
(“Continuing Pubco” or “ePAK International”). In the redomestication merger, Continuing Pubco will issue its common stock and warrants in exchange for the outstanding common stock and warrants of Ascend on a one-for-one basis.
This prospectus covers an aggregate of 23,600,001 shares of common stock, 14,733,334 warrants and one purchase option to be issued or issuable by Continuing Pubco as part of the exchange. The aforementioned shares to be issued include 8,566,667
shares issuable in exchange for all of the outstanding shares of common stock of Ascend, 14,133,334 shares that may be issued on exercise of warrants to be issued hereby, 300,000 shares that may be issued on exercise of the purchase option to be
issued hereby and 600,000 shares that may be issued on exercise of warrants that may be issued on exercise of the purchase option to be issued hereby. The warrants to be issued hereby include 14,133,334 warrants to be issued in exchange for a like
number of outstanding warrants of Ascend and 600,000 warrants that may be issued on exercise of the purchase option to be issued hereby. The purchase option will be issued in exchange for the outstanding underwriter’s unit purchase option that
was issued in connection with the May 2006 initial public offering by Ascend. The warrants and purchase option issued by Continuing Pubco hereby will have substantially identical terms to those of Ascend for which they are exchanged.
The board of directors of each of Ascend and ACL also has approved the acquisition (the “acquisition”) by Continuing Pubco, concurrently with
the consummation of the redomestication merger, of all of the outstanding capital stock of e.PAK Resources (S) Pte. Ltd., a Singapore limited company (“ePAK” or the “Company”), pursuant to an agreement and plan of
reorganization, dated July 30, 2007 (“acquisition agreement”), by and among Ascend, ACL, ePAK and ePAK’s sole shareholder, ePAK Holdings Limited, a Hong Kong limited company (“EHL”). The acquisition will result in ePAK
being a wholly owned subsidiary of Continuing Pubco.
Ascend’s units, common stock and warrants are currently listed on the
Over-the-Counter Bulletin Board under the symbols ASAQU, ASAQ and ASAQW, respectively. Ascend’s units will be separated into their component securities immediately prior to the redomestication merger and the units will cease to exist as a
separate security. Continuing Pubco will apply for listing, to be effective at the time of the redomestication merger and acquisition, of its common stock and warrants on the Nasdaq Global Market or Nasdaq Capital Market under the proposed symbols
and , respectively. Such listing is a condition of the consummation of the redomestication merger and
acquisition, although there can be no assurance such listing will be obtained. If such listing is not obtained, these transactions will not be consummated unless the Nasdaq listing condition set forth in the acquisition agreement is waived by EHL.
The board of directors of Ascend also is requesting that stockholders vote in favor of adopting Continuing Pubco’s 2007 Equity
Incentive Plan (the “2007 incentive plan”). Upon consummation of the redomestication merger and acquisition, the 2007 incentive plan will be utilized by Continuing Pubco with respect to the officers, directors and employees of and
consultants to Continuing Pubco and ePAK. The approval of the 2007 incentive plan requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting.
shares of Continuing Pubco’s common stock will be available pursuant to awards that may be granted under the 2007 incentive plan.
This proxy statement/prospectus provides you with detailed information about the redomestication merger and acquisition and other matters to be considered
at the special meeting of Ascend’s stockholders. We encourage you to carefully read this entire document and the documents incorporated by reference. You should also carefully consider the risk factors described in “
Risk
Factors
.”
These securities have not been approved or disapproved by the Securities and Exchange Commission or any state
securities commission nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated
, 200 , and is first being mailed to Ascend stockholders on or about
, 200 .
Restated Certificate of Incorporation and By-laws of Continuing Pubco*
Annex E
-
2007 Equity Incentive Plan*
Annex F
-
Form of Tax Opinion to be issued by Graubard Miller*
Annex G
-
Escrow Agreement
Annex H
-
Registration Rights Agreement
Annex I
-
Form of Employment Agreement between the Continuing Pubco and each of Steve Dezso, Mao Shi Khoo, Don K. Rice, Chok Chun Weng, James Thomas and Jeffrey Blaine
Annex J
-
Employment Agreement between the Continuing Pubco and Richard Brook
Annex P
-
Section 262 of the Delaware General Corporate Law (Appraisal Rights)*
Note: Under the law of Bermuda, Continuing Pubco (ePAK International Limited) will be authorized to
issue “ordinary shares” and holders of such ordinary shares are typically referred to as “members.” Ordinary shares are the equivalent of the common stock issued by U.S. companies and members are the equivalent of stockholders of
U.S. companies. Under the law of Bermuda, an “amalgamation” is substantially similar to a “merger” under laws of the states of the U.S. A company is formed under the law of Bermuda utilizing a certificate of incorporation, which
is the functional equivalent of a U.S. company’s certificate of incorporation. In this proxy statement/prospectus, the terms “ordinary shares,” “members,” “amalgamation” and “certificate of incorporation”
have been referenced herein as “common stock,” “stockholders,” “merger” and “certificate of incorporation,” respectively, which are terms more familiar to U.S. persons, which Ascend believes are the majority
of its stockholders.
This proxy statement/prospectus incorporates important business and financial information about Ascend and
ePAK and its subsidiaries that is not included in or delivered with the document. This information is available without charge to security holders upon written or oral request. To make this request, or if you would like additional copies of this
proxy statement/prospectus or have questions about the acquisition, you should contact:
Mr. Don K. Rice
Ascend Acquisition Corp.
435 Devon
Park Drive
Building 400
Wayne, Pennsylvania 19087
(610) 519 1336
To obtain timely delivery of requested materials, security holders must request the information no later than five business days before the date they
submit their proxies or attend the special meeting. The latest date to request the information to be received timely is ,
200 .
3
SUMMARY
This summary highlights selected information from this proxy statement/prospectus and does not contain
all of the information that is important to you. To better understand the acquisition and the redomestication merger, you should read this entire document carefully, including the acquisition agreement attached as
Annex A
. The acquisition
agreement is the legal document that governs the acquisition and the acquisition agreement, the articles of merger and Continuing Pubco’s restated certificate of incorporation and by-laws are the legal documents governing the redomestication
merger and the corporation surviving the redomestication merger. These documents are described elsewhere in this proxy statement/prospectus and attached as annexes hereto.
The Parties
•
The parties to the acquisition agreement are Ascend Acquisition Corp. (“Ascend”), Ascend’s wholly owned subsidiary, Ascend Company Limited
(“ACL”), e.PAK Resources (S) Pte. Ltd. (“ePAK” or “the Company”), and ePAK’s sole shareholder, ePAK Holdings Limited (“EHL”). Its principal offices are located at 121 Genting Lane, #04-00, Singapore
349572 and its phone number is 011-(65)-6846-9908.
•
Ascend is a blank check company formed to serve as a vehicle for the acquisition of an operating business. Ascend was incorporated in Delaware on December 5,
2005 and consummated its initial public offering (“IPO) on May 17, 2006. Its principal offices are located at 435 Devon Park Drive, Building 400, Wayne, Pennsylvania 19087 and its phone number is (610) 519-1336. See the section
entitled “
Other Information Related to Ascend.
”
•
ePAK is a leading full-service designer, manufacturer and supplier of precision engineered products and solutions for the automated transport and handling of
semiconductor and electronics devices. The Company and its subsidiaries operate a large scale design and manufacturing facility in Shenzhen, Peoples Republic of China (the “PRC”), with additional sales, design and applications engineering
operations located in a number of offices servicing North America, Europe and Asia. ePAK’s precision manufactured handling solutions provide the Company’s customers with the automated means of manufacturing, handling, and transporting
their critical semiconductor and electronic devices with a high degree of reliability and efficiency. See the section entitled “
Business of ePAK.
”
Transactions
•
Under the terms of the acquisition agreement, among other things:
•
Ascend and ACL will be combined in the redomestication merger, with the continuing entity, Continuing Pubco, existing as an exempted company under the law of
Bermuda;
•
each outstanding share of Ascend’s common stock will be exchanged for one share of Continuing Pubco’s common stock;
•
each outstanding warrant to purchase a share of Ascend’s common stock will be exchanged for a warrant to purchase one share of Continuing Pubco’s common
stock, with each new warrant having substantially the same terms as the Ascend warrant for which it is exchanged;
•
concurrently with the redomestication merger, Continuing Pubco will acquire all of ePAK’s outstanding capital stock from EHL in the acquisition;
•
all of the outstanding options to purchase common stock of EHL will be assumed by Continuing Pubco and such options (“Assumed Options”) shall entitle the
holders thereof to purchase common stock of Continuing Pubco;
•
all of the current security holders of Ascend, together with EHL and holders of the EHL Options, will become the initial security holders of Continuing Pubco;
4
•
Continuing Pubco will be a publicly reporting company, registered under the United States federal securities laws;
•
Continuing Pubco’s common stock and the warrants will be traded on the Nasdaq Capital Market or Nasdaq Global Market;
•
ePAK will continue its operations as a wholly owned subsidiary of Continuing Pubco;
•
Continuing Pubco will change its name to “ePAK International Limited;” and
•
EHL will liquidate within 12 months after the acquisition and distribute the common stock of Continuing Pubco in pursuance of a plan of reorganization with respect
to EHL.
•
The board of directors of each of Ascend and ACL, and the board of directors of each of ePAK and EHL, have approved the acquisition agreement and the transactions
contemplated thereby in accordance with the applicable company laws of their respective jurisdictions of formation.
Acquisition
Consideration
•
In consideration of the acquisition, EHL will receive, at closing, the aggregate number of shares of Continuing Pubco’s common stock (the “Transaction
Shares”) determined by a formula set forth in the acquisition agreement that effectively allocates to EHL a post-issuance ownership of the outstanding common stock of Continuing Pubco based on a comparison of (1) 5.72 times ePAK’s
twelve month trailing EBITDA at June 30, 2007, as adjusted for various expenses and liabilities of ePAK (“Subject Adjusted EBITDA,”), plus the aggregate exercise price of the Assumed Options and (2) the value of Ascend’s
trust at closing as adjusted for various liabilities of Ascend (“Adjusted Ascend Trust Value”), less the number of ordinary shares issuable upon the exercise of the Assumed Options. Notwithstanding the foregoing, the number of shares
issued to EHL, excluding those underlying the Assumed Options, will not be less than 50.1% of the outstanding shares of Continuing Pubco immediately following the acquisition. The acquisition agreement provides for a grace range on Subject Adjusted
EBITDA, such that if it is within 5% of $6,675,000, it will be deemed to be $6,675,000 for purposes of calculating the number of Transaction Shares to be issued. Similarly, the acquisition agreement provides for a grace range on Adjusted Ascend
Trust Value, such that if it is within 5% of $38,200,000, it will be deemed to be $38,200,000 for purposes of calculating the number of Transaction Shares to be issued. The minimum and maximum percentage ownership by EHL in the outstanding common
stock of Continuing Pubco immediately following the closing is effectively limited under the terms of the acquisition agreement to a low of 50.1% and a high of 54.5%. See the section entitled “
The Acquisition Agreement—Acquisition
Consideration.
”
•
As of the date hereof, based on (a) information and projections currently available to the parties, including Subject Adjusted EBITDA of $6.7 million
(resulting in a 5.72 multiple result of $38.3 million) and estimated Adjusted Ascend Trust Value of $38.2 million, and (b) 8,566,666 shares of Ascend common stock currently outstanding, the aggregate number of Transaction Shares that will be
issued at closing to EHL, excluding those underlying the Assumed Options, will be 8,601,002 shares, or 50.1% of the outstanding common stock of Continuing Pubco immediately following the closing. The foregoing figures give no effect to any
additional shares that may be issued to EHL post-closing, as described below, and assume none of Ascend’s currently outstanding common stock is converted into cash as permitted by Ascend’s certificate of incorporation.
•
As additional consideration, EHL also will be entitled to receive the following after closing:
•
up to an aggregate of 442,625 additional shares of Continuing Pubco’s common stock if the market price of Continuing Pubco’s common stock exceed certain
levels ranging from $6.00 to $8.00 during the period from the closing of the acquisition until the 180th day thereafter;
5
•
an aggregate of 442,625 additional shares of Continuing Pubco’s common stock upon redemption of Continuing Pubco’s publicly traded warrants; and
•
up to three tranches of 88,525 additional shares of Continuing Pubco’s common stock if Continuing Pubco generates consolidated annual EBITDA (as defined in the
acquisition agreement) for the years ending December 31, 2008, 2009 and/or 2010 in excess of $14,727,000, $24,268,000 and $37,935,000, respectively, for a total additional issuance of up to 265,575 shares.
See the section entitled “
The Acquisition Agreement—Acquisition Consideration.
”
Indemnification
•
The acquisition agreement provides for the obligation of Continuing Pubco to indemnify EHL and its officers, directors and shareholders for breaches of
representations and warranties made and covenants undertaken by Ascend and ACL in the acquisition agreement. The payment of any indemnity obligations of Continuing Pubco shall be satisfied by the issuance by Continuing Pubco to EHL of additional
shares of common stock as determined in accordance with the acquisition agreement.
•
The acquisition agreement also provides the obligation of EHL (and any other recipient of Continuing Pubco shares issued in the acquisition) to indemnify Continuing
Pubco for breaches of representations and warranties made and covenants undertaken by ePAK and EHL in the acquisition agreement.
As the sole remedy for this indemnity obligation, Continuing
Pubco will have recourse against EHL and any recipients of Continuing Pubco shares issued in the acquisition solely during the period beginning on the closing date and ending on the one year anniversary thereof, and for such further period as may be
required pursuant to an indemnification agreement to be executed at closing. The aggregate amount of this indemnity obligation will be limited solely to the fair market value, as of the time an indemnity claim
is established, of the number of
shares of Continuing Pubco common stock equal to (X) 15% of the sum of the Transaction Shares plus the number of shares issuable upon exercise of the Assumed Options, minus (Y) the sum of the quotients obtained by dividing the dollar amount of each
previous indemnity claim by the fair market value, as of the time such previous indemnity claim
was established, of one share of Continuing Pubco common stock. EHL and any recipients of Continuing Pubco shares issued in the acquisition may
pay any indemnity claim in cash, or in its sole discretion, shares of Continuing Pubco common stock valued at a per share price equal to the fair market value thereof as determined in acquisition agreement.
Lock-ups and Registration Rights
•
The recipients of Continuing Pubco’s common stock in the acquisition and Ascend’s founding stockholders have agreed not to sell any of these shares until
after the six-month anniversary of the closing date.
•
Following the closing, the recipients of the common stock in the acquisition will have the right to demand on two occasions that Continuing Pubco cause a
registration statement to be filed and declared effective under the Securities Act of 1933 as well as certain piggyback registration rights.
See the section entitled “
The Acquisition Agreement—Lock-up and Registration Rights Agreement
s.”
6
Post-Transaction Management
•
The current executive officers of ePAK will continue in their positions with ePAK after the acquisition and also assume equivalent offices with Continuing Pubco.
Steve Dezso, ePAK’s current president and chief executive officer, also will become the president and chief executive officer of Continuing Pubco upon consummation of the acquisition. Don K. Rice, Ascend’s current chairman of the board,
will become chairman of the board of Continuing Pubco upon consummation of the acquisition. See the section entitled “
Directors and Executive Officers of Continuing Pubco Following the Acquisition—Employment Agreements
.”
•
Upon consummation of the acquisition, the board of directors of Continuing Pubco will be comprised of five members. The board will include three persons designated
by EHL, such designees initially being Mr. Dezso, Hock Voon Loo and Steve San Filippo, and two persons designated by certain stockholders of Ascend (“Founding Ascend Holders”), such designees initially being Mr. Rice and Warren
“Budd” Florkiewicz. The majority of the board shall be “independent directors” within the meaning of the Nasdaq rules. See the voting agreement attached to this proxy statement/prospectus as
Annex B
and the section hereof
entitled “
The Acquisition Agreement—Election of Directors; Voting Agreement
.”
U.S. Federal Income Tax
Consequences
Ascend expects that the redomestication merger will qualify as a reorganization for United States federal income tax
purposes, but there can be no assurances that this will be the case. If (i) not more than 50% of the outstanding shares of Continuing Pubco are issued in connection with the transactions to the Ascend stockholders that are U.S. persons
(treating any shares owned by a partnership or other entity or arrangement taxed as a partnership for U.S. federal income tax purposes as owned proportionately by its partners) and (ii) the fair market value of ePAK equals or exceeds the fair
market value of Ascend at the time of the transactions, gain or loss generally will not be recognized on the exchange of the securities of Ascend for the securities of Continuing Pubco by any holder of Ascend common stock that owns less than 5% of
the common stock of Continuing Pubco following the redomestication merger. If an Ascend stockholder owns 5% or more of the common stock of Continuing Pubco after the redomestication merger, that stockholder would be subject to tax on the difference
between the fair market value of the Continuing Pubco common stock and the tax basis of the Ascend common stock for which it is exchanged, unless such Ascend stockholder files a gain recognition agreement with the stockholder’s income tax
return. If (i) more than 50% of the outstanding shares of Continuing Pubco are issued in connection with the transactions to the Ascend stockholders that are U.S. persons (treating any shares owned by a partnership or other entity or
arrangement taxed as a partnership for U.S. federal income tax purposes as owned proportionately by its partners) or (ii) the fair market value of ePak is less than the fair market value of Ascend at the time of the transactions, an Ascend
stockholder, regardless of the percentage of common stock owned, will recognize gain for U.S. federal income tax purposes equal to the difference between the fair market value of the Continuing Pubco common stock and the tax basis of the Ascend
common stock for which it is exchanged.
The percentage of Continuing Pubco common stock that will be issued to the Ascend stockholders in
the transactions will not be greater than 49.9% of the outstanding shares of Continuing Pubco common stock, including as outstanding certain shares that EHL or the other recipients of Transaction Shares may elect to return to Continuing Pubco to
satisfy indemnity claims, if any. Ascend believes that the fair market value of ePAK equals or exceeds the fair market value of Ascend. However, the determination of the relative fair market values of ePAK and Ascend is inherently factual and cannot
be made with precision. If the Internal Revenue Service were to successfully challenge either the percentage ownership of the Ascend stockholders or the relative fair market values of ePAK and Ascend, Ascend stockholders would recognize gain upon
the redomestication merger Stockholders of Ascend are strongly encouraged to consult their own tax advisors regarding the tax consequences to them of the transactions described herein.
7
Ascend also believes that Continuing Pubco will not recognize any material
gain or loss as a result of the acquisition or redomestication merger. An evaluation will be made to establish whether Ascend or ACL has any intangible assets which would be deemed transferred in the redomestication merger. If there are any such
intangible assets, it is not expected that they will be of a substantial amount and any U.S. federal income tax will not be of material significance. The Internal Revenue Service may not agree with this conclusion, in which event there may be a
significant tax obligation for Continuing Pubco to pay based on the value of its assets at the time of the redomestication merger.
See the
section entitled “
The Acquisition Proposal—Material Federal Income Tax Consequences of the Acquisition.
”
Accounting Treatment
The acquisition will be accounted for as a “reverse merger” and recapitalization at the date of the consummation of the
transaction since the stockholders of ePAK will own at least 50.1% of the outstanding shares of the common stock immediately following the completion of the acquisition, will have its current officers assuming all almost all corporate and day-to-day
management offices of Continuing Pubco other than chairman of the board, including chief executive officer, chief operating officer and chief financial officer and will have the sole right to appoint three of the five directors to the board.
Accordingly, ePAK will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of ePAK. Accordingly, the assets and liabilities and the historical operations that will be
reflected in the Ascend financial statements after consummation of the acquisition will be those of ePAK and will be recorded at the historical cost basis of ePAK. Ascend’s assets, liabilities and results of operations will be consolidated with
the assets, liabilities and results of operations of EPAK upon consummation of the acquisition.
Regulatory Matters
The redomestication merger and acquisition and the transactions contemplated by the acquisition agreement are not subject to any federal or state
regulatory requirement or approval, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), except for filings necessary to effectuate the transactions contemplated by these transactions and the acquisition
agreement with the State of Delaware, Singapore, Bermuda and the Peoples Republic of China.
Fairness Opinion
In connection with the acquisition, Ascend’s board of directors received an opinion from Capitalink LC, as to (i) the fairness to the holders of
Ascend common stock from a financial point of view and as of the date of the opinion of the consideration to be paid by Ascend pursuant to the acquisition agreement, and (ii) whether the fair market value of ePAK as of the date of the opinion
was at least equal to 80% of Ascend’s net assets. The full text of the opinion is attached to this proxy statement as
Annex C
.
Reasons for
the Acquisition
Ascend believes that ePAK is positioned for continued growth in its markets and believes that a business combination
with ePAK will provide our stockholders with an opportunity to participate in an enterprise with significant growth potential.
ePAK’s
revenues were approximately $36.1 million for the year ended December 31, 2006, an increase of 33.7% as compared to approximately $27.0 million for the year ended December 31, 2005. ePAK’s unaudited revenues for the first six months
of 2007 were approximately $20.4 million, an increase of 22.2% as compared to unaudited revenues of approximately $16.7 million for the first six months of 2006. Net income for the year
8
ended December 31, 2006 was approximately $2.2 million, compared to approximately $0.1 million for the year ended December 31, 2005. Unaudited net
income for the first six months of 2007 was approximately $1.2 million, compared to unaudited net income for the first six months of 2006 of approximately $1.1 million.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was approximately $5.2 million in the year ended December 31,
2006, an increase of 93% as compared to EBITDA of approximately $2.7 million in the year ended December 31, 2005. EBITDA for the first six months of 2007 was approximately $3.0 million, an increase of 25% as compared to EBITDA of
approximately $2.4 million for the first six months of 2006.
Reasons for the Redomestication Merger
Ascend is proposing to merge with its wholly owned subsidiary, ACL, which was formed under the laws of Bermuda specifically for the purpose of affecting
the redomestication merger and has no commercial operations. The purpose of the redomestication merger is to align the post-transaction companies’ income tax liabilities with the location of their business activities, thereby reducing the
overall impact of corporate income tax and tax on dividends paid by one company to another within the holding company structure of Continuing Pubco. Because ePAK’s business operations are principally outside of the United States, the
redomestication merger is intended to reduce the future income tax liability and tax on internal holding company dividend income under the United States tax law that might be assessed on Continuing Pubco if it had been incorporated in the United
States and to permit greater flexibility in structuring acquisitions or creating subsidiaries in China and other countries as the business of ePAK expands. By reincorporating in Bermuda, it is believed that Continuing Pubco will be taxed by the
jurisdictions in which its business and assets are located and undertaken, and will not be subject to additional income taxes merely by virtue of the location of its original place of incorporation.
Reasons for the 2007 Incentive Plan
Ascend is
proposing the 2007 Equity Incentive Plan (“2007 incentive plan”) to enable the company to attract, retain and reward Continuing Pubco’s and ePAK’s directors, officers, employees and consultants using equity-based incentives.
Recommendation of Ascend’s Board of Directors
Ascend’s board of directors:
•
has unanimously determined that each of the acquisition proposal, redomestication merger proposal and 2007 incentive plan proposal is fair to the stockholders of
Ascend and in the best interests of Ascend and its stockholders;
•
unanimously recommends that Ascend’s common stockholders vote “FOR” the acquisition proposal;
•
unanimously recommends that Ascend’s common stockholders vote “FOR” the redomestication proposal;
•
unanimously recommends that Ascend’s common stockholders vote “FOR” the 2007 incentive plan proposal; and
•
unanimously recommends that Ascend’s common stockholders vote “FOR” the adjournment proposal, if same is presented at the special meeting.
9
Ownership of Ascend Directors and Officers and Affiliates
Ascend’s initial stockholders who purchased their shares of common stock prior to Ascend’s initial public offering (“IPO”), and which
include all of Ascend’s directors and executive officers and their affiliates are referred to collectively in this proxy statement/prospectus as the “Ascend Inside Stockholders.” Each of the Ascend Inside Stockholders has agreed to
vote all of their shares on the acquisition proposal in accordance with the vote of the majority of the votes cast by the holders of shares issued in the IPO (“Public Shares”). Accordingly, their vote will have no effect on the outcome of
the acquisition proposal. The Ascend Inside Stockholders also have indicated that they intend to vote such shares in favor of all other proposals being presented at the special meeting. As of the record date, the Ascend Inside Stockholders own an
aggregate of 1,666,667 shares, or 19.5%, of Ascend’s outstanding common stock.
Appraisal Rights
Under Delaware corporate law, the redomestication merger of Ascend and ACL causes the stockholders of Ascend to have appraisal rights in connection
with the transactions for which approval is sought. This right is separate from the conversion rights of the holders of Public Shares with respect to the acquisition proposal. However, because the exercise of the appraisal right and the conversion
rights both require a tender by the holder of his or its Public Shares to Ascend, either appraisal rights or conversion rights, but not both, may be elected in respect of the Public Shares. See
“Redomestication Proposal—Appraisal
Rights”
for more information about appraisal rights.
Risk Factors
In analyzing the proposed acquisition, Ascend considered the risk factors identified in the section entitled “
Risk Factors.
” You should
carefully read these risks in connection with your analysis of the acquisition and the redomestication merger.
10
RISK FACTORS
You should carefully consider the following risk factors, together with all of the other
information included in this proxy statement/prospectus, before you decide whether to vote or instruct your vote to be cast to adopt the proposals.
Risks Related to ePAK’s Business and Operations Following the Acquisition
Following the acquisition and
redomestication merger, ePAK will be a wholly owned subsidiary of Continuing Pubco and our combined companies will face all the risks historically faced by ePAK in its operations, including the risks described below. The value of your investment in
Continuing Pubco will be subject to the significant risks inherent in ePAK’s operations, as well as risks that may arise in connection with the integration of the companies.
Attracting, retaining, and training skilled staff is critical to maintain ePAK’s operations and crucial to its continued growth.
ePAK’s success depends upon the skill and business execution of its employees and its ability to continue to attract, retain, and train qualified
personnel. Competition for staff with the particular skill sets that the Company requires is intense. ePAK also makes sizeable investments in the initial training of individuals over an extended period of time. There are no assurances that these
investments in staff will materialize into positive contributions to the Company. Failure to attract, retain, and train qualified personnel in the future could inhibit ePAK’s ability to operate and grow the Company successfully.
ePAK depends on the highly cyclical health of the semiconductor, electronic component, and electronic systems industries. A decline in production of
products in these industry segments could severely affect the Company’s sales and financial results.
ePAK’s business depends
on purchases from semiconductor manufacturers, electronic component manufacturers, and electronic end system manufacturers, which, in turn, depend on anticipated demand for semiconductors, electronic components, and electronic systems. Demand in
these industries for the types of products made by the Company has historically been highly cyclical and characterized by alternating periods of excess and insufficient inventory levels spanning multiple product segments. These inventory levels are
ultimately adjusted by modulating production levels of semiconductors, electronic components, and electronic systems. The resulting varying production levels among customers alters demand by customers for the products the Company supplies. ePAK
expects the semiconductor, electronic component, and electronic systems industries to continue to be cyclical. A severe downturn in the semiconductor, electronic component, or electronic systems industries, which is likely, given past history, could
cause the Company’s operating results to decline significantly from one period to the next.
Given the large fixed cost component
required to maintain manufacturing operations, decreases in manufacturing activity, in addition to adversely impacting sales, can serve to reduce gross margins due to greater fixed cost absorption in fewer units of production. ePAK believes that
period-to-period comparisons of its results of operations may not be meaningful in a cyclical underlying market environment and may not be indicators of future performance.
It is difficult to forecast near term demand for ePAK’s products.
ePAK operates its business, manages its production activity, and plans its inventory levels by considering a number of factors that include:
•
firm near term purchase orders from customers;
•
blanket customer purchase orders;
11
•
non-binding customer forecasts;
•
industry analysis; and
•
equipment, process and mold capacities.
Due to the variability in these factors, coupled with the fact that binding order backlogs are almost non-existent within the business segments that the Company operates, ePAK has failed to accurately forecast demand for its products in the
past, and this will likely occur again in the future. This may lead to delays in product shipments, increased risk of excess inventory, disappointment of customer expectations, inventory write-offs, or delayed capacity expansions resulting in loss
of market share. If ePAK fails to accurately forecast demand for its products, business, financial performance, and financial position may suffer.
If ePAK is unable to maintain service, delivery, and product performance expertise, it may be unable to successfully compete.
Service, delivery, and product performance requirements within the semiconductor and electronics industries are subject to rapid change resulting in a varying set of customer requirements and expectations. Because of this, it is important
for the Company to quickly adapt to varying market requirements. There are also certain combinations of requirements that ePAK may be unable, or slow, to adapt to. The Company believes that its future success will depend upon its ability to alter
its service, delivery, and product offerings to meet the changing needs of its customers. This requires that the Company successfully anticipate and respond to changes in a timely manner. Any inability to respond to changes in customer requirements
in a timely manner can adversely impact ePAK’s position and reputation in the markets it serves, cause its customers to seek out other suppliers, and reduce its market share.
Competitors could cause ePAK to experience downward pressure on prices, reduced order activity, or loss of market share.
The Company serves highly competitive markets. ePAK competes against many companies that have substantially greater manufacturing, research and
development, marketing and financial resources than it does. Some of ePAK’s competitors may have more developed relationships with the Company’s existing customers than the Company does and may have established relationships with
ePAK’s potential customers. This may inhibit ePAK’s ability to expand its sales to those existing customers or gain new customers. If the Company is unable to maintain its competitive position, it could experience downward pressure on
prices, diminished customer orders, reduced margins, the inability to take advantage of new business opportunities, and a loss of market share. The Company also may have to compete in the future with a number of companies that may enter the market
and with companies that may offer new or emerging technology that competes with its products.
ePAK incurs significant cash outlays over
long-term periods in order to research, develop, manufacture and market new products, which may never reach market or may have limited market acceptance.
ePAK makes significant cash expenditures to research, develop and market new product lines. For example, in calendar year 2006 the Company incurred $0.18 million of research and development expense. Similarly, the
Company incurred $0.16 million of research and development expense in calendar 2005 and $0.10 million in calendar 2004. The development period for a product line can be as long as 2 years. Following development, it may take an additional 2 to 3
years for the sales of that product line to reach a substantial level. ePAK cannot be certain of the success of a new product line. A product concept may never progress beyond the development stage or may only achieve limited acceptance in the
marketplace. If this occurs, the Company does not receive a direct return on its expenditures and may not even realize any indirect benefits. Additionally, capacity expansion may be necessary in order to manufacture a new product line. If sales
levels do not increase to offset the additional fixed operating expenses associated with any such expansion, ePAK’s revenue and profitability could decline and its prospects could be harmed.
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ePAK operates in a capital intensive industry.
ePAK assesses its liquidity based on its current expectations regarding sales, operating expenses, capital spending and debt service requirements. Based
on this assessment, we believe that, upon the completion of the acquisition, Continuing Pubco’s cash flow from operating activities, together with existing cash and cash equivalents and availability under its credit facilities, will be
sufficient to fund its working capital, capital expenditure and debt service requirements during the 12-month period following the acquisition. Thereafter, its liquidity will continue to be affected by, among other things, the performance of its
business, its capital expenditure levels and its ability to repay debt out of its operating cash flow or refinance the debt with the proceeds of debt or equity offerings at or prior to maturity. If ePAK’s performance or access to the capital
markets differs materially from Continuing Pubco’s expectations, its liquidity may be adversely impacted.
If the Company fails to
generate the necessary net income or operating cash flows to meet the funding needs of its business beyond the 12-month period following the acquisition due to a variety of factors, including the cyclical nature of the semiconductor industry and the
other factors discussed in this “Risk Factors” section, its liquidity would be adversely affected. In these circumstances, Continuing Pubco would consider taking a variety of actions, including: attempting to reduce ePAK’s high fixed
costs (for example, closing facilities and reducing the size of its work force), curtailing or reducing planned capital additions, raising additional equity, borrowing additional funds, refinancing existing indebtedness or taking other actions.
There can be no assurance, however, that ePAK will be able to successfully take any of these actions, including adjusting its expenses sufficiently or in a timely manner, or raising additional equity, increasing borrowings or completing refinancings
on any terms or on terms that are acceptable to the Company. ePAK’s inability to take these actions as and when necessary would materially adversely affect its liquidity, results of operations and financial condition.
ePAK believes it needs to make substantial capital additions, which may adversely affect its business if the business does not develop as the Company
expects.
ePAK believes that its business requires it to make significant capital additions in order to capitalize on what the Company
believes are growth opportunities. The amount of capital additions will depend on several factors, including the performance of ePAK’s business, its assessment of future industry and customer demand, its capacity utilization levels and
availability, its liquidity position and the availability of financing. ePAK’s ongoing capital addition requirements may strain its cash and short-term asset balances, and the Company expects that depreciation expense will put downward pressure
on its gross margin, at least over the near term.
Furthermore, if the Company cannot generate or borrow additional funds to pay for
capital additions as well as research and development activities, its growth prospects and future profitability may be adversely affected. ePAK’s ability to obtain external financing in the future is subject to a variety of uncertainties,
including its future financial condition, results of operations and cash flows, general market conditions for financing activities by semiconductor companies, and economic, political and other global conditions.
The lead time needed to order, install and put into service various capital additions is often significant, and as a result, the Company often needs to
commit to capital additions in advance of its receipt of firm orders or advance deposits based on its view of anticipated future demand with only very limited visibility. Although the Company seeks to limit its exposure in this regard, in the past,
ePAK has from time to time expended significant capital for additions for which the anticipated demand did not materialize for a variety of reasons, many of which were outside of its control. To the extent this occurs in the future, ePAK’s
margins, liquidity, results of operations and financial condition could be materially adversely affected.
ePAK may acquire other
businesses, form joint ventures or divest businesses that could negatively affect its profitability, increase its debt and dilute your ownership of the company.
As part of its business strategy, ePAK may address gaps in its product offerings, diversify into complementary product markets or pursue additional technology and customers through acquisitions, joint ventures or
other types of collaborations. ePAK expects to adjust its portfolio of businesses to meet its ongoing
13
strategic objectives. As a result, ePAK may enter markets in which its has no or limited prior experience and may encounter difficulties in divesting
businesses that no longer meet its objectives. Competition for acquiring attractive businesses in ePAK’s industry is substantial. In executing this part of its business strategy, ePAK may experience difficulty in identifying suitable
acquisition candidates or in completing selected transactions at appropriate valuations. Alternatively, ePAK may be required to undertake multiple transactions at the same time in order to take advantage of acquisition opportunities that do arise;
this could strain ePAK management’s ability to effectively execute and integrate these transactions. ePAK intends to pay for these acquisitions with cash and/or our common stock which could impair its liquidity and dilute shareholder ownership
of the company. Further, ePAK may not be able to successfully integrate any acquisitions that it does make into existing business operations and could assume unknown or contingent liabilities or experience negative effects on its results of
operations from dilutive results from operations and/or from future potential impairment of acquired assets including goodwill related to future acquisitions. ePAK may experience difficulties in operating in foreign countries or over significant
geographical distances and in retaining key employees or customers of an acquired business, and its management’s attention could be diverted from other business issues. ePAK may not identify or complete these transactions in a timely manner, on
a cost effective basis or at all, and it may not realize the benefits of any acquisition or joint venture.
EHL has an obligation at the
option of its shareholders to redeem its preferred stock if EHL’s shares are not listed on a public stock exchange on or before December 31, 2007. EHL is in the process of seeking the approval of its shareholders to amend its applicable charter
documents to remove this redemption obligation. However, if such approval is not obtained and if the acquisition is not consummated, EHL may not have sufficient cash reserves to satisfy the redemption obligation. These conditions raise substantial
doubt about ePAK’s ability, as a subsidiary of EHL, to continue as a going concern until the completion of the acquisition.
Any
impairment charges required under U.S. GAAP may have a material adverse effect on ePAK’s net income.
Under U.S. generally accepted
accounting principles, or U.S. GAAP, ePAK is required to review its long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. The Company may be required in the future to record a
significant charge to earnings in its financial statements during the period in which any impairment of its long-lived assets is determined. Such charges may have a significant adverse impact on ePAK’s results of operations and financial
condition.
Manufacturing Risks
ePAK’s dependence on a single or limited number of suppliers for certain raw materials could affect its ability to manufacture its products.
ePAK relies on single or limited source suppliers for certain raw materials critical to the manufacture of its products. At times, the Company has experienced a limited supply of certain raw materials critical to the
manufacture of certain products resulting in production delays or increased costs. Increased global demand for certain raw materials can result in increased costs or uncertainty with regards to availability, which could interrupt ePAK’s
manufacturing operations. Any of these situations can adversely impact the Company’s sales, margins, profitability, and its ability to attract and retain customers. In certain situations, ePAK may from time to time increase its raw materials
purchases or enter into longer term binding commitments in an effort to ensure supply or for price protection. These activities can adversely impact the Company’s financial position or subsequent financial performance.
Prices for polymer and other oil derived raw materials can vary widely in concert with the volatility of crude oil prices. If the cost of raw materials
increases and ePAK is unable to correspondingly increase the sales price of its products, its profit margins and financial performance will suffer.
14
Business disruptions could seriously harm ePAK’s future revenue and financial condition and
increase its costs and expenses.
ePAK’s worldwide operations could be subject to natural disasters and other business disruptions,
which could seriously harm its revenue and financial condition and increase its costs and expenses. Losses and interruptions could also be caused by earthquakes, power shortages, telecommunications failures, water shortages, tsunamis, floods,
typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters.
ePAK is dependent upon
continuous electric power supply in support of its production processes, and these processes will be disrupted if sufficient electric power supply is not provided.
All of the Company’s key manufacturing processes and infrastructure are powered by electricity. The People’s Republic of China, or PRC, electric power utilities face challenges in installing sufficient
incremental electric power generation and distribution infrastructure to keep pace with the PRC’s explosive demand. In the past, ePAK has been subject to managed load programs and power allocation programs at its manufacturing center. It is
likely that the Company will be subject to future programs of this nature. This can adversely impact its effective average manufacturing and processing capacity, increase costs, and can adversely impact the Company’s responsiveness to
customers. Ultimately, this could inhibit ePAK’s ability to attract and retain customers and have an adverse impact on its financial performance.
ePAK may lose sales if it is unable to acquire, repair, or replace production assets in a timely manner.
If the Company’s existing equipment, molds, or processing infrastructure fails, or ePAK is unable to acquire new factors of production in a timely manner, it may lose sales to competitors. In many of ePAK’s processes and molds, it
either does not maintain duplicates or has limited excess capacity. Delays caused by ePAK’s inability to acquire, repair, or replace production assets in a timely manner could result in a disruption of its manufacturing processes and prevent
the Company’s from meeting its customers’ requirements. In turn, this could adversely impact the Company’s financial performance.
The Company is subject to a variety of environmental laws which could cause it to incur significant expenses.
In addition
to other regulatory requirements affecting it business, ePAK is subject to a variety of foreign regulatory requirements relating to various environmental standards.
If the Company fails to comply with any present or future regulations, it
could be subject to future liabilities or the suspension of production. In addition, compliance with these or future laws could restrict ePAK’s ability to expand its facilities or build new facilities or require it to acquire costly equipment,
incur other significant expenses or modify its manufacturing processes.
International Risks
ePAK’s manufacturing center is located in the PRC, and it is subject to local laws and regulations as well as any PRC interpretations thereof.
ePAK’s manufacturing center along with the majority of its fixed assets and inventories are located in Shenzhen PRC. The largest
portion of the Company’s manufacturing operations operate pursuant to a Licensed Processing Entity (“LPE”) agreement with an unaffiliated, non-operating local PRC company, and the balance of ePAK’s manufacturing operations
operate as a Wholly Foreign Owned Entity (“WFOE”) at the same site in Shenzhen PRC. ePAK is dependent upon remaining in good standing with its local processing partner and local regulatory agencies in the PRC. The Company’s results of
operations are subject to the economic and political system in the PRC. The operations of ePAK’s PRC manufacturing center may be adversely impacted by changes in the laws and regulations of the PRC, changes in the interpretation of existing
laws and regulations, and the imposition of governmental controls. Matters including those related to environmental protection, taxation, foreign currency exchange, duties, tariffs, trade barriers and restrictions, import, export, licensing, and
property rights are among the areas where changes could adversely impact the Company’s operations.
15
The economy of the PRC differs from the economies of many countries in many respects such as structure,
government involvement, level of development, growth rate, capital reinvestment, allocation of resources, self-sufficiency, rate of inflation, and balance of payments position, among others. In the past, the economy of the PRC has been primarily a
planned economy subject to state plans. Since the entry of the PRC into the World Trade Organization in 2002, the PRC government has been reforming its economic and political systems. ePAK cannot assure you that the PRC government’s policies
for economic reforms will be consistent or effective. The Company’s results of operations and financial position may be harmed by changes in the PRC’s political, economic, or social conditions.
A significant portion of ePAK’s operating expenses are incurred in Chinese Yuan or RMB, whereas much of its sales revenue and raw materials
procurement costs are denominated in U.S. dollars. Expected ongoing RMB appreciation may increase the Company’s operating expenses.
The value of the Chinese Renminbi, or RMB, relative to the U.S. dollar has increased consistently in recent years and is expected to continue to do so in the future. ePAK’s RMB denominated revenues are limited and fall behind its RMB
denominated operating expenses. To the extent the Company is unable to increase RMB denominated sales revenue to match its RMB operating expense levels, future RMB appreciation will increase ePAK’s operating expenses and adversely impact its
financial performance.
ePAK may have exposure to tax rate and duty fluctuations and potentially increased tax liabilities, which would
adversely impact its financial performance and financial position.
As a corporation with operations and customers in a number of
countries around the world, ePAK is subject to various tax and duty structures in a diversity of jurisdictions. Changes in duty rates can adversely impact the Company’s competitiveness in certain jurisdictions or adversely impact its operating
expenses. ePAK’s effective tax rate is also subject to fluctuation along with changing geographic revenue mix, operating mix, and income tax mix. In addition, varying availability of operating loss carryforwards to offset taxes, tax
inducements, or deferred tax assets, along with changes in tax laws will impact the Company’s blended effective tax rate. This can drive fluctuations in financial performance from period to period. From time to time, the taxing authorities of
the relevant jurisdictions may conduct examinations of ePAK’s income tax returns and other regulatory filings. ePAK cannot assure you that the taxing authorities will agree with the Company’s interpretations. This may require the Company
to enter into settlements with the taxing authorities, which may require significant payments or otherwise adversely affect its business. ePAK may also appeal the taxing authorities’ determinations, but the Company may not prevail. This may
require significant payments or otherwise record charges (or reduce tax assets) that may adversely affect the Company’s business. Finally, ePAK cannot assure that its tax estimates will be accurate or that tax rates for previous periods will
not be adjusted in final determination through tax audits or tax dispute resolution.
Terrorist attacks, threats of further attacks,
acts of war, and threats of war may adversely impact all aspects of ePAK’s operations, revenues, costs, and stock price.
Terrorist
attacks, conflicts or wars, future events occurring in response or connection to the foregoing, including future terrorist attacks against U.S. targets, rumors or threats of war, actual conflicts involving the U.S. or its allies, conflicts between
China and Taiwan, or trade disruptions impacting ePAK’s domestic or foreign suppliers or its customers, may impact its operations. The occurrence of these events may also cause the Company to not meet customer expectations, and decrease sales
of its products. These events have affected, and are expected to continue to affect, the general economy and customer demand for products sold by ePAK’s customers. In addition, past events such as these have disrupted the global insurance and
reinsurance industries, which may cause the Company to not be able to obtain insurance at historical terms and levels for its facilities. There can be no assurance that these events will not occur in the future, and any of these events could have a
significant impact on ePAK’s operations, revenues, and costs.
16
Any recurrence of SARS, an outbreak of avian flu, or other contagious diseases may adversely impact
ePAK’s ability to operate and have an adverse affect on the economies and financial markets of certain Asian countries.
The
recurrence of severe acute respiratory syndrome, or SARS, avian flu, or other contagious diseases where epidemic or pandemic situations become a possibility may adversely affect the Company’s staff’s ability to travel, inhibit customer and
supplier travel, or otherwise inhibit ePAK’s ability to operate as it otherwise would in their absence. This may impact ePAK’s operations and could have an adverse impact on its operating and financial performance. There is no guarantee
that any such future outbreak of SARS, avian flu, or other contagious disease will not occur in the future.
Fluctuations in the value
of the U.S. dollar in relation to other currencies may lead to lower net income or may cause ePAK to raise prices, which could result in reduced net sales.
Foreign currency exchange rate fluctuations could have an adverse effect on the Company’s net sales and results of operations. Unfavorable foreign currency fluctuations against the U.S. dollar could require ePAK
to increase prices to foreign customers and could result in lower sales to such customers with a resulting decrease in its profitability. ePAK cannot predict whether these foreign currency exchange risks will have a material adverse effect on the
Company’s operations and financial results in the future.
Risks Relating to ePAK’s Intellectual Property
If ePAK is unable to protect its intellectual property rights, the Company’s business and business prospects could be harmed.
In part, ePAK’s future success depends upon its ability to obtain and maintain proprietary technology used in its products. The Company has obtained
patents relating to certain of its products and have filed applications for additional patents. ePAK cannot assure you that any of its pending patent applications will be approved, that it will develop additional proprietary technology that is
patentable, that any patents owned by or issued to the Company will provide it with advantages over its competition, that its patents will not be challenged by other parties, or that its proprietary information and technology will not be
independently developed by or become otherwise known to third parties. Competitors may misappropriate ePAK’s intellectual property, including those covered by existing or future patents. While the Company actively seeks to protect its
intellectual property and patents, there is no assurance that recourse will be available to ePAK in cases of infringement, or that attempts at recourse will prove cost effective. Also, many U.S. companies have encountered substantial infringement
problems in foreign countries, including countries in which ePAK manufactures its products. The law in these countries may not protect the Company proprietary rights as fully as do the laws of the U.S. Misappropriation of the Company’s
intellectual property and patents by other parties may limit its growth and future revenue. In addition, ePAK cannot assure you that third parties will not design around its patents.
If ePAK infringes on the proprietary technology of others, its business could be harmed.
ePAK’s success will depend, in part, on its ability to avoid infringing on patents of others. It is not uncommon to receive notices alleging
infringement of patents or other intellectual property rights. If it appears necessary or desirable, ePAK may seek licenses under patents that it is alleged to be infringing. However, there can be no assurance that a license will be offered or that
the terms of an offered license will be acceptable or favorable to the Company.
If ePAK is alleged to be infringing on a patent or
intellectual property right and is unable to obtain a license under a such patent or intellectual property right, the Company could incur substantial liabilities and be forced to suspend the manufacture of products utilizing the patent or
intellectual property right or attempt to develop non-infringing products, any of which could harm its business. Furthermore, ePAK may become involved in protracted litigation regarding the alleged infringement or litigation to assert and protect
its patents or other intellectual property rights. Any litigation related to patent infringement or other intellectual property matters could result in substantial cost and diversion of management times and resources, which could adversely impact
ePAK’s business.
17
Risks Related to the Securities Markets
ePAK has not been required to evaluate its internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002. The
adoption and implementation of Sarbanes-Oxley practices will increase the Company’s expenses and may adversely impact its operating results.
In the future, ePAK will be required to undertake certain actions pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, including the furnishing of reports by the Company’s management on its internal
control over financial reporting. Such reports must contain, among other matters, an assessment of the effectiveness of ePAK’s internal control over financial reporting as of the end of an applicable fiscal year, including a statement as to
whether its internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in the Company’s internal control over financial reporting identified by management. The report must also
contain a statement that the Company’s auditors have issued an attestation report on management’s assessment of its internal controls over financial reporting. Public Company Accounting Oversight Board Auditing Standards No. 2 and
No. 5 provide the professional standards and related performance guidance for auditors to attest to, and report on, management’s assessment of the effectiveness of internal control over financial reporting under Section 404.
Each year ePAK will need to create the system and process documentation and evaluation needed to comply with Section 404. During this
process, if the Company’s management identifies one or more material weaknesses in its internal control over financial reporting, ePAK will be unable to assert that its internal control over financial reporting is effective. If ePAK is unable
to assert that its internal control over financial reporting is effective in the future (or if its auditors are unable to attest that the Company’s management’s report is fairly stated or if they are unable to express an opinion on the
effectiveness of ePAK’s internal controls over financial reporting), the Company could lose investor confidence in the accuracy and completeness of its financial reports, which could have an adverse effect on its stock price.
There can be no assurance that ePAK will not have one or more material weaknesses. The costs of Sarbanes-Oxley compliance and maintenance are
indeterminate at this point and implementation may adversely impact the Company’s financial results.
Evaluation of disclosure
controls and procedures
ePAK has been a private company registered in Singapore with limited accounting personnel and other resources
to address its internal controls and procedures. During the audit of its financial statements for the three years ended December 31, 2006, ePAK and its independent registered public accounting firm identified a number of control deficiencies,
including seven material weaknesses, as defined in the Public Company Accounting Oversight Board’s Audit Standard No. 5. The material weaknesses identified by ePAK and its independent auditors are listed below:-
1)
Inadequate personnel resources, processes and documentation to address reporting and accounting requirements under U.S. GAAP;
2)
Lack of internal controls over ePAK’s consolidation process as well as the processes over judgments and estimates required under U.S. GAAP;
3)
Lack of internal controls over maintaining and tracking ePAK’s fixed asset register;
4)
Lack of internal controls, to adequately maintain, in sufficient order and detail, human resources information, to facilitate a timely audit;
5)
Lack of supporting documentation and internal controls regarding the accounting for income taxes:
6)
Lack of segregation of duties; and
7)
Lack of standardized policies and procedures governing the group’s accounting policies.
18
Management is committed to remediate these deficiencies and has planned to implement the following
measures, including:
(1)
Additional training to ePAK’s accounting personnel on applicable U.S. GAAP standards to increase their familiarity with the U.S. reporting environment and standards. In
addition, ePAK is also looking into the expansion of its finance function by recruiting additional qualified accountants as well as the reassessment of its existing finance and accounting policies and procedures;
(2)
To hire an external, independent and internationally recognized consulting firm with the necessary U.S. GAAP expertise to assist ePAK in establishing effective internal control
procedures over its consolidation process and controls surrounding its accounting estimates and judgments;
(3)
The purchase of software for maintaining and tracking ePAK’s fixed assets;
(4)
To establish an effective human resources information system and procedures to help ensure accurate and reliable recording of information pertaining to staff costs;
(5)
To engage an internationally recognized tax consulting firm with expertise in U.S. taxation to assist with the documentation of ePAK’s tax positions ;
(6)
To establish effective segregation of duties among staff and departments within ePAK;
(7)
To establish a group accounting manual and policies for ePAK and its subsidiaries which will help ensure that the appropriate accounting standards are applied consistently
throughout the group; and
(8)
ePAK is in the process of establishing an independent audit committee and is committed to identifying individuals with the appropriate experience to serve on the audit committee.
While ePAK is implementing steps to improve the effectiveness of its internal control over financial reporting, failure to
implement measures to remediate these material weaknesses and other control deficiencies in time to meet the deadline imposed by Section 404 of the Sarbanes-Oxley Act, including establishing an audit committee in the near future, may result in ePAK
not being able to conclude, on an ongoing basis, that it has effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition and
other significant accounting processes are necessary for ePAK to produce reliable financial reports and are important to help prevent fraud. Any failure to achieve and maintain effective internal control over financial reporting could result in
ePAK’s inability to conclude that each has effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act.
Changes to financial accounting standards may affect ePAK’s results of operations and cause it to change its business practices.
ePAK prepares financial statements in accordance with U.S. GAAP. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public
Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in these policies can have a significant effect on the Company’s reported results and may affect its
reporting of transactions completed before a change is announced. Changes to these rules or the questioning of current practices may adversely affect the Company’s reported financial results or the way it conducts its business.
19
Risks Related to the Acquisition and Redomestication Merger
Continuing Pubco’s working capital will be reduced if Ascend stockholders exercise their right to convert their shares into cash. This would
reduce Continuing Pubco’s cash reserve after the acquisition.
Pursuant to Ascend’s certificate of incorporation, holders of
Public Shares may vote against the acquisition and demand that we convert their Public Shares, calculated as of two business days prior to the anticipated date of the consummation of the acquisition, into a pro rata share of the trust account where
a substantial portion of the net proceeds of the IPO are held. Ascend and ePAK will not consummate the acquisition if holders of 20% or more of the Public Shares (
i.e.,
1,380,000 shares or more) exercise these conversion rights. To the extent
the acquisition is consummated and holders have demanded to convert their shares, there will be a corresponding reduction in the amount of funds available to Continuing Pubco following the acquisition. As of
, 200 , the record date, assuming the acquisition proposal is adopted, the maximum amount of funds that
could be disbursed to Ascend’s stockholders upon the exercise of their conversion rights is approximately $ , or approximately 20% of the funds then held in the trust
account. Any payment upon exercise of conversion rights will reduce Continuing Pubco’s cash after the acquisition, which may limit the ability of Continuing Pubco to implement ePAK’s business plan.
Continuing Pubco’s warrants and options 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 to Continuing Pubco’s stockholders.
The warrants of Continuing Pubco to be issued in
exchange for all of Ascend’s outstanding warrants will be exercisable immediately after the consummation of the acquisition and redomestication merger for up to an aggregate of 14,133,334 shares of Continuing Pubco’s common stock. These
warrants will be exercised only if the $5.00 per share exercise price is below the market price of Continuing Pubco’s common stock. As of the record date, the last sale price of a share of Ascend common stock was
$ . In addition, in the redomestication merger, Continuing Pubco will issue an option in exchange for Ascend’s existing underwriter option, which will entitle the holders
thereof to purchase 300,000 shares of Continuing Pubco’s common stock and 600,000 warrants exercisable into 600,000 shares of Continuing Pubco’s common stock. In the acquisition, Continuing Pubco also will assume the Assumed Options, which
will be exercisable into shares of Continuing Pubco common stock. At the closing of the acquisition and redomestication merger, assuming no conversions, and assuming Subject Adjusted EBITDA of $6.7 million and estimated Adjusted Ascend Trust Value
of $38.2 million, resulting in approximately 8.6 million shares being issued by Continuing Pubco to EHL, Continuing Pubco will have approximately 17.2 million shares of common stock outstanding. Giving effect to the foregoing assumptions,
as well as the exercise of all of Continuing Pubco warrants and options to be outstanding immediately following closing (and warrants underlying certain of such options), there would be approximately 32.2 million shares of Continuing Pubco’s
common stock outstanding immediately after closing of the acquisition. Sales of substantial numbers of such shares in the public market could adversely affect the market price of such shares.
There will be a substantial number of shares of Continuing Pubco’s common stock available for sale in the future in the open market, which may
cause a decline in the market price of Continuing Pubco’s common stock.
Assuming Subject Adjusted EBITDA of $6.7 million and
estimated Adjusted Ascend Trust Value of $38.2 million, approximately 8.6 million shares of common stock will be issued by Continuing Pubco to EHL at the closing of the acquisition. These shares are initially not being registered and will be
restricted from public sale under the securities laws. All of these shares will be subject to the lock-up agreement and cannot be sold publicly until the expiration of the restricted period under the lock-up agreements and until effectiveness of a
registration statement or until such shares are otherwise saleable under exemptions provided under Rule 144 of the Securities Act. The presence of this additional number of shares for potential trading in the public market may have an adverse effect
on the market price of Continuing Pubco’s common stock.
20
If Ascend stockholders fail to vote or abstain from voting on the acquisition proposal, they may not
exercise their conversion rights to convert their Public Shares into a pro rata portion of the trust account as of the record date.
Ascend stockholders holding Public Shares who affirmatively vote against the acquisition proposal may, at the same time, demand that we convert their shares into a pro rata portion of the trust account, calculated as of two business days
prior to the anticipated date of the consummation of the acquisition. Ascend stockholders who seek to exercise this conversion right must affirmatively vote against the acquisition and tender their shares (either physically or electronically) to
Ascend’s transfer agent after the special meeting. Any Ascend stockholder who fails to vote or who abstains from voting on the acquisition proposal or who fails to tender their shares as required may not exercise his or her conversion rights
and will not receive a pro rata portion of the trust account for conversion of his or her shares. See the section entitled “
Special Meeting of Ascend Stockholders—Conversion Rights
” for the procedures to be followed if you wish
to convert your shares to cash.
If we are unable to maintain listing of Continuing Pubco’s securities on the Nasdaq Global Market
or another stock exchange, it may be more difficult for Continuing Pubco’s shareholders to sell their securities.
It is a
condition to consummation of the acquisition, that Continuing Pubco’s common stock and warrants be listed on either the Nasdaq Global Market or the Nasdaq Capital Market at the time of consummation of the acquisition. Thereafter, we will be
required to meet Nasdaq’s various continued listing requirements to maintain such listing. We cannot assure you that Continuing Pubco will be able to meet the continued listing requirements at all times in the future. If the Nasdaq Global
Market or the Nasdaq Capital Market should delist Continuing Pubco’s securities from trading, and Continuing Pubco is unable to obtain listing on another exchange, there could be significant material adverse consequences, including:
•
a limited availability of market quotations for the company’s securities;
•
reduced liquidity;
•
a diminished or no active trading market;
•
a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and
possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;
•
a limited amount of news and analyst coverage for Continuing Pubco; and
•
a decreased ability to issue additional securities or obtain additional financing in the future.
Our ability to request indemnification from ePAK’s stockholders for damages arising out of the acquisition is limited to those claims where
damages exceed $250,000, are only indemnifiable to the extent that damages exceed $250,000.
The obligation of the ePAK shareholders to
indemnify and hold harmless Continuing Pubco for any damages, whether as a result of any third party claim or otherwise, and which arise as a result of or in connection with the breach of representations and warranties and agreements and covenants
of ePAK will be limited solely to the fair market value, as of the time the indemnity claim is established
, of the number of shares of Continuing Pubco common stock equal to (X) 15% of the sum of the Transaction Shares plus the number of
shares issuable upon exercise of the Assumed Options, minus (Y) the sum of the quotients obtained by dividing the dollar amount of each previous indemnity claim by the fair market value, as of the time of such previous indemnity claim
was
established, of one share of Continuing Pubco common stock. Claims for indemnification may only be asserted by Continuing Pubco once the damages exceed $250,000 in the aggregate and are indemnifiable only to the extent that damages exceed $250,000.
Accordingly, it is possible that Continuing Pubco will not be entitled to indemnification even if ePAK is found to have breached its representations and warranties and agreements and covenants contained in the
21
acquisition agreement if such breach would only result in damages to Ascend of less than $250,000. Additionally, to the extent the amount of any
indemnification obligation exceeds the maximum obligation under these indemnity provisions, Continuing Pubco would not be indemnified.
Ascend’s current directors and executive officers own shares of common stock and warrants that will become worthless if the acquisition is not approved. Consequently, they may have a conflict of interest in determining whether
particular changes to the terms of the business combination with ePAK or waivers of conditions are appropriate.
All of Ascend’s
officers and directors or their affiliates beneficially own stock in Ascend. Ascend’s executives and directors and their affiliates are not entitled to receive any of the cash proceeds that may be distributed upon Ascend’s liquidation with
respect to shares they acquired prior to Ascend’s IPO. Therefore, if the acquisition is not approved and Ascend is forced to liquidate, such shares held by such persons will be worthless, as will all of the warrants. In addition, if Ascend
liquidates prior to the consummation of a business combination, Don K. Rice, our chairman of the board and chief executive officer, will be personally liable to pay the debts and obligations, if any, to vendors and other entities that are owed money
by Ascend for services rendered or products sold to Ascend, or to any target business, to the extent such creditors bring claims that would otherwise require payment from moneys in the trust account. These personal and financial interests of
Ascend’s directors and officers may have influenced their decision to approve the business combination with ePAK. In considering the recommendations of Ascend’s board of directors to vote for the acquisition proposal and other proposals,
you should consider these interests. Additionally, the exercise of Ascend’s directors’ and executive officers’ discretion in agreeing to changes or waivers in the terms of the business combination may result in a conflict of interest
when determining whether such changes to the terms of the business combination or waivers of conditions are appropriate and in Ascend’s stockholders’ best interest.
If we do not consummate the business combination with ePAK by May 17, 2008 and are forced to dissolve and liquidate, payments from the trust
account to Ascend’s public stockholders may be delayed.
If we do not consummate the business combination with ePAK by May 17,
2008, we will dissolve and liquidate. We anticipate that, promptly after such date, the following will occur:
•
Ascend’s board of directors will convene and adopt a specific plan of dissolution and liquidation, which it will then vote to recommend to Ascend’s
stockholders; at such time it will also cause to be prepared a preliminary proxy statement/prospectus setting out such plan of dissolution and liquidation as well as the board’s recommendation of such plan;
•
we will promptly file Ascend’s preliminary proxy statement/prospectus with the Securities and Exchange Commission;
•
if the Securities and Exchange Commission does not review the preliminary proxy statement/prospectus, then, 10 days following the filing of such preliminary proxy
statement/prospectus, we will mail the definitive proxy statement/prospectus to Ascend’s stockholders, and 10 to 20 days following the mailing of such definitive proxy statement/prospectus, we will convene a meeting of Ascend’s
stockholders, at which they will vote on Ascend’s plan of dissolution and liquidation; and
•
if the Securities and Exchange Commission does review the preliminary proxy statement/prospectus, we currently estimate that we will receive their comments 30 days
after the filing of such proxy statement/prospectus. We would then mail the definite proxy statement/prospectus to Ascend’s stockholders following the conclusion of the comment and review process (the length of which we cannot predict with any
certainty, and which may be substantial) and we will convene a meeting of Ascend’s stockholders at which they will vote on Ascend’s plan of dissolution and liquidation.
We expect that all costs associated with the implementation and completion of Ascend’s plan of dissolution and liquidation will be funded by any
remaining net assets not held in the trust account, although we cannot
22
assure you that there will be sufficient funds for such purpose. If such funds are insufficient, we anticipate that Ascend’s management will advance us
the funds necessary to complete such dissolution and liquidation (currently anticipated to be no more than $50,000) and not seek reimbursements thereof.
We will not liquidate the trust account unless and until Ascend’s stockholders approve Ascend’s plan of dissolution and liquidation. Accordingly, the foregoing procedures may result in substantial delays in
Ascend’s liquidation and the distribution to Ascend’s public stockholders of the funds in Ascend’s trust account and any remaining net assets as part of Ascend’s plan of dissolution and liquidation.
Ascend’s stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.
If we are unable to complete the business combination with ePAK, we will dissolve and liquidate pursuant to Section 275 of the DGCL. Under
Sections 280 through 282 of the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in dissolution. Pursuant to Section 280, if the corporation complies with
certain procedures intended to ensure that it makes reasonable provisions for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the
corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of a stockholder with respect to a liquidating distribution is limited to the lesser of
such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of stockholder would be barred after the third anniversary of the dissolution. Although we will seek stockholder approval to
liquidate the trust account to Ascend’s public stockholders as part of Ascend’s plan of dissolution and liquidation, we will seek to conclude this process as soon as possible and as a result do not intend to comply with those procedures.
Because we will not be complying with those procedures, we are required, pursuant to Section 281 of the DGCL, to adopt a plan that will provide for Ascend’s payment, based on facts known to us at such time, of (i) all existing claims,
(ii) all pending claims and (iii) all claims that may be potentially brought against us within the subsequent 10 years. Accordingly, we would be required to provide for any creditors known to us at that time or those that we believe could
be potentially brought against us within the subsequent 10 years prior to distributing the funds held in the trust to stockholders. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such,
Ascend’s stockholders could potentially be liable for any claims to the extent of distributions received by them in dissolution (but no more) and any liability of Ascend’s stockholders may extend well beyond the third anniversary of such
dissolution. Accordingly, we cannot assure you that third parties will not seek to recover from Ascend’s stockholders amounts owed to them by us.
Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us that are not dismissed, any distributions received by stockholders in Ascend’s dissolution might be
viewed under applicable debtor/creditor or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by Ascend’s stockholders
in Ascend’s dissolution. Furthermore, because we intend to distribute the proceeds held in the trust account to Ascend’s public stockholders as soon as possible after Ascend’s dissolution, this may be viewed or interpreted as giving
preference to Ascend’s public stockholders over any potential creditors with respect to access to or distributions from Ascend’s assets. Furthermore, Ascend’s board of directors may be viewed as having breached their fiduciary duties
to Ascend’s creditors or may have acted in bad faith, and thereby exposing itself and Ascend’s company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors or
complying with certain provisions of the DGCL with respect to Ascend’s dissolution and liquidation. We cannot assure you that claims will not be brought against us for these reasons.
Voting control by Continuing Pubco’s executive officers, directors and other affiliates may limit your ability to influence the outcome of
director elections and other matters requiring stockholder approval.
Upon consummation of the acquisition, the persons who are parties
to the voting agreement, which are EHL, on the one hand, and our current directors, Don K. Rice, Russell C. Ball, III and Stephen L. Brown, and our
23
board advisor, Arthur Spector, on the other hand, will collectively own approximately 59.7% of Continuing Pubco’s voting stock, assuming maximum
conversion of the Public Shares. These persons have agreed to vote for each other’s designees to Continuing Pubco’s board of directors through director elections in 2010. Accordingly, they will be able to control the election of directors
and, therefore, Continuing Pubco’s policies and direction during the term of the voting agreement. In addition, Continuing Pubco’s board of directors will be staggered in three classes, with only one class up for election in any given
year. This concentration of ownership, the voting agreement and the classified board would likely have the effect of delaying or preventing a change in Continuing Pubco’s control or discouraging a potential acquirer from attempting to obtain
control of us, which in turn could have a material adverse effect on the market price of Continuing Pubco’s common stock or prevent Continuing Pubco’s stockholders from realizing a premium over the market price for their shares of common
stock.
Since Continuing Pubco will be a foreign company with substantially all of its assets outside of the United States, it could be
difficult to enforce legal rights against us.
ePAK is a company formed under the law of Singapore and Continuing Pubco will be a
company formed under the law of Bermuda. Both of these companies will principally operate outside of the United States. The substantial majority of their assets will be located outside of the United States, including in the PRC. Certain of
Continuing Pubco and ePAK’s directors and officers and experts named in this proxy statement/prospectus are citizens of, or resident in, countries other than the United States. Although the PRC, Singapore and the United States are signatories
to the 1965 Hague Convention on the Service Abroad of Judicial and Extra Judicial Documents in Civil and Commercial Matters, service under this treaty is cumbersome and time consuming and may not result in adequate notice, such that any judgment
based on service thereunder may be reopened, relitigated and overturned. Therefore, it may not be possible for investors to effect service of process within the United States upon them, or to enforce against them any judgments obtained in United
States courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States or of the United States securities laws of any State of the United States.
The difficulty of enforcing a judgment of a United States court in the PRC, Singapore or Bermuda, where most of the assets of ePAK are, and Continuing
Pubco will be, stems from the lack of any official arrangement providing for judicial assistance to the enforcement of judgments of courts of the United States in the PRC, Singapore and Bermuda. The PRC, Singapore and Bermuda do not have treaties
providing for the reciprocal recognition and enforcement of judgments of courts within the United States. In the absence of such a treaty, judgments of United States courts will not be enforced in the PRC, Singapore or Bermuda without review of the
merits of the claims, and the claims brought in the Continuing Pubco action in the United States court will have to be re-litigated on their merits. Likewise, administrative actions brought by regulatory authorities, such as the SEC, and other
actions, which result in foreign court judgments, could (assuming such actions are not required by PRC, Singapore or Bermuda law to be arbitrated) only be enforced in the PRC, Singapore or Bermuda if such judgments or rulings do not violate the
basic principles of the laws of the PRC, Singapore or Bermuda, as determined by the appropriate courts of those countries that have jurisdiction for recognition and enforcement of judgments. There also is doubt as to the enforceability in these
jurisdictions of any actions to enforce judgments of United States courts arising out of or based on the ownership of the securities of Continuing Pubco, including judgments arising out of or based on the civil liability provisions of United States
federal or state securities laws, and whether such courts would enforce, in original actions, judgments against Continuing Pubco, its directors and officers and assets in the PRC, Singapore or Bermuda predicated solely upon the federal securities
laws of the United States. An original action may be brought in the PRC, Singapore or Bermuda against Continuing Pubco or its subsidiaries or its directors and officers and experts named in this prospectus/proxy statement only if the actions are not
required to be arbitrated by PRC, Singapore or Bermuda law and only if the facts alleged in the complaint give rise to a cause of action under PRC or Singapore law. In connection with such an original action, a PRC, Singapore or Bermuda court may
award civil liability, including monetary damages.
24
As a result of the redomestication merger, Ascend stockholders have appraisal rights, the exercise of
which would reduce the amount of cash assets available to us following the acquisition.
Ascend stockholders have appraisal rights under
Delaware law in connection with the redomestication merger. If exercised, these persons are entitled to a cash payment for the fair value of their shares at the time of the redomestication merger. Any payment will reduce the cash assets of
Continuing Pubco, which may limit its ability to implement ePAK’s business plan.
An effective registration statement may not be in
place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise his, her or its warrants and causing such warrants to be practically worthless.
No warrant of Continuing Pubco will be exercisable and the company will not be obligated to issue shares of common stock unless at the time a holder seeks
to exercise such warrant, a prospectus relating to the common stock issuable upon exercise of the warrant is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of
the holder of the warrants. Under the terms of the warrant agreement, Continuing Pubco will be obligated to use its best efforts to meet these conditions and to maintain a current prospectus relating to the common stock issuable upon exercise of the
warrants until the expiration of the warrants. However, we cannot assure you that the company will be able to do so, and if the company does not maintain a current prospectus related to the common stock issuable upon exercise of the warrants,
holders will be unable to exercise their warrants and the Company will not be required to settle any such warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the common
stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the warrants may have no value, the market for the warrants may be limited and the warrants may expire worthless.
United States persons who own Continuing Pubco’s common stock may have different interests than when they owned Ascend’s common stock and
more difficulty in protecting their interests than United States persons who are stockholders of a United States corporation.
The
Companies Act 1981, as amended, which will apply to Continuing Pubco as a Bermuda company, differs in certain material respects from laws generally applicable to United States corporations and their shareholders. As a result of these differences,
United States persons who own our common shares may have different interests than when they owned Ascend’s common stock and more difficulty protecting their interests than would United States persons who own common shares of a United States
corporation. See
“Redomestication Proposal—Comparison of Corporate Governance and Stockholders Rights”
for more information on the differences between Bermuda and Delaware corporate laws.
In certain circumstances, the redomestication merger could be taxable to U.S. federal income tax purposes.
Under certain circumstances, the redomestication merger could be taxable for U.S. federal income tax purposes. Specifically, if (i) more than 50% of
the outstanding shares of Continuing Pubco are issued in connection with the transactions to the Ascend stockholders that are U.S. persons (treating any shares owned by a partnership or other entity or arrangement taxed as a partnership for U.S.
federal income tax purposes as owned proportionately by its partners) or (ii) the fair market value of ePak is less than the fair market value of Ascend at the time of the transactions, an Ascend stockholder will recognize gain for U.S. federal
income tax purposes equal to the difference between the fair market value of the Continuing Pubco common stock and the tax basis of the Ascend common stock for which it is exchanged. The percentage of Continuing Pubco common stock that will be
issued to the Ascend stockholders in the transactions will not exceed 49.9% of the outstanding shares of Continuing Pubco common stock, including as outstanding certain shares that EHL or the other recipients of Transaction Shares may elect to
return to Continuing Pubco to satisfy indemnity claims, if any. Ascend believes that the fair market value of ePak equals or exceeds the fair market value of Ascend. However, the determination
25
of the relative fair market values of ePak and Ascend is inherently factual and cannot be made with precision. If, Internal Revenue Service were to
successfully challenge either the percentage ownership of the Ascend stockholders or the relative fair market values of ePak and Ascend, Ascend stockholders would recognize gain upon the redomestication merger. Stockholders of Ascend are strongly
encouraged to consult their own tax advisors regarding the tax consequences to them of the transactions described herein.
Risks if the Adjournment
Proposal is Not Approved
If any of the principal proposals put to Ascend’s stockholders for a vote are not approved, and a
sufficient number of votes have not been obtained to approve the adjournment proposal, Ascend’s board of directors will not have the ability to adjourn the special meeting to a later date in order to solicit further votes, and, therefore, the
acquisition will not be approved and Ascend will be required to liquidate.
26
FORWARD-LOOKING STATEMENTS
We believe that some of the information in this proxy statement/prospectus and
incorporated by reference herein constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “may,”
“expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,” and “continue” or similar words. You should read statements that contain these words carefully because
they:
•
discuss future expectations;
•
contain projections of future results of operations or financial condition; or
•
state other “forward-looking” information.
We believe it is important to communicate expectations to our stockholders. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors and
cautionary language discussed in this proxy statement/prospectus provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described in such forward-looking statements. You are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement/prospectus.
All forward-looking statements included herein attributable to any of Ascend, ePAK or any person acting on either party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this
section. Except to the extent required by applicable laws and regulations, Ascend and ePAK undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to
reflect the occurrence of unanticipated events.
Before you grant your proxy or instruct how your vote should be cast or vote on the
adoption of the proposals, you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement/prospectus could have a material adverse effect on Ascend and ePAK.
27
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
Q. Why am I receiving this proxy statement/prospectus?
A
. Ascend and ePAK have agreed to a business combination under the
terms of the acquisition agreement, dated as of July 30, 2007, as described in this proxy statement/prospectus. A copy of the acquisition agreement is attached to this proxy statement/prospectus as Annex A, which we encourage you to
read.
You are being asked to consider and vote upon a proposal to approve the acquisition agreement, which among other things, provides for the acquisition of ePAK by Continuing Pubco. You
also are being asked to consider and vote upon a proposal to approve the redomestication merger by which Ascend and ACL will be merged or combined for the purposes of (a) moving the domicile of our public company from Delaware to Bermuda and (b)
concurrently with the redomestication merger, acquiring ePAK in the acquisition. The certificate of incorporation and by-laws of Continuing Pubco will be those of ACL (as same will be restated and amended immediately prior to consummation of the
redomestication merger). A copy of the proposed restated certificate of incorporation and by-laws are attached to this proxy statement/prospectus as
Annex D,
which we encourage you to read. You also are being asked to consider and vote upon a
proposal to approve the 2007 incentive plan. A copy of the 2007 incentive plan is attached to this proxy statement/prospectus as
Annex E
, which we encourage you to read.
The
acquisition agreement and the transactions contemplated thereby have been approved by the board of directors of each of EHL and ePAK.
The redomestication merger and the 2007 incentive plan have been approved
by the board of directors of Ascend and ACL.
We will not consummate the transactions described above unless all of the proposals, other than the adjournment proposal, are approved by the Ascend stockholders. Accordingly, the
approval of each proposal is a condition to the adoption of each other proposal. Ascend will hold a special meeting of its stockholders to obtain these approvals.
This proxy statement/prospectus contains important information about the
proposed acquisition, the other proposals and the special meeting of Ascend stockholders. You should read it carefully.
Your vote is important. We encourage you to vote by submitting your
proxy as soon as possible after carefully reviewing this proxy statement/prospectus.
Q. What vote is required to adopt the acquisition proposal?
A
. Approval of the acquisition proposal will require the affirmative vote by the holders of majority of
the shares of Ascend common stock issued in its IPO (“Public Shares”), including holders who purchase Public Shares subsequent to the IPO, and voted on the matter.
28
Q. What vote is required to adopt the Redemption Merger Proposal?
A
. Approval of the redomestication proposal will require the affirmative vote of the holders of a majority
of the outstanding shares of Ascend common stock.
Q. What vote is required to adopt the 2007 incentive plan proposal?
A
. Approval of the 2007 incentive plan proposal will require the affirmative vote of holders of a majority
of the shares of Ascend’s common stock present in person or by proxy at meeting.
Q. What vote is required to adopt the adjournment proposal?
A
. Adoption of the adjournment proposal requires the affirmative vote of a majority of the issued and
outstanding shares of Ascend’s common stock represented in person or by proxy at the meeting.
Q. What will I receive in the redomestication merger?
A
. Ascend stockholders will receive an equal number of shares of Continuing Pubco’s common stock in
exchange for their Ascend common stock. Ascend warrant holders will receive an equal number of warrants of Continuing Pubco in exchange for their Ascend warrants, the terms and conditions of which will not change, except that on exercise, they will
receive common stock of Continuing Pubco.
Q. How will the redomestication merger be accomplished?
A
. Ascend will amalgamate with ACL, a wholly owned subsidiary which was formed under the law of Bermuda on
July , 2007 specifically for the purpose of affecting the redomestication merger. As a result of the redomestication merger, each outstanding share of common stock of Ascend will automatically convert into one share of common
stock of Continuing Pubco. This procedure will result in you becoming a shareholder of Continuing Pubco, which will be renamed “ePAK International Limited” immediately after the redomestication merger and acquisition are
consummated.
Q. Do I have conversion rights?
A
. If you hold Public Shares, then you have the right to vote against the acquisition proposal and demand
that Ascend convert such shares into a pro rata portion of the trust account in which a substantial portion of the net proceeds of Ascend’s IPO are held. We sometimes refer to these rights to vote against the acquisition and demand conversion
of the shares into a pro rata portion of the trust account as “conversion rights.”
Q. How do I exercise my conversion rights?
A
. If you wish to exercise your conversion rights, you must (i) vote
against the acquisition proposal, (ii) demand that Ascend convert your shares into cash, (iii) continue to hold your Public Shares through the closing of the acquisition and (iv) then deliver your Public Shares to our transfer agent within the
period specified in a notice you will receive from Continuing Pubco, which period will be not less than 20 days from the date of such notice. In lieu of delivering your stock certificate, you may deliver your shares to the transfer agent
electronically using Depository Trust Company’s DWAC (Deposit Withdrawal at Custodian) System.
Any action that does not include an affirmative vote against the
acquisition will prevent you from exercising your conversion rights. Your vote on any proposal other than the acquisition proposal will have no impact on your right to seek conversion.
29
You may exercise your conversion rights either by
checking the box on the proxy card or by submitting your request in writing to Ascend at the address listed at the end of this section. If you (i) initially vote for the acquisition proposal but then wish to vote against it and exercise your
conversion rights or (ii) initially vote against the acquisition proposal and wish to exercise your conversion rights but do not check the box on the proxy card providing for the exercise of your conversion rights or do not send a written request to
Ascend to exercise your conversion rights, or (iii) initially vote against the acquisition but later wish to vote for it, you may request Ascend to send you another proxy card on which you may indicate your intended vote and, if that vote is
against the acquisition proposal, exercise your conversion rights by checking the box provided for such purpose on the proxy card. You may make such request by contacting Ascend at the phone number or address listed at the end of this
section.
Any corrected or changed proxy card or written demand of conversion rights must be received by Ascend prior to the special meeting. No demand for conversion will be honored unless the
holder’s stock certificate has been delivered (either physically or electronically) to the transfer agent after the special meeting.
If, notwithstanding your negative vote, the acquisition is completed, then
you will be entitled to receive a pro rata portion of the trust account, including any interest earned thereon, calculated as of two business days prior to the anticipated date of the consummation of the acquisition. As of the record date, there was
approximately $ in the trust account, which would amount to approximately $ per share upon
conversion. Amounts payable to persons converting will not be affected by any deferred underwriting commissions due and payable to the underwriter in Ascend’s IPO.
If you exercise your conversion rights, then you will be exchanging your
shares of Ascend common stock for cash and will no longer own these shares.
Exercise of your conversion rights does not result in either the conversion or a loss of your Ascend warrants. Your warrants will be exchanged for the warrants of
Continuing Pubco and will be exercisable following a conversion of your common stock unless we do not consummate the acquisition. A registration statement must be in effect to allow you to exercise any warrants you may hold or to allow Continuing
Pubco to call the warrants for redemption if the redemption conditions are satisfied.
Q. Do I have appraisal rights if I object to the acquisition?
A
. Under Delaware corporate law, the redomestication merger of Ascend and ACL causes the stockholders
of Ascend to have appraisal rights in connection with the transactions for which approval is sought. This right is separate from the conversion rights of the holders of Public Shares with respect to the acquisition proposal. However, because the
exercise of the appraisal right and the conversion rights both require a tender by the holder of his or its Public Shares to Ascend, either appraisal rights or conversion rights, but not both, may be elected in respect of the Public Shares. See
“Redomestication Proposal—Appraisal Rights”
for more information about appraisal rights.
30
Q. What happens to the funds deposited in the trust account after consummation of the
acquisition?
A
. After consummation of the acquisition, Ascend stockholders properly electing to exercise their
conversion rights will receive their pro rata portion of the funds in the trust account. The balance of the funds in the trust account will be released to Continuing Pubco to be used for the working capital requirements of Continuing Pubco and ePAK
and to pay expenses incurred in connection with the transactions contemplated by the acquisition agreement.
Q. What happens if the acquisition is not consummated?
A
. Ascend must liquidate if it does not consummate a business combination by May 17, 2008. In any
liquidation, the funds held in the trust account, plus any interest earned thereon, together with any remaining out-of-trust net assets, will be distributed pro rata to the holders of Ascend’s common stock acquired in Ascend’s IPO. Holders
of Ascend common stock acquired prior to the IPO, including all of Ascend’s officers and directors, have waived any right to any liquidation distribution with respect to those shares.
Q. When do you expect the acquisition to be completed?
A
. It is currently anticipated that the acquisition will be consummated promptly following the Ascend
special meeting on , 2008. For a description of the conditions to completion of the acquisition, see the sections entitled
“
The Acquisition Agreement—Conditions to the Closing of the Acquisition
.”
Q. What do I need to do now?
A
. Ascend urges you to read carefully and consider the information contained in this proxy
statement/prospectus, including the annexes, and to consider how the acquisition will affect you as a stockholder of Ascend. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and
on the enclosed proxy card.
Q. How do I vote?
A
. If you are a holder of record of Ascend common stock, you may vote in person at the special meeting or
by submitting a proxy for the special meeting. You may submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope. If you hold your shares in “street
name,” which means your shares are held of record by a broker, bank or nominee, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the meeting and vote in person, obtain a
proxy from your broker, bank or nominee.
Q. If my shares are held in “street name,” will my broker, bank or nominee automatically vote my
shares for me?
A
. No. Your broker, bank or nominee cannot vote your shares on any proposal unless you provide
instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee.
Q. Can I change my vote after I have mailed my signed proxy or direction form?
A
. Yes. Send a later-dated, signed proxy card to Ascend’s secretary at the address of Ascend’s
corporate headquarters prior to the date of the special meeting or attend the special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to Ascend’s secretary, which must be received by Ascend’s
secretary prior to the special meeting.
31
Q. Do I need to send in my stock certificates?
A
. No. If you are not electing conversion in connection with your vote
on the acquisition proposal and hold your securities in Ascend in certificate form, as opposed to holding your securities through your broker, you do not need to exchange your existing certificates for certificates issued by Continuing Pubco. Your
current Ascend certificates will automatically represent your rights in Continuing Pubco’s securities. You may, however, exchange your certificates if you choose, by contacting Continuing Pubco’s transfer agent, Continental Stock Transfer
& Trust Company (Reorganization Department), after the consummation of the acquisition and following their requirements for reissuance.
If you elect conversion in connection with your vote against the
acquisition proposal, you will need to deliver you Ascend certificates to Continuing Pubco as described in this proxy statement/prospectus.
Q. What should I do if I receive more than one set of voting materials?
A
. You may receive more than one set of voting materials, including multiple copies of this proxy
statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold
shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to
cast a vote with respect to all of your Ascend shares.
Q. Who can help answer my questions?
A
. If you have questions about the acquisition, the redomestication
merger or the 2007 incentive plan, or if you need additional copies of the proxy statement/prospectus or the enclosed proxy card you should contact:
Don K. Rice
Ascend Acquisition Corp.
435 Devon Park Drive, Building 400
Wayne,
Pennsylvania 19087
Tel: (610) 519-1336
You may also obtain additional information about Ascend from documents
filed with the SEC by following the instructions in the section entitled “
Where You Can Find More Information
.”
If you intend to vote against the acquisition and seek conversion of your
shares, you will need to deliver your stock certificate (either physically or electronically) to Ascend’s transfer agent at the address below after the meeting. If you have questions regarding the certification of your position or delivery of
your shares, please contact:
Mark Zimkind
Continental Stock Transfer & Trust Company
17 Battery Place, 8
th
Floor
New
York, New York 10004
Telephone: (212) 845-3287
32
SELECTED SUMMARY HISTORICAL FINANCIAL INFORMATION
We are providing the following selected financial
information to assist you in your analysis of the acquisition. We derived the ePAK historical information from the audited consolidated financial statements of ePAK as of December 31, 2006 and 2005 and for each of the three years in the period ended
December 31, 2006, the unaudited consolidated financial statements as of June 30, 2007 and for the six months ended June 30, 2007 and June 30, 2006. We derived the Ascend historical information from the audited financial
statements of Ascend as of December 31, 2006 and the period from December 5, 2005 (Inception) to December 31, 2005 and from the unaudited financial statements as of June 30, 2007 and for the six months ended June 30, 2007
and 2006 and for the period from December 5, 2005 (Inception) to June 30, 2007.
ePAK’s unaudited consolidated
statements of operations for the six months ended June 30, 2007 and June 30, 2006, the consolidated statements of operations for each of the three years ended December 31, 2006, the unaudited consolidated balance sheet as of
June 30, 2007 and the audited balance sheets as of December 31, 2006 and 2005, are included elsewhere in this proxy statement/prospectus.
Ascend’s unaudited statements of operations for the six months ended June 30, 2007, June 30, 2006 and the period from December 5, 2005 (Inception) to June 30, 2007 and audited statements of operations for the
year ended December 31, 2006, the period from December 5, 2005 (Inception) to December 31, 2005 and the period from December 5, 2005 (Inception) to December 31, 2006 and unaudited balance sheet as of June 30, 2007 and
audited balance sheets as of December 31, 2006 and December 31, 2005, are included elsewhere in this proxy statement/prospectus.
In the opinion of each of Ascend’s and ePAK’s management, the respective unaudited financial statements include all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of such
consolidated financial statements.
The selected financial information of Ascend and ePAK is only a summary and should be read in
conjunction with each company’s historical consolidated financial statements and related notes and “
Other Information About Ascend
” and
“ePAK’s Management’s Discussion and Analysis of Financial Condition and
Results of Operations”
contained elsewhere in this proxy statement/prospectus. The information presented may not be indicative of the future performance of Ascend or ePAK or of Continuing Pubco and ePAK following the redomestication merger
and acquisition.
33
Ascend’s Summary of Selected Financial Data
(in thousands, except per share amounts)
Six Months Ended
June 30,
Year Ended
December 31
For the Period
From December 5,
2005 (Inception)
to December 31,
For the Period From
December 5, 2005
(Inception) to
June 30,
2007
2006
2006
2005
2007
(unaudited)
(unaudited)
Income Statement Data:
Revenue
$
—
$
—
$
—
$
—
$
—
Net income (loss)
199
74
383
(1
)
580
Net income (loss) per share
$
0.02
$
0.02
$
0.06
$
(0.00
)
$
0.09
Cash dividends per share
—
—
—
—
—
June 30,
December 31,
2007
2006
2005
(unaudited)
Balance Sheet Data:
Total assets (including cash deposited in trust account)
$
40,232
$
39,816
$
105
Common stock subject to possible redemption
7,698
7,698
—
Stockholders’ equity
31,111
30,912
24
ePAK’s Summary of Selected Financial Data
(in thousands, except per share amounts)
Six Months Ended
June 30,
Year ended December 31,
2007
2006
2006
2005
2004
Income Statement Data:
Net Sales
$
20,463
$
16,711
$
36,146
$
27,013
$
21,732
Net income (loss)
1,152
1,121
2,179
103
(88
)
Net income (loss) attributable to common shareholders
114
18
119
(4,300
)
(291
)
Basic net income (loss) per common share
$
0.01
$
—
$
0.01
$
(0.28
)
$
(0.02
)
June 30,
December 31
2007
2006
2005
Balance Sheet Data:
Total assets
$
35,345
$
33,523
$
25,601
Long-term debt
1,233
1,061
274
Redeemable common shares
25,244
24,205
22,145
Shareholder’s equity (deficit)
(14,070
)
(14,191
)
(14,568
)
34
Non-GAAP Financial Measures
Calculation of EBITDA
ePAK presents EBITDA, a financial measure that is not
defined by US GAAP, because this information is relevant to ePAK’s business. ePAK defines EBITDA as net income before: income taxes; interest expense; and depreciation and amortization.
ePAK’s management uses EBITDA as an important financial measure to assess the ability of ePAK’s assets to generate cash sufficient to pay
interest on its indebtedness, meet capital expenditure and working capital requirements, and otherwise meet its obligations as they become due. ePAK’s management believes that the presentation of EBITDA included in this proxy
statement/prospectus provides useful information regarding ePAK’s results of operations because it assists in analyzing and benchmarking the performance and value of ePAK’s business.
Although ePAK uses EBITDA as a financial measure to assess the performance of its business, there are material limitations to using a measure such as
EBITDA, including the difficulty associated with using it as the sole measure to compare the results of one company to another and the inability to analyze significant items that directly affect a company’s net income or operating income
because it does not include certain material costs, such as interest and taxes, necessary to operate its business. In addition, ePAK’s calculation of EBITDA may not be consistent with similarly titled measures of other companies.
The following table presents a reconciliation of EBITDA to net income, its most directly comparable US GAAP financial measure, on a historical
basis, for the periods presented:
Reconciliation of Unaudited EBITDA to Net Income
(in thousands)
Six Months Ended
June 30,
Fiscal Year Ended
December 31,
2007
2006
2006
2005
2004
Net income (loss)
$
1,152
$
1,121
$
2,179
$
103
$
(88
)
Income tax expense
225
141
322
523
272
Interest expense
239
134
354
156
168
Depreciation and amortization
1,336
963
2,300
1,911
1,679
EBITDA
$
2,952
$
2,359
$
5,155
$
2,693
$
2,031
35
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The acquisition will be accounted for as a
“reverse merger” and recapitalization since the stockholders of ePAK will own at least 50.1% of the outstanding shares of the common stock immediately following the completion of the acquisition, will have its current officers assuming
almost all corporate and day-to-day management offices of Continuing Pubco other than chairman of the board, including chief executive officer, chief operating officer and chief financial officer and will have the right to appoint three of the five
directors to the board. Accordingly, ePAK will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of ePAK. Accordingly, the assets and liabilities and the historical
operations that will be reflected in the Ascend financial statements after consummation of the acquisition will be those of ePAK and will be recorded at the historical cost basis of ePAK. Ascend’s assets, liabilities and results of operations
will be consolidated with the assets, liabilities and results of operations of ePAK upon consummation of the acquisition.
We have
presented below selected unaudited pro forma condensed combined financial information that reflects recapitalization accounting and is intended to provide you with a better picture of what Continuing Pubco’s businesses might have looked like
had Ascend and ePAK actually been combined as of the periods indicated. You should not rely on the selected unaudited pro forma condensed combined financial information as being indicative of the historical results that would have occurred had the
companies been combined or the future results that may be achieved after the acquisition. The following selected unaudited pro forma condensed combined financial information has been derived from, and should be read in conjunction with, the
unaudited pro forma condensed combined financial statements and related notes thereto included elsewhere in this proxy statement/prospectus.
We are providing this information to aid you in your analysis of the financial aspects of the acquisition. The following unaudited selected pro forma condensed combined statement of operations combines Ascend’s historical statement of
operations with those of ePAK for the six months ended June 30, 2007 and the year ended December 31, 2006, in each case giving effect to the acquisition as if it had occurred on January 1, 2006. The following unaudited selected pro
forma condensed combined balance sheet combines Ascend’s historical balance sheet and those of ePAK as of June 30, 2007, giving effect to the transactions described in the acquisition agreement as if they had occurred on June 30,
2007.
The unaudited pro forma adjustments are based upon available information and assumptions that we believe are reasonable. The
unaudited pro forma condensed combined statements of operations and the pro forma condensed combined balance sheet do not purport to represent the results of operations that would have occurred had such transactions been consummated on the dates
indicated or the financial position for any future date or period.
The following information, which is included elsewhere in this proxy
statement/prospectus, should be read in conjunction with the pro forma condensed combined financial information:
•
accompanying notes to the unaudited pro forma condensed combined information;
•
separate historical consolidated financial statements of ePAK for the year ended December 31, 2006;
•
separate historical financial statements of Ascend for the year ended December 31, 2006;
•
separate historical unaudited consolidated financial statements of ePAK for the six months ended June 30, 2007; and
•
separate historical unaudited financial statements of Ascend for the six months ended June 30, 2007.
The following selected financial data is derived from the pro forma condensed combined financial statement included elsewhere in this proxy
statement/prospectus, which has been prepared using two different assumptions
36
with respect to the number of outstanding shares of Continuing Pubco stock immediately following the acquisition, as follows:
•
assuming no conversions—this presentation assumes that no stockholders of Ascend seek to convert their shares into a pro rata share of the trust account; and
•
assuming maximum conversions—this presentation assumes stockholders of Ascend owning 19.99% of the stock sold in Ascend’s initial public offering seek
conversion.
In the case of both assumptions, the data is based on (a) information and projections currently
available to the parties, including projected Subject Adjusted EBITDA of $6.7 million and estimated Adjusted Ascend Trust Value of $38.2 million, and (b) approximately 8.6 million shares of Ascend common stock currently outstanding,
resulting in the issuance to EHL at closing of approximately 8.6 million shares, or 50.1% of the after-issued outstanding shares of Continuing Pubco. The acquisition agreement provides for a grace range on Subject Adjusted EBITDA, such that if
it is within 5% of $6,675,000, it will be deemed to be $6,675,000 for purposes of calculating the number of Transaction Shares to be issued. Similarly, the acquisition agreement provides for a grace range on Adjusted Ascend Trust Value, such that if
it is within 5% of $38,200,000, it will be deemed to be $38,200,000 for purposes of calculating the number of Transaction Shares to be issued.
Selected Unaudited Pro Forma Statement of Income
Six Months Ended
June 30, 2007
Year Ended
December 31, 2006
Assuming
Maximum
Approval
Assuming
Minimum
Approval
Assuming
Maximum
Approval
Assuming
Minimum
Approval
(in thousands, except per share data)
Net Sales
$
20,463
$
20,463
$
36,146
$
36,146
Net income
1,351
1,351
2,562
2,562
Net income per share—Basic
0.08
0.09
0.15
0.16
Net income per share—Diluted
0.07
0.08
0.15
0.16
Selected Unaudited Pro Forma Balance Sheet
June 30, 2007
Assuming
Maximum
Approval
Assuming
Minimum
Approval
(in thousands)
Total assets
$
73,872
$
65,876
Long-term debt
1,233
1,233
Stockholders’ equity
54,347
46,351
Comparative Per Share Data
The following table sets forth unaudited pro forma combined per share ownership information of Continuing Pubco after giving effect to the acquisition and the redomestication merger, assuming both no conversions and
maximum conversions by Ascend stockholders. You should read this information in conjunction with the selected summary historical financial information included elsewhere in this proxy statement/prospectus, and the historical financial statements of
Ascend and ePAK and related notes that are included elsewhere in this proxy statement/prospectus. The unaudited pro forma combined per share information is derived from, and should be read in conjunction with, the unaudited pro forma condensed
combined financial information and related notes included elsewhere in this proxy statement/prospectus.
37
The unaudited pro forma combined earnings per share information below do not purport to represent the
earnings per share which would have actually occurred if the companies had been combined, nor earnings per share for any future date or period. The unaudited pro forma combined book value per share information below does not purport to represent
what the value of Ascend and ePAK would have actually been had the companies been combined.
Unaudited Comparative Per Share Data
ePAK(1)
Ascend(1)
Combined
Company(1)
Assuming maximum approval
8,601,002
8,566,667
17,167,669
50.1
%
49.9
%
100
%
Assuming minimum approval
8,601,002
7,187,357
15,788,359
54.5
%
45.5
%
100
%
Net income per common share—historical:
Year ended December 31, 2006
$
0.01
$
0.06
Six months ended June 30, 2007
$
0.01
$
0.02
Book value per share—historical—June 30, 2007:
$
(1.64
)
$
4.53
(2)
Book value per share—historical—December 31, 2006
$
(1.65
)
$
4.51
(2)
Net income per share—pro forma:
Year ended December 31, 2006
Maximum—Basic
$
0.15
Minimum—Basic
$
0.15
Maximum—Diluted
$
0.16
Minimum—Diluted
$
0.16
Six months ended June 30, 2007
Maximum—Basic
$
0.08
Minimum—Basic
$
0.07
Maximum—Diluted
$
0.09
Minimum—Diluted
$
0.08
Book value per share—pro forma—June 30, 2007:
Maximum
$
3.17
Minimum
$
2.94
Notes:
(1)
Historical per share amounts for Ascend were determined based upon 8,566,667 shares outstanding. Historical per share amounts for ePAK were based on the 8,601,002 shares to be
received. The pro forma per share amounts for the combined company were determined based upon the assumed number of shares to be issued under the two different levels of approval as described above.
(2)
This calculation includes shares of common stock subject to possible conversion.
38
SPECIAL MEETING OF ASCEND STOCKHOLDERS
General
We are furnishing this proxy statement/prospectus to Ascend stockholders as part of the solicitation of proxies by Ascend’s board of directors for
use at the special meeting of Ascend stockholders to be held on , 200 , and at any adjournment or
postponement thereof. This proxy statement/prospectus is first being furnished to Ascend’s stockholders on or about ,
200 in connection with the vote on the acquisition proposal, the certificate of incorporation amendments and 2007 incentive plan proposal. This document provides you with the information you need to know to be able to vote or
instruct your vote to be cast at the special meeting.
Date, Time and Place
The special meeting of stockholders will be held on
, 200 , at 10:00 a.m., eastern time, at the offices of Graubard Miller, Ascend’s general counsel, at
The Chrysler Building, 405 Lexington Avenue, 19th Floor, New York, New York 10174.
Purpose of the Special Meeting
At the special meeting, we are asking holders of Ascend common stock to:
•
To approve an agreement and plan of reorganization, dated as of July 30, 2007 (“acquisition agreement”), among Ascend, ACL, ePAK, and ePAK’s
parent company and sole stockholder, ePAK Holdings Ltd. (“EHL”), and the transactions contemplated thereby, including the acquisition (the “acquisition”) of ePAK by Continuing Pubco. We refer to this as the “acquisition
proposal.”
•
To approve the merger (the “redomestication merger”) of Ascend and ACL for the purposes of (a) moving the domicile of our public company from
Delaware to Bermuda and (b) concurrently with the redomestication merger, acquiring ePAK in the acquisition. We refer to this as the “redomestication proposal.”
•
To approve the 2007 Equity Incentive Plan (“2007 incentive plan”). We refer to this as the “2007 incentive plan proposal.”
•
To approve a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and voting of proxies if, based upon the
tabulated vote at the time of the special meeting, the vote necessary to approve the above proposals has not been obtained. We refer to this as the “adjournment proposal.”
Recommendation of Ascend Board of Directors
Ascend’s board of directors:
•
has unanimously determined that each of the acquisition proposal, redomestication proposal and 2007 incentive plan proposal is advisable and in the best interests
of Ascend and its stockholders;
•
unanimously recommends that Ascend’s common stockholders vote “FOR” the acquisition proposal;
•
unanimously recommends that Ascend’s common stockholders vote “FOR” the redomestication proposal;
•
unanimously recommends that Ascend’s common stockholders vote “FOR” the 2007 incentive plan proposal; and
•
if necessary, unanimously recommends that Ascend’s common stockholders vote “FOR” the adjournment proposal.
39
Record Date; Who is Entitled to Vote
We have fixed the close of business on , 200 , as the “record
date” for determining the Ascend stockholders entitled to notice of and to attend and vote at the special meeting. As of the close of business on
, there were 8,566,667 shares of Ascend’s common stock outstanding and entitled to vote. Each share of Ascend’s common
stock is entitled to one vote per share at the special meeting.
Quorum
The presence, in person or by proxy, of a majority of all the outstanding shares of common stock constitutes a quorum at the special meeting. Abstentions
and broker non-votes will count as present for purposes of establishing a quorum.
Abstentions and Broker Non-Votes
If you do not give your broker voting instructions, under the rules of the NASD, your broker may not vote your shares on the acquisition proposal, the
redomestication proposal or the 2007 incentive plan proposal. Since a stockholder must affirmatively vote against the acquisition proposal to have conversion rights, individuals who fail to vote or who abstain from voting may not exercise their
conversion rights. Beneficial holders of shares held in “street name” that are voted against the acquisition proposal may exercise their conversion rights, provided that they comply with the required conversion procedures. See the
information set forth in “
Special Meeting of Ascend Stockholders—Conversion Rights.
”
Vote Required for Approval
Approval of the acquisition proposal will require the affirmative vote of the holders of a majority of the shares of Ascend common stock issued in its
IPO (“Public Shares”), including holders who purchase Public Shares subsequent to the IPO, and voted on the matter. Abstentions will have the same effect as a vote “AGAINST” the acquisition proposal and broker non-votes, while
considered present for the purpose of establishing a quorum, will have no effect on the acquisition proposal. You cannot seek conversion unless you affirmatively vote against the acquisition proposal.
Approval of the redomestication proposal will require the affirmative vote of the holders of a majority of the outstanding shares of Ascend common stock.
Because the redomestication proposal requires the affirmative vote of a majority of the shares of common stock outstanding, abstentions and shares not entitled to vote because of a broker non-vote will have the same effect as a vote
“against” this proposal.
The approval of the 2007 incentive plan proposal will require the affirmative vote of the holders of a
majority of Ascend’s common stock represented and entitled to vote at the meeting. Abstentions will have the same effect as a vote “AGAINST” the 2007 incentive plan proposal and broker non-votes, while considered present for the
purpose of establishing a quorum, will have no effect on this proposal.
In order to consummate the acquisition, each of the
redomestication proposal and 2007 incentive plan proposal must be approved by the stockholders. In order to consummate the redomestication merger, the acquisition proposal must be approved by the stockholders.
Adoption of the adjournment proposal requires the affirmative vote of a majority of the issued and outstanding shares of Ascend’s common stock
represented in person or by proxy at the meeting.
Ascend Inside Stockholders
Ascend’s initial stockholders who purchased their shares of common stock prior to Ascend’s initial public offering (“IPO”), and which
include all of Ascend’s directors and executive officers and their affiliates are referred to collectively in this proxy statement/prospectus as the “Ascend Inside Stockholders.” The Ascend
40
Inside Stockholders are comprised of Don K. Rice, Ascend’s current chairman of the board and chief executive officer, Russell C. Ball III, a director,
Stephen L. Brown, a director, and Arthur Spector, a board advisor. Each of the Ascend Inside Stockholders has agreed to vote all of the shares they purchased prior to the IPO (and Don K. Rice has agreed to vote certain shares he purchased in a
private placement consummated concurrently with the IPO) on the acquisition proposal in accordance with the vote of the majority of the votes cast by the holders of shares issued in the IPO (“Public Shares”). Accordingly, their vote will
have no effect on the outcome of the acquisition proposal. The Ascend Inside Stockholders also have indicated that they intend to vote such shares in favor of all other proposals being presented at the special meeting. The Ascend Inside Stockholders
also have indicated that they intend to vote any other shares they acquire after the IPO for all of the proposals. As of the record date, the Ascend Inside Stockholders have not acquired any additional shares of Ascend common stock, except that
Mr. Rice acquired 166,667 shares concurrently with the IPO. All of the Ascend Inside Stockholders also agreed, in connection with the IPO, to place their shares in escrow until May 11, 2009. As of the record date, the Ascend Inside
Stockholders own an aggregate of 1,666,667 shares, or 19.5%, of Ascend’s outstanding common stock.
Voting Your Shares
Each share of Ascend common stock that you own in your name entitles you to one vote. Your proxy card shows the number of shares of Ascend’s common
stock that you own.
There are two ways to vote your shares of Ascend common stock at the special meeting:
•
You can vote by signing and returning the enclosed proxy card.
If you vote by proxy card, your “proxy,” whose name is listed on the proxy card,
will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by Ascend’s board “FOR” the adoption of
the acquisition proposal, redomestication proposal, 2007 incentive plan proposal and, if presented at the special meeting, the adjournment proposal. Votes received after a matter has been voted upon at the special meeting will not be counted.
•
You can attend the special meeting and vote in person.
We will give you a ballot when you arrive. However, if your shares are held in the name of your
broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your shares.
IF YOU DESIRE TO VOTE AGAINST THE ACQUISITION BUT DO NOT VOTE YOUR SHARES OF ASCEND’S COMMON STOCK IN ANY OF THE WAYS DESCRIBED ABOVE, IT WILL
NOT HAVE THE EFFECT OF A DEMAND FOR CONVERSION OF YOUR SHARES INTO A PRO RATA SHARE OF THE TRUST ACCOUNT IN WHICH A SUBSTANTIAL PORTION OF THE PROCEEDS OF ASCEND’S IPO ARE HELD. YOU ARE REQUESTED TO COMPLETE, SIGN AND RETURN A PROXY WHETHER OR
NOT YOU PLAN ON ATTENDING THE MEETING.
Revoking Your Proxy
If you give a proxy, you may revoke it at any time before the vote is taken at the meeting by doing any one of the following:
•
you may send another proxy card with a later date;
•
you may notify Ascend (Attention: Don Rice) in writing before the special meeting that you have revoked your proxy; or
•
you may attend the special meeting, revoke your proxy, and vote in person, as indicated above.
41
Who Can Answer Your Questions About Voting Your Shares
If you have any questions about how to vote or direct a vote in respect of your shares of Ascend’s common stock, you may call
, Ascend’s proxy solicitor, at ( )
, or Don K. Rice at Ascend at (610) 519-1336.
No Additional Matters May Be
Presented at the Special Meeting
This special meeting has been called only to consider the adoption of the acquisition proposal, the
redomestication proposal, the 2007 incentive plan proposal and, if presented at the special meeting, the adjournment proposal. Under Ascend’s bylaws, other than procedural matters incident to the conduct of the meeting, no other matters may be
considered at the special meeting if they are not included in the notice of the meeting.
Conversion Rights
Any of Ascend’s stockholders holding shares of Ascend common stock issued in Ascend’s IPO as of the record date who affirmatively votes these
shares against the acquisition proposal may also demand that we convert his, her or its shares into a pro rata portion of the trust account calculated as of two business days prior to the anticipated date of the consummation of the acquisition. Any
holders seeking such conversion must affirmatively vote against the acquisition proposal. Abstentions and broker non-votes do not satisfy this requirement. Additionally, holders demanding conversion must deliver their shares (either physically or
electronically using Depository Trust Company’s DWAC (Deposit Withdrawal at Custodian System) to our transfer agent promptly after the meeting. If you hold the shares in street name, you will have to coordinate with your broker to have
your shares certificated or delivered electronically. Shares that have not been tendered (either physically or electronically) in accordance with these procedures will not be converted into cash.
The closing price of Ascend’s common stock on
, 200 (the record date) was
$ per share. The cash held in the trust account on the record date was approximately $ , or
approximately $ per currently outstanding share.
Prior to exercising conversion rights, Ascend’s stockholders should verify the market price of Ascend’s common
stock, as they may receive higher proceeds from the sale of their common stock in the public market than from exercising their conversion rights if the market price per share is higher than the conversion price. We cannot assure Ascend stockholders
that they will be able to sell their shares of Ascend common stock in the open market, even if the market price per share is higher than the conversion price stated above, as there may not be sufficient liquidity in Ascend’s securities when its
stockholders wish to sell their shares.
If the holders of 20% or more of the Public Shares (
i.e.
1,380,000 shares or more) vote
against the acquisition and properly demand conversion of their shares, we will not be able to consummate the acquisition.
If you exercise
your conversion rights, then you will be exchanging your shares of our common stock for cash and will no longer own those shares. You will be entitled to receive cash for these shares only if you affirmatively vote against the acquisition proposal,
properly demand conversion, and deliver your shares (either physically or electronically) to our transfer agent promptly after the meeting.
Appraisal Rights
Under Delaware corporate law, the redomestication merger of Ascend and ACL causes the stockholders of
Ascend to have appraisal rights in connection with the transactions for which approval is sought. This right is separate from the conversion rights of the holders of Public Shares with respect to the acquisition proposal. However, because the
exercise of the appraisal right and the conversion rights both require a tender of the holder’s shares to Ascend, only one right may be elected in respect of the Public Shares. See
“Redomestication Proposal—Appraisal
Rights
” for more information about appraisal rights.
42
Solicitation Costs
We are soliciting proxies on behalf of Ascend’s board of directors. This solicitation is being made by mail but also may be made by telephone or in person. We and our directors and officers may also solicit
proxies in person, by telephone or by facsimile or email.
We have hired
to assist in the proxy solicitation process. We will pay a fee of approximately
$ plus reasonable out-of pocket charges and a flat fee of $ per outbound proxy solicitation
call. Such fee will be paid with currently available, non-trust account funds.
We will ask banks, brokers and other institutions, nominees
and fiduciaries to forward its proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. We will reimburse them for their reasonable expenses.
43
THE ACQUISITION PROPOSAL
The discussion in this document of the acquisition and the principal terms of the
acquisition agreement by and among Ascend, ACL, ePAK and EHL is subject to, and is qualified in its entirety by reference to, the acquisition agreement. A copy of the acquisition agreement is attached as
Annex A
to this proxy
statement/prospectus.
General Description of the Acquisition
The acquisition agreement provides for a business combination transaction in which, concurrently with the redomestication merger:
•
all of the outstanding capital stock of ePAK will be acquired by Continuing Pubco; and
•
Continuing Pubco will be renamed “ePAK International Limited.”
In return for all of the capital stock of ePAK, EHL, ePAK’s sole shareholder (or its designees) will receive the aggregate number of Continuing
Pubco’s common stock (the “Transaction Shares”) determined by a formula set forth in Section 1.07(b) of the acquisition agreement and described in the section of this proxy statement/prospectus entitled “
The Acquisition
Agreement—Acquisition Consideration—Transaction Shares.
” Within 12 months after the acquisition of ePak, EHL will liquidate and distribute the common stock of Continuing Pubco in pursuance of a plan of reorganization with respect
to EHL.
As of the date hereof, based on (a) information and projections currently available to the parties, including Subject
Adjusted EBITDA of $6.7 million (resulting in a 5.72 multiple result of $38.3 million) and estimated Adjusted Ascend Trust Value of $38.2 million, and (b) 8,566,666 shares of Ascend common stock currently outstanding, the aggregate number of
Transaction Shares that will be issued at closing to EHL, excluding those underlying the Assumed Options, will be 8,601,002 shares, or 50.1% of the outstanding common stock of Continuing Pubco immediately following the closing. The foregoing figures
give no effect to any additional shares that may be issued to EHL post-closing, as described below, and assume none of Ascend’s currently outstanding common stock is converted into cash as permitted by Ascend’s certificate of
incorporation.
Background of the Acquisition
The terms of the acquisition agreement are the result of arm’s-length negotiations between representatives of Ascend and ePAK. The following is a discussion of the background of these negotiations, the acquisition agreement and related
transactions.
Ascend was formed on December 5, 2005 for the purpose of effecting a merger, capital stock exchange, asset acquisition
or other similar business combination with an operating business. Ascend’s registration statement for its initial public offering was declared effective on May 11, 2006 and the offering closed on May 22, 2006, generating net
proceeds of approximately $38.5 million from the sale of 6.9 million units, including the full exercise of the underwriters’ over-allotment option and the sale of 166,667 units to Don K. Rice, Ascend’s chairman of the board and chief
executive officer. Each unit was comprised of one share of Ascend common stock and two warrants, each with an exercise price of $5.00. As of August 31, 2007, Ascend held approximately $40.2 million in a trust account maintained by in
independent trustee, which will be released to Ascend upon the consummation of the business combination. Ascend must liquidate unless it has consummated a business combination by May 17, 2008. As of
200 , the record date, approximately $ was held in
deposit in the trust account.
Following consummation of Ascend’s IPO, the management of Ascend instituted an active marketing program
to their established base of private equity and venture capital firms, bankers, investment bankers,
44
accountants, lawyers and numerous groups of investors with which they had prior investment history or with which they served on boards. At the same
time, Ascend’s management canvassed selected firms that had exhibited a prior history of investments in companies of the size and type that Ascend was targeting. Mr. Rice also began attending conferences featuring attendees and presenters
that were of the type and size that met Ascend’s requirements.
Ascend looked at more than 100 companies during the period from after
its IPO until Ascend signed a letter of intent with ePAK in February 2007. Among these opportunities, Ascend focused on companies that had the best combination of the following characteristics:
•
demonstrated revenue generation;
•
compelling growth prospects;
•
attractive profit margins (current or potential);
•
talented management with an interest in continuing at the company;
•
reasonable valuation expectations;
•
the ability to deploy capital productively;
•
strong competitive positions;
•
stage of development of the products, processes or services;
•
degree of current or potential market acceptance of the products, processes or services;
•
a willingness to operate as a publicly-traded company;
•
proprietary features and degree of intellectual property or other protection of the products, processes or services; and
•
an understanding and acceptance of Ascend’s structure, acquisition process and timing.
As discussed below, Ascend entered into various levels of discussions with companies that it believed met most or all of the foregoing criteria. Although
Ascend investigated these opportunities in varying depth, none resulted in the execution of any preliminary letter of intent or memorandum of understanding. Ascend declined to move forward on some opportunities because it did not believe the
financial characteristics, business dynamics, management teams, attainable valuations and/or deal structures were suitable. There were also companies that were not interested in pursuing a deal with Ascend based on its publicly-traded status,
capital structure or ability to close with sufficient certainty or speed or which decided to accept competitive bids from other acquirers.
In May 2006, Ascend was introduced to a highly diversified industrial pipe company by Stephen L. Brown, an Ascend board member. During the period from May 2006 to June 2006, Ascend reviewed this potential target’s financial information
and held discussions with an intermediary that was working with the owners of the target. Although the target was not being actively marketed for sale, it expressed interest in further exploring the opportunity Ascend could provide for growth
and liquidity. In June 2006, a meeting was held between Mr. Rice and the target’s owners and management. After further due diligence it was determined by Ascend that the target would not be able to effectively deploy the level of
capital that Ascend would bring to the transaction. Discussions between Ascend and this target company were terminated.
In June 2006,
Ascend was contacted directly by a food snack specialty retailer with franchised outlets throughout the United States and abroad. Mr. Rice had an existing relationship with the owner of the potential target. During the period from June 2006 to
December 2006, Ascend management reviewed financial information, both historical and projected, supplied to it by the target and held numerous phone calls with ownership and company management. Discussions focused on potential purchase price
and use of proceeds from any business combination with Ascend for target’s growth. In August 2006, Ascend management held a two-day
45
meeting with target’s management in their offices. It was ultimately determined by Ascend and target’s ownership that the target’s
projections were not likely to be met. Discussions between Ascend and this target company were mutually terminated.
In June 2006, Russell
C. Ball III, a board member of Ascend, introduced Ascend to a supplier of home building materials to home builders. During the period from June 2006 to July 2006, Ascend engaged in preliminary due diligence, which included a review of target’s
financials and discussions with company advisors. It was determined that the target would not be able to deploy the amount of capital that Ascend would bring to the transaction. Ascend also had concerns with respect to the cyclicality of the home
building sector. Discussions between Ascend and this target company were terminated.
In June 2006, Ascend was introduced to a document
storage company by a private equity firm that held a controlling interest in the company. During the period from June 2006 to October 2006, Ascend engaged in preliminary due diligence, which included a review of target’s financials and
projections and discussion with management regarding target’s valuation and capital needs. In June 2006, a meeting between Ascend management and target’s senior management was held at the private equity firm’s offices. It
was mutually determined that the target needed to close the acquisitions it currently had under contract and to integrate those acquisitions before a business combination could be considered. Discussions between Ascend and this target company were
terminated.
In June 2006, a medical service billing company was brought to Ascend by a private equity firm that held a controlling
interest in the company. During the period from June 2006 to September 2006, financial reports and projections were reviewed by Ascend, and a meeting between Ascend and senior management of the target was held in the offices of the private
equity group. During this course, it was determined by the parties that an acceptable valuation could not be reached. Discussions between Ascend and this target company were terminated.
In July 2006, a company operating in the oil field supply business was introduced to Ascend by a private equity group that had a controlling interest in
the company. Mr. Rice had an existing relationship with this private equity group. During the period from July 2006 to September 2006, Ascend reviewed financial statements, both historical and projected, supplied by the target and spoke
with the ownership regarding valuation price and future financing needs. In July 2006, Mr. Rice met with target’s management and the target’s control ownership in the target’s offices in Texas. Discussions continued and
by September 2006, the ownership of the target concluded that the best alternative for them was to sell their company outright. The target was put up for sale and closed within six months at a price in excess of the amount that Ascend had been
discussing.
In July 2006, a company involved in the clerical temporary employment industry was brought to Ascend by an investor with whom
Ascend management had an existing relationship. During the period from July 2006 to January 2007, Ascend reviewed various financial information provided to it by target. In July 2006, a telephonic discussion between Mr. Rice and senior
management of the target was held. In August 2006, a meeting was held with senior management and ownership at the investor’s office. It was ultimately determined by Ascend that disparity existed between the exit strategies of management
and ownership of the target and that further pursuit of a business combination would not be fruitful. Discussions between Ascend and this target company were terminated.
In July 2006, a foam fabricator and packager for industrial and commercial products was brought to Ascend by an owner of the company who had been a board member of a company on whose board Mr. Rice also
served. During the period from July 2006 to August 2006, financial reports were reviewed and an analysis of the industry, historical growth and competitive environment faced by the target was undertaken by Ascend. Based on these analyses,
Ascend determined that the market the company served did not have enough acquisition opportunities to deploy the Ascend capital post closing. Discussions between Ascend and this target company were terminated.
46
In August 2006, a private equity group introduced Ascend to a target it controlled which provides voting
machines and documentation and electronic storage services to state and local governments in the United States. During the period from August 2006 to February 2007, Ascend reviewed financials, both historical and projected, supplied to it by
the target and had conversations with the owners regarding valuation and sources and uses of funds. In August and November 2006, Mr. Rice and Darl Petty, an associate of and advisor to Mr. Rice, met with target management at
target’s offices. Each of Messrs. Rice and Petty possesses extensive experience in investing in private growth companies through their firm, RSTW Partners. Mr. Petty receives no compensation from Ascend. Ascend undertook significant due
diligence with respect to the target and its industry. Ascend and representatives of the ownership group of the target concluded that a change in senior management would need to take place to position target as a public company and that it was not
the proper time for a business combination. Discussions between Ascend and this target company were terminated.
In August 2006, Ascend was
introduced to a construction and engineering company focused on building and repairing infrastructure projects in the United States. The opportunity was brought to Ascend by an investment banking firm with which it had no prior relationship.
During the period from August 2006 to December 2006, Ascend conducted financial and operational due diligence, including the review of financials, both historic and projected, provided by the target. In August 2006, Ascend held a meeting with
target’s senior management in the target’s offices. It was mutually concluded by target and Ascend’s management that Ascend did not have adequate capital to provide the owners with the liquidity they desired at closing of a
business combination. Discussions between Ascend and this target company were terminated.
In September 2006, an oil field equipment
distributor was brought to Ascend by a stockholder of the target with whom Mr. Rice had an existing relationship. During the period from September 2006 to October 2006, Ascend engaged in due diligence, including an examination of target’s
financial reports and projections. During this period, Mr. Rice also engaged in telephone discussions with target’s ownership and senior management. It was thereafter determined by the parties that a recapitalization of the target in
the private markets better suited the ownership group. Discussions between Ascend and this target company were terminated.
In October
2006, a media company focused on the Hispanic radio market was brought to Ascend by a private equity fund that held a controlling interest. During the period from October 2006 to December 2006, Ascend conducted due diligence, including
reviewing financial information and business plans. In October 2006, a meeting between Mr. Rice and senior management of the target was held in New York City. Thereafter, after additional due diligence and evaluation by Ascend, Ascend
determined that the desired valuation and debt levels of the target were too high. Discussions between Ascend and this target company were terminated.
In November 2006, Ascend was introduced to a provider of propane fuel to residential and consumer customers in the Northeast United States. This opportunity was brought to Ascend by an investment banking firm
with which it had no prior relationship. During the period from November 2006 to December 2006, Ascend reviewed financial information supplied to it by the target. In November 2006, Mr. Rice met with senior management and owners of the
target at the investment banking firm’s offices. Thereafter, after general industry due diligence, Ascend’s management determined that there were more attractive opportunities that were then under consideration by Ascend and it was in
the best interests of Ascend to devote its resources to examining those opportunities. Discussions between Ascend and this target company were terminated.
In November 2006, Ascend was introduced to a for-profit day care school for inner city children by a private equity firm that had a controlling ownership position. During November 2006, Ascend engaged in
preliminary due diligence, which included a review of target’s financials and projections and discussions with the control group regarding valuation ranges and liquidity needs. After various discussions, the control group determined that a
recapitalization in the private market better suited the target’s needs. Discussions between Ascend and this target company were terminated.
47
In December 2006, a U.S.-based energy drilling service company was brought to Ascend by a investment
banking firm with which Ascend had no prior relationship. The target focused on a high growth area of the energy service industry and had potentially good internal growth opportunities. During the period from October 2006 to January 2007,
financial reports were reviewed by Ascend and Ascend undertook an industry and customer requirements analysis. In October 2006, a meeting between Ascend and the target’s controlling stockholder was held the investment banking firm’s
office. The parties could not agree on the target’s valuation and the amount of liquidity that would be provided target’s ownership at closing. Discussions between Ascend and this target company were terminated.
In February 2007, a company in the specialty packaging and freight forwarding business was brought to Ascend by the underwriter of Ascend’s IPO,
EarlyBirdCapital. During the period from February 2007 to March 2007, financial reports and projections were reviewed by Ascend. In March 2007, a meeting between Ascend management and management and ownership of the target was held in New York
City. Thereafter, Ascend engaged in further review of the industry, the competition, the liquidity requirements of the control group and proposed valuation. The parties could not agree on the valuation of the target. Discussions between Ascend and
this target company were terminated.
ePAK was introduced to Ascend by EarlyBirdCapital in early August 2006. From August 2006 to
February 2007, Mr. Rice reviewed financial statements and the projections prepared by ePAK management. In August 2006, a telephonic meeting was held between Mr. Rice and Steve Dezso, the chief executive officer of ePAK. General
opportunities for the parties were discussed and there was sufficient interest by both parties to arrange an in-person meeting, which was held in Austin, Texas in late August 2006. This meeting was attended by ePAK senior management, including
Mr. Dezso, Richard Brook and Jim Thomas, and Messrs. Rice and Petty. A number of issues were covered at the meeting, including the background of management, the history of ePAK’s founding and historical performance and the
semiconductor and electronics industry generally. ePAK also gave an overview on its reasons for and history of manufacturing in China and the competition ePAK faces in its industry. The parties also discussed the goals of ePAK’s management and
future projections for ePAK’s organic and acquisition growth.
During September 2006, numerous telephonic meetings took place between
Messrs. Rice and Petty and members of ePAK management and Ascend undertook an extensive analysis on the industry and ePAK’s financial statements. It was determined that Messrs. Rice and Petty should travel to China to review ePAK’s
manufacturing facilities and meet with senior management and staff.
In late September 2006, Messrs. Rice and Petty visited ePAK’s
facilities in China and met with ePAK’s management, including, among others, Messrs. Mao Shi Khoo, chief operating officer, and Jason Lee, vice president, finance. During this visit, Messrs Rice and Petty conducted extensive on-site due
diligence.
Upon their return, Messrs. Rice and Petty continued extensive due diligence on the company, the industry and the competition
throughout October 2006. In November 2006, another meeting between Ascend and ePAK management was held in ePAK’s offices in Austin, Texas for purposes of due diligence. Throughout December 2006 and January 2007 financial due diligence
continued, and a letter of intent was negotiated and entered into in mid-February 2007. The terms of the letter of intent are substantially those embodied in the acquisition agreement and described elsewhere in this proxy statement/prospectus.
In late February 2007, Messrs. Rice and Petty again met with ePAK senior management in ePAK’s offices in Austin, Texas to review an
extensive list of questions and due diligence items over a two-day period. In March 2007, Messrs. Rice and Petty again visited ePAK’s facilities in China to further examine ePAK’s manufacturing facilities and complete on-site review
of ePAK’s financial books and records. During February and March 2007, Mr. Rice conducted customer calls to ePAK customers to ascertain the condition of ePAK’s customer relationship and customer views of the level of service and
product innovation ePAK was providing them.
48
At the request of Ascend, International Business Research undertook an extensive background check on key
members of ePAK’s management team, and the report was positive with no material negative findings. During the period from April to July 2007, Ascend completed its due diligence and negotiated the acquisition agreement and related agreement
with ePAK.
On July 27, 2007, a meeting of the board of directors of Ascend was held. All directors attended, as did, by invitation
telephonically, Brian L. Ross, Esq., of Graubard Miller, and representatives of Capitalink (Ladenburg Thalmann). Prior to the meeting, copies of the most recent drafts of the significant transaction documents, in substantially final form, were
delivered to all participants. Mr. Rice discussed at length with Ascend’s board ePAK’s business, operations and financial condition. It was acknowledged that Mr. Rice had regularly communicated with each member of the board
during the due diligence process and negotiations of the definitive agreements governing the acquisition. Mr. Rice explained at length the different analyses used to determine whether the consideration to be paid by Ascend in the acquisition
was fair from a financial point of view to Ascend’s stockholders, as well as to determine the fair market value of ePAK. The representative of Capitalink then made a presentation to the board with respect to their analysis of ePAK and the
proposed terms of the acquisition. Capitalink noted that, in its opinion, the consideration to be paid by Ascend pursuant to the acquisition agreement was fair, from a financial point of view, to the holders of Ascend common stock and that the fair
market value of ePAK was at least equal to 80% of Ascend’s net assets. For a more detailed description of Capitalink’s opinion, see the subsection below entitled “
Fairness Opinion.
” After considerable review and
discussion, the acquisition agreement and related documents were unanimously approved by the board, and the board determined to recommend the approval of the acquisition (and the related redomestication merger) to the stockholders of Ascend, and
that the consideration to be paid by Ascend pursuant to the acquisition agreement was fair, from a financial point of view, to the holders of Ascend common stock and that the fair market value of ePAK was at least equal to 80% of Ascend’s net
assets.
The acquisition agreement was signed as of July 30, 2007. Immediately thereafter, Ascend and ePAK issued a joint press
release announcing the execution of the acquisition agreement and discussing the terms of the acquisition agreement, and on July 31, 2007, Ascend filed a Current Report on Form 8-K discussing in greater detail the terms of the acquisition
agreement and ePAK’s business.
In connection with the consummation of the acquisition, Continuing Pubco will be obligated to pay
EarlyBirdCapital (1) a cash finder’s fee equal to 1.5% of the transaction consideration (including any assumed indebtedness) and (2) deferred commissions of $952,200 earned by it as underwriter in the IPO at the closing of the
acquisition.
Ascend’s Board of Directors’ Reasons for Approval of the Acquisition
General
The final agreed-upon
consideration in the acquisition agreement was determined by several factors. Ascend’s board of directors reviewed industry and financial data, including certain valuation analyses and metrics compiled by management, in order to determine that
the consideration to be paid by Ascend in the acquisition was fair and that the acquisition was in the best interests of Ascend’s stockholders.
In order to enable the board of directors of Ascend to evaluate the proposed acquisition, Ascend’s management conducted a due diligence review with respect to ePAK that included:
•
a general analysis of ePAK’s industry;
•
tours of ePAK’s manufacturing facilities and principal offices;
•
a valuation analysis of ePAK; and
•
reviews of historic financial statements and information and financial projections provided by ePAK.
49
Ascend’s board of directors considered a wide variety of factors in connection with its evaluation
of the acquisition. In light of the complexity of those factors, the Ascend board of directors did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching
its decision. In addition, individual members of the Ascend board may have given different weight to different factors.
The historical
financial information and financial projections provided to Ascend by ePAK included (Singapore generally accepted accounting principles):
•
audited financial statements for the year ended December 31, 2004;
•
audited financial statements for the year ended December 31, 2005;
•
audited financial statements for the year ended December 31, 2006;
•
unaudited financial statements for the six months ended June 30, 2007; and
•
financial projections for the year ending December 31, 2007.
Board approval
In considering the acquisition, the Ascend board of directors gave considerable
weight to the following factors:
•
ePAK’s historic growth and potential for future growth
. Ascend believes that ePAK has in place the core infrastructure for strong business operations
that will enable ePAK to achieve growth both organically and through accretive strategic acquisitions. Ascend’s belief in ePAK’s growth potential is based in part on ePAK’s historical growth rate. ePAK’s revenues were
approximately $36.1 million for the year ended December 31, 2006, an increase of 33.7% as compared to approximately $27.0 million for the year ended December 31, 2005. ePAK’s unaudited revenues for the first six months of 2007 were
approximately $20.4 million, an increase of 22.2% as compared to unaudited revenues of approximately $16.7 million for the first six months of 2006. Net income for the year ended December 31, 2006 was approximately $2.2 million, compared to
approximately $0.1 million for the year ended December 31, 2005. Net income for the first six months of 2007 was approximately $1.2 million, compared to net income for the first six months of 2006 of approximately $1.1 million. Earnings before
interest, taxes, depreciation and amortization (“EBITDA”) was approximately $5.2 million in the year ended December 31, 2006, an increase of 93% as compared to EBITDA of approximately $2.7 million in the year ended December 31,
2005. EBITDA for the first six months of 2007 was approximately $3.0 million, an increase of 25% as compared to EBITDA of approximately $2.4 million for the first six months of 2006.
•
ePAK’s low-cost, well-located manufacturing structure
. ePAK’s facilities in the PRC provide ePAK with a relatively low cost large scale
manufacturing center that is centrally located to many of the producers of semiconductor products, which provides ePAK with the ability to meet its customer demand on a cost- and time-efficient basis. Ascend believes this is an important competitive
advantage that will allow ePAK to garner an increasing portion of market share.
•
The experience of ePAK’s management
. ePAK’s management team has extensive experience in the semiconductor industry. Further, its core management
team has been together for more than 15 years. Ascend believes that ePAK has a management team with the specialized knowledge necessary to compete in its market and the ability to recognize customer demand and introduce new products to address that
demand.
•
ePAK’s vertically integrated business model
. ePAK’s business model utilizes ePAK’s own design and manufacturing facilities and exploits the
company’s central location design to provide speed to market, which allows ePAK to produce product quickly when specific demand is identified and to supervise quality control. This allows ePAK to minimize risk of producing ahead of demand and
maintain quality production.
50
•
Wafer handling products as an emerging growth driver
. In addition to core growth in its traditional product offerings, ePAK recently entered into the wafer
handling product market and has experienced rapid growth in this area, with growth in sales of 12% in 2005, 22% in 2006 and % in the first six months of 2007. In a market historically dominated by a single provider, Entegris,
Inc., Ascend believes that ePAK, with its vertically integrated business model, experienced management team and ability to provide its wafer handling products with 50-60% gross margins, is well-positioned to garner a larger share of the market.
•
ePAK’s competitive position and market acceptance of its products
. ePAK’s reputation in its industry, within its distribution channels and among
its end customers was considered by the board to be one of the favorable factors in concluding that its competitive position was strong. As part of its due diligence investigation, Ascend interviewed numerous ePAK customers. Ascend reported to the
board that feedback from these sources on the company and its products was very strong.
•
Costs associated with effecting the business combination
. The board determined that the costs associated with effecting the acquisition with ePAK would be of
the same order of magnitude as would be encountered with most other business combinations. In addition, it was favorably viewed by the board that all of ePAK’s key employees would stay in place to operate the post-acquisition company and that
there would therefore be relatively minimal integration issues following the acquisition.
The board also evaluated
potentially adverse factors in its consideration of the acquisition of ePAK. These included the general uncertainties of operating in the PRC, the significant competition that exists in the semi-conductor industry and the risks inherent in operating
in the semi-conductor industry generally, including the cyclical nature of the industry.
Valuation
The board considered the valuation of ePAK in relation to its growth potential and found it to be attractive when compared to other companies in its
industries. The board looked at comparable companies and based on the valuation of these companies, the board calculated the expected initial valuation of ePAK in the public market. In this analysis, and Capitalink’s analyses, ePAK was
evaluated on a stand-alone basis without giving effect to any infusion of cash from Ascend’s trust fund upon consummation of the acquisition. Ascend presented information regarding certain publicly-traded companies that compete in ePAK’s
markets to the board, including the following companies:
•
Amkor Technology Inc.;
•
Entegris, Inc.;
•
Illinois Tool Works;
•
MEMC Electronic Materials Inc.;
•
Peak International Ltd.; and
•
Siliconware Precision.
This
analysis revealed that the median valuation of the aforementioned comparable companies was approximately 2.7 times trailing twelve month revenues, 9.8 times trailing twelve month EBITDA and 20.5 times trailing twelve month earnings. Based on these
multiples, ePAK would have a value range of between $61.1 million (based on trailing twelve month net income of $2.98 million) and $106.7 million (based on trailing twelve month revenues of $39.5 million). The board noted that ePAK had a three-year
historical EBITDA growth rate of 47.0% as compared to an average three-year historical EBITDA growth rate of 35.8% for the above-cited companies.
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Ascend’s board calculated that the valuation of maximum consideration payable to ePAK’s
stockholders amounted to approximately $50.2 million, comprised of:
•
$48.2 million of Ascend common stock (8,556,667 shares at a price of $5.63 per share), and
•
$7 million of assumed ePAK indebtedness, net of $5 million cash.
Since the value of the consideration to be paid by Ascend in the acquisition would be significantly below the valuation determined from the comparable company analysis, the board determined that the consideration to
be paid to ePAK was fair and that the acquisition was in the best interests of Ascend’s stockholders and approved the acquisition.
Satisfaction of
80% Test
It is a requirement that any business acquired by Ascend have a fair market value equal to at least 80% of Ascend’s net
assets at the time of acquisition, which assets shall include the amount in the trust account. Based on the financial analysis of ePAK generally used to approve the transaction, the Ascend board of directors determined that this requirement was met.
Ascend estimates that its net assets at the closing of the acquisition will be approximately $38 million, after deduction of the costs of the acquisition that may be paid from the funds in the trust account upon closing of the acquisition and
assuming that no Ascend stockholders vote against the acquisition and seek conversion of their Ascend shares into cash, of which 80% is approximately $30.4 million.
As described above, the board valued ePAK at approximately $61.1 million to $106.7 million based on its comparable company analysis and significant transaction experience. This value substantially exceeds the $30.4
million value required to meet the 80% test. The board noted that it based its calculation on the most conservative projections it had received from ePAK and used valuation multiples for companies that had significantly less growth potential than
ePAK, and thus it felt comfortable with its decision.
The Ascend board of directors believes, because of the financial skills and
background of several of its members, it was qualified to perform the valuation analysis described above and to conclude that the acquisition of ePAK met this requirement. The Ascend board members have a significant number of years of experience in
the private equity/venture capital and investment banking industries and have been involved in numerous transactions of a similar nature to the one contemplated between Ascend and ePAK. Notwithstanding this, the board specifically conditioned such
approval on Ascend obtaining, prior to soliciting the vote of stockholders on the acquisition, an opinion from an investment bank to the effect that the consideration to be paid by Ascend pursuant to the acquisition agreement is fair, from a
financial point of view, to the holders of Ascend common stock and that the fair market value of ePAK was at least equal to 80% of Ascend’s net assets.
Interests of Ascend’s Directors and Officers in the Acquisition
In considering the recommendation of the board of
directors of Ascend to vote for the proposals to be presented at the special meeting, you should be aware that certain members of the Ascend board have agreements or arrangements that provide them with interests in the acquisition that differ from,
or are in addition to, those of Ascend stockholders generally. In particular:
•
if the acquisition is not approved and Ascend is unable to complete another business combination by May 17, 2008, Ascend will be required to liquidate. In such
event, the 1,500,000 shares of common stock held by Ascend’s officers and directors that were acquired prior to the IPO for an aggregate purchase price of $25,000 will be worthless because Ascend’s initial stockholders are not entitled to
receive any liquidation proceeds with respect to such shares. Such shares had an aggregate market value of $8.46 million based on the last sale price of $5.64 on the OTC-BB on November 6, 2007, the record date. In addition, any warrants held by them
will become worthless.
•
If the acquisition is not approved, the Ascend securities purchased by Mr. Rice will become worthless as he has waived his right to participate in any
liquidation of Ascend in such circumstances.
52
•
If the acquisition is approved, Mr. Rice will become the Chairman of the Board and a director of Continuing Pubco and will enter into a two-year employment
agreement with Continuing Pubco providing for a base salary of $250,000 per year, as well as various benefits.
•
If Ascend liquidates prior to the consummation of a business combination, Mr. Rice will be personally liable to pay debts and obligations, if any, to vendors
and other entities that are owed money by Ascend for services rendered or products sold to Ascend, or to any target business, to the extent such creditors bring claims that would otherwise require payment from moneys in the trust account. This
arrangement was entered into to ensure that, in the event of liquidation, the trust account is not reduced by claims of creditors.
Recommendation of Ascend’s Board of Directors
After careful consideration, Ascend’s board of directors determined
unanimously that the acquisition proposal is advisable and in the best interests of Ascend and its stockholders. Ascend’s board of directors unanimously recommends that you vote or give instructions to vote “FOR” the acquisition.
The foregoing discussion of the information and factors considered by the Ascend board of directors is not meant to be exhaustive, but
includes the material information and factors considered by the Ascend board of directors.
Fairness Opinion
Capitalink made a presentation to our board of directors on July 27, 2007 and subsequently delivered its written opinion to the board of directors.
The opinion stated that, as of July 27, 2007, based upon and subject to the assumptions made, matters considered, and limitations on Capitalink’s review as set forth in the opinion, (i) the transaction consideration is fair, from a
financial point of view, to our stockholders, and (ii) the fair market value of ePAK is at least equal to 80% of our net assets. The amount of the transaction consideration was determined pursuant to negotiations between us, ePAK’s
shareholders and each of our respective financial advisors and not pursuant to recommendations of Capitalink. The full text of the written opinion of Capitalink is attached as
Annex C
and is incorporated by reference into this proxy
statement/prospectus statement.
You are urged to read the Capitalink opinion carefully and in its entirety for a description of the
assumptions made, matters considered, procedures followed and limitations on the review undertaken by Capitalink in rendering its opinion. The summary of the Capitalink opinion set forth in this proxy statement/prospectus statement is qualified in
its entirety by reference to the full text of the opinion.
The Capitalink opinion is for the use and benefit of our board of directors in
connection with its consideration of the transaction and is not intended to be and does not constitute a recommendation to you as to how you should vote or proceed with respect to the transaction. Capitalink was not requested to opine as to, and its
opinion does not in any manner address, the relative merits of the transaction as compared to any alternative business strategy that might exist for us, our underlying business decision to proceed with or effect the transaction, and other
alternatives to the transaction that might exist for us. Capitalink does not express any opinion as to the underlying valuation or future performance of ePAK or the price at which our securities might trade at any time in the future.
In arriving at its opinion, Capitalink took into account an assessment of general economic, market and financial conditions, as well as its experience in
connection with similar transactions and securities valuations generally. In so doing, among other things, Capitalink:
•
Reviewed the acquisition agreement.
•
Reviewed publicly available financial information and other data with respect to Ascend that it deemed relevant, including the Annual Report on Form 10-KSB for the
year ended December 31, 2006 and the Quarterly Report on Form 10-QSB for the six months ended June 30, 2007.
53
•
Reviewed non-public information and other data with respect to ePAK, including draft U.S. GAAP financial statements for the years ended December 31, 2004, 2005
and 2006, draft U.S. GAAP financial statements for the six months ended June 30, 2007 and 2006, financial projections for the years ending December 31, 2007, 2008, 2009, 2010 and 2011 (the “projections”), and other internal
financial information and management reports. The projections forecast organic growth in existing product lines only and did not take into account any acquisitions that may be planned by management.
•
Reviewed and analyzed the transaction’s pro forma impact on Ascend’s securities outstanding and stockholder ownership.
•
Considered the historical financial results and present financial condition of ePAK.
•
Reviewed certain publicly available information concerning the trading of, and the trading market for Ascend’s common stock and units.
•
Reviewed and analyzed the indicated value range of the transaction consideration.
•
Reviewed and analyzed ePAK’s projected unlevered free cash flows and prepared a discounted cash flow analysis.
•
Reviewed and analyzed certain financial characteristics of publicly-traded companies that were deemed to have characteristics comparable to ePAK.
•
Reviewed and analyzed certain financial characteristics of target companies in transactions where such target company was deemed to have characteristics comparable
to that of ePAK.
•
Reviewed and compared the net asset value of Ascend to the indicated total invested capital value of ePAK.
•
Reviewed and discussed with representatives of Ascend and ePAK management certain financial and operating information furnished by them, including the projections
and analyses with respect to ePAK’s business and operations.
•
Performed such other analyses and examinations as were deemed appropriate.
In arriving at its opinion, Capitalink relied upon and assumed the accuracy and completeness of all of the financial and other information that was
supplied or otherwise made available to Capitalink without assuming any responsibility for any independent verification of any such information. Further, Capitalink relied upon the assurances of Ascend and ePAK that they were not aware of any facts
or circumstances that would make any such information inaccurate or misleading. With respect to the financial information and projections utilized, Capitalink assumed that such information has been reasonably prepared on a basis reflecting the best
currently available estimates and judgments, and that such information provides a reasonable basis upon which it could make an analysis and form an opinion. The projections were solely used in connection with the rendering of Capitalink’s
fairness opinion. Investors should not place reliance upon such projections, as they are not necessarily an indication of what our revenues and profit margins will be in the future. The projections were prepared by ePAK management and are not to be
interpreted as projections of future performance (or “guidance”) by ePAK. Capitalink did not evaluate the solvency or fair value of ePAK under any foreign, state or federal laws relating to bankruptcy, insolvency or similar matters.
Capitalink did not make a physical inspection of the properties and facilities of ePAK and did not make or obtain any evaluations or appraisals of the company’s assets and liabilities (contingent or otherwise). In addition, Capitalink did not
attempt to confirm whether Ascend and ePAK had good title to their respective assets.
Capitalink assumed that the transaction will be
consummated in a manner that complies in all respects with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable foreign, federal and state statutes, rules and
regulations. Capitalink assumes that the transaction will be consummated substantially in accordance with the terms set forth in the acquisition agreement, without any further amendments thereto, and that any amendments, revisions or waivers thereto
will not be detrimental to the stockholders of Ascend.
54
Capitalink’s analysis and opinion are necessarily based upon market, economic and other conditions,
as they existed on, and could be evaluated as of, July 27, 2007. Accordingly, although subsequent developments may affect its opinion, Capitalink has not assumed any obligation to update, review or reaffirm its opinion.
In connection with rendering its opinion, Capitalink performed certain financial, comparative and other analyses as summarized below. Each of the
analyses conducted by Capitalink was carried out to provide a different perspective on the transaction, and to enhance the total mix of information available. Capitalink did not form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to the fairness, from a financial point of view, of the transaction consideration to Ascend’s stockholders. Further, the summary of Capitalink’s analyses described below is not a
complete description of the analyses underlying Capitalink’s opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Capitalink made qualitative judgments as to the
relevance of each analysis and factors that it considered. In addition, Capitalink may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions, so that
the range of valuations resulting from any particular analysis described above should not be taken to be Capitalink’s view of the value of ePAK’s assets. The estimates contained in Capitalink’s analyses and the ranges of valuations
resulting from any particular analysis are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of
businesses or assets neither purports to be appraisals nor do they necessarily reflect the prices at which businesses or assets may actually be sold. Accordingly, Capitalink’s analyses and estimates are inherently subject to substantial
uncertainty. Capitalink believes that its analyses must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors collectively, could create an incomplete and
misleading view of the process underlying the analyses performed by Capitalink in connection with the preparation of its opinion.
The
summaries of the financial reviews and analyses include information presented in tabular format. In order to fully understand Capitalink’s financial reviews and analyses, the tables must be read together with the accompanying text of each
summary. The tables alone do not constitute a complete description of the financial analyses, including the methodologies and assumptions underlying the analyses, and if viewed in isolation could create a misleading or incomplete view of the
financial analyses performed by Capitalink.
The analyses performed were prepared solely as part of Capitalink’s analysis of the
fairness, from a financial point of view, of the transaction consideration to our stockholders, and were provided to our board of directors in connection with the delivery of Capitalink’s opinion. The opinion of Capitalink was just one of the
many factors taken into account by our board of directors in making its determination to approve the transaction, including those described elsewhere in this proxy statement/prospectus statement.
Transaction Consideration Analysis
The transaction
consideration consists of an initial transaction consideration of 8,566,667 newly issued shares of Ascend common stock, to be potentially increased by the following:
•
Market Price Shares: a maximum of 442,625 shares of additional Ascend common stock payable upon the combined entity achieving certain stock price targets from the
closing date through 180 days thereafter for any 20 trading days within a 30 consecutive day trading period;
•
EBITDA Shares: a maximum of 265,575 shares of additional Ascend common stock payable upon the combined entity achieving certain EBITDA targets in 2008, 2009 and
2010; and
•
Redemption Shares: a maximum of 442,625 shares of additional Ascend common stock payable upon the redemption of public warrants.
55
The initial transaction consideration was valued at approximately $48.8 million, based on a $5.70 closing
price of Ascend shares on July 20, 2007.
Based on the projections utilized, Capitalink assumed that the value of the transaction
consideration will be increased by only 265,575 shares of the Market Price Shares and will not be increased by the EBITDA Shares. In addition, Capitalink did not include the value of the Redemption Shares in its calculation of the transaction
consideration because the projections do not take into account the proceeds from the exercise of warrants.
Therefore, the indicated value
of the transaction consideration used in Capitalink’s analysis was approximately $50.6 million.
Ascend will also be assuming
ePAK’s current debt of approximately $7.2 million, therefore the total invested capital consideration to be compared with ePAK’s valuation range was approximately $57.7 million.
Valuation Overview
Capitalink generated an indicated
valuation range for ePAK based on a discounted cash flow analysis, a comparable company analysis and a comparable transaction analysis each as more fully discussed below. Capitalink weighted the three approaches equally and arrived at an indicated
total invested capital range from approximately $56.3 million to approximately $66.7 million. Capitalink noted that the total invested capital consideration of $57.7 million was in the range of ePAK’s indicated total invested capital range.
Discounted Cash Flow Analysis
A
discounted cash flow analysis estimates value based upon a company’s projected future free cash flow discounted at a rate reflecting risks inherent in its business and capital structure. Unlevered free cash flow represents the amount of cash
generated and available for principal, interest and dividend payments after providing for ongoing business operations.
While the
discounted cash flow analysis is the most scientific of the methodologies used, it is dependent on projections and is further dependent on numerous industry-specific and macroeconomic factors.
Capitalink utilized the projections provided by ePAK management that are based on organic growth in existing product lines only. Notwithstanding the
projections relied upon by Capitalink, ePAK management plans to pursue complementary acquisitions that may result in significantly higher growth than that reflected in the projections and has prepared alternative projections that it has shared with
Ascend management. In addition, the projections assumed that none of the Ascend trust fund will be available to ePAK.
The projections
forecast strong future growth in revenues from FY2006 to FY2011 from approximately $36.2 million to $138.7 million, respectively. This represents a compound average growth rate (or CAGR) of approximately 30.8% over the period, as compared to a
historical CAGR of 28.3% from FY2004 to FY2006. Revenue growth is expected to be due to growth in the semiconductor market and increasing penetration in the disk drive and wafer markets.
The projections also project an improvement in EBITDA from FY2006 to FY2011, from approximately $5.5 million to $29.2 million, respectively, due to
increasing market penetration in the wafer business and increasing economies of scale. This represents an improvement in ePAK’s EBITDA margin from 15.3% to 21.1% and a CAGR of 39.4% over the period. For purposes of Capitalink’s analyses,
“EBITDA” means earnings before interest, taxes, depreciation and amortization.
In order to arrive at a present value, Capitalink
utilized discount rates ranging from 26.5% to 28.5%. This was based on an estimated weighted average cost of capital of 27.3% (based on ePAK’s estimated weighted average cost of debt of 3.6% and a 27.9% estimated cost of equity). The cost of
equity calculation was derived
56
utilizing the Ibbotson build up method utilizing appropriate equity risk, industry risk, country risk and size premiums and a company specific risk factor,
reflecting the risk associated with achieving revenue growth above that of the industry, further penetration in the wafer markets, and profitability improvements. Capitalink noted that ePAK has not met its FY2005 and FY2006 EBITDA budgets due to
several factors, including tray material cost overruns, higher than expected manufacturing overhead and underutilized equipment due to efforts to reduce cross contamination between different products by dedicating machines to specific material sets.
Capitalink presented a range of terminal values at the end of the forecast period by applying a range of terminal exit multiples based on
revenue and EBITDA as well as long term perpetual growth rates.
Utilizing terminal revenue multiples of between 1.3x and 1.5x, terminal
EBITDA multiples of between 7.5x and 8.5x and long term perpetual growth rates of between 8.5% and 9.5%, Capitalink derived an indicated total invested capital value range of approximately $61.4 million to approximately $74.4 million. For purposes
of Capitalink’s analyses, “total invested capital” means equity value plus all interest-bearing debt.
Comparable Company Analysis
A selected comparable company analysis reviews the trading multiples of publicly traded companies that are similar to ePAK with respect to
business and revenue model, operating sector, size and target customer base.
Capitalink located seven companies that it deemed comparable
to ePAK with respect to their industry sector and operating model:
•
Entegris Inc.
•
Miraial Co., Ltd.
•
Peak International Ltd.
•
Advanced Semiconductor Engineering Inc.
•
Siliconware Precision Industries Co. Ltd.
•
Amkor Technology Inc.
•
ASE Test Ltd.
Three of the
comparable companies provide products for the shipping and handling of semiconductors, while four of the comparable companies provide semiconductor assembly and test services and wafer level packaging solutions. All of the comparable companies are
substantially larger than ePAK, with latest twelve months, or LTM revenue ranging from approximately $60.2 million to approximately $2.9 billion, compared with approximately $38.6 million for ePAK.
Capitalink noted that except for Peak International, all of the comparable companies are more profitable than ePAK, with EBITDA margins ranging from
approximately 7.3% to approximately 50.7%, compared with approximately 16.1% for ePAK.
ePAK is projected to have a 2007 EBITDA growth rate
of 37.8%, which is higher than the comparable companies, which have 2007 EBITDA growth rates ranging from approximately (20.2%) to approximately 32.1%.
Except for Peak International, ePAK reinvests the highest percentage of its EBITDA in capital expenditures, with a capital expenditures to EBITDA ratio of 93.2%, compared to comparable companies’ rates ranging
from approximately 18.5% to approximately 105.2%.
Multiples utilizing total invested capital were used in the analyses. For comparison
purposes, all operating profits including EBITDA were normalized to exclude unusual and extraordinary expenses and income.
57
Capitalink generated a number of multiples worth noting with respect to the comparable companies:
Total Invested Capital Multiple of
Mean
Median
High
Low
LTM revenue
2.92x
2.79x
6.01x
0.59x
2007 revenue
2.98x
2.91x
4.52x
1.75x
2008 revenue
2.56x
2.50x
3.69x
1.59x
LTM EBITDA
9.4x
8.1x
14.8x
6.2x
2007 EBITDA
9.5x
8.5x
12.7x
7.1x
2008 EBITDA
7.9x
7.5x
10.2x
6.1x
Capitalink selected an appropriate multiple range for ePAK by examining the range indicated by the
comparable companies and taking into account certain company-specific factors.
Capitalink expects ePAK’s
•
Revenue valuation multiples to be significantly below the mean of the comparable companies due to its smaller size and lower profitability, to a certain extent
offset by its higher growth relative to the comparable companies, and
•
EBITDA multiples to be above the mean of the comparable companies in the LTM period due to its higher growth and below the mean of the comparable companies in the
CY07 and CY08 periods due to ePAK’s higher capital expenditures to EBITDA ratio and not achieving EBITDA targets in CY05 and CY06, somewhat offset by its higher growth.
Based on the above factors, Capitalink applied the following multiples to the respective statistics:
•
Multiples of 1.5x to 1.8x LTM revenue
•
Multiples of 1.2x to 1.5x 2007 revenue
•
Multiples of 0.9x to 1.2x 2008 revenue
•
Multiples of 10.0x to 11.0x LTM EBITDA
•
Multiples of 8.0x to 9.0x 2007 EBITDA
•
Multiples of 6.0x to 7.0x 2008 EBITDA
and calculated
a range of total invested capital for ePAK of approximately $58.9 million to approximately $70.2 million.
None of the comparable companies
have characteristics identical to ePAK. An analysis of publicly traded comparable companies is not mathematical; rather it involves complex consideration and judgments concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading of the comparable companies.
Comparable Transaction Analysis
A comparable transaction analysis involves a review of merger, acquisition and asset purchase transactions involving target companies
that are in related industries to ePAK. The comparable transaction analysis generally provides the widest range of value due to the varying importance of an acquisition to a buyer (i.e., a strategic buyer willing to pay more than a financial buyer)
in addition to the potential differences in the transaction process (i.e., competitiveness among potential buyers).
Information is
typically not disclosed for transactions involving a private seller, even when the buyer is a public company, unless the acquisition is deemed to be “material” for the acquirer. As a result, the selected
58
comparable transaction analysis is limited to transactions involving the acquisition of a public company, or substantially all of its assets, or the
acquisition of a large private company, or substantially all of its assets, by a public company.
Capitalink located five transactions
announced since January 2003 involving target companies providing products for the shipping and handling of semiconductors or providing semiconductor assembly and test services and wafer level packaging solutions, and for which detailed financial
information was available.
Asyst Technologies, Inc., silicon wafer and reticle carrier product lines
Entegris Inc. (NasdaqNM: ENTG)
Based on the information disclosed with respect to the targets in the each of the comparable
transactions, Capitalink calculated and compared the total invested capital as a multiple of LTM revenue and LTM EBITDA.
Capitalink noted
the following with respect to the multiples generated:
Multiple of total invested capital to
Mean
Median
High
Low
LTM revenue
1.45x
1.48x
1.99x
0.50x
LTM EBITDA
6.6x
7.2x
9.1x
3.7x
Capitalink expects ePAK’s
•
revenue multiples to be below the mean of the comparable transactions multiples due to its lower profitability and smaller size and
•
EBITDA multiples to be around the mean of two transactions (8.1x) where the targets’ EBITDA margin was similar to that of ePAK (STATS ChipPAC and Toshiba
Ceramics).
Based on the above factors, Capitalink applied the following multiples to the respective statistics:
•
Multiples of 1.3x to 1.5x LTM revenue,
•
Multiples of 7.5x to 8.5x LTM EBITDA,
and calculated
a range of total invested capital for ePAK of approximately $48.5 million to approximately $55.5 million.
None of the target companies in
the comparable transactions have characteristics identical to ePAK. Accordingly, an analysis of comparable business combinations is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and
operating characteristics of the target companies in the comparable transactions and other factors that could affect the respective acquisition values.
Satisfaction of 80% Test
Ascend’s initial business combination must be with a target business whose fair market value
is at least equal to 80% of Ascend’s net assets at the time of such acquisition.
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Capitalink reviewed and estimated Ascend’s net assets based on its stockholders’ equity as of
June 30, 2007 and compared that to ePAK’s indicated range of total invested capital. Capitalink noted that the fair market value of ePAK exceeds 80% of Ascend’s net asset value.
Based on the information and analyses set forth above, Capitalink delivered its written opinion to our board of directors, which stated that, as of
July 27, 2007, based upon and subject to the assumptions made, matters considered, and limitations on its review as set forth in the opinion, (i) consideration to be paid by Ascend pursuant to the acquisition agreement is fair, from a
financial point of view, to the holders of Ascend common stock, and (ii) the fair market value of ePAK is at least equal to 80% of our net assets. Capitalink is an investment banking firm that, as part of its investment banking business,
regularly is engaged in the evaluation of businesses and their securities in connection with mergers, acquisitions, corporate restructurings, private placements, and for other purposes. We determined to use the services of Capitalink because it is a
recognized investment banking firm that has substantial experience in similar matters. Capitalink has received a fee in connection with the preparation and issuance of its opinion and will be reimbursed for its reasonable out-of-pocket expenses,
including attorneys’ fees. In addition, we have agreed to indemnify Capitalink for certain liabilities that may arise out of the rendering of its opinion. Further, Capitalink has not previously provided, nor are there any pending agreements to
provide, any other services to either company.
In the ordinary course of business, Capitalink’s affiliate, Ladenburg
Thalmann & Co. Inc. (“Ladenburg”), certain of Ladenburg’s affiliates, as well as investment funds in which they may have financial interests, may acquire, hold or sell, long or short positions, or trade or otherwise effect
transactions, in debt, equity, and other securities and financial instruments (including bank loans and other obligations) of, or investments in, Ascend, or any other party that may be involved in the transaction and their respective affiliates.
ePAK’s Board of Directors’ Reasons for Approval of the Acquisition
The ePAK board considered and reviewed, including with their advisors, a number of factors relating to the acquisition, including:
•
historical information concerning ePAK’s business, prospects, financial performance and condition, operations, technology, management and competitive position;
•
the financial condition, results of operations and business of ePAK before and after giving effect to the acquisition and its views of the prospects for ePAK’s
business both as an independent entity and assuming the consummation of the acquisition;
•
the consideration to be received by ePAK’s securityholders in the acquisition, in the aggregate and on a holder-by-holder basis;
•
the terms of the acquisition agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations;
•
the impact of the acquisition on ePAK’s customers and employees;
•
the possibility that that the acquisition might not be consummated and the effect of a public announcement of the acquisition on (i) ePAK’s sales and
operating results, (ii) ePAK’s ability to attract and retain key management, marketing and technical personnel, (iii) ePAK’s ability to raise additional capital and (iv) ePAK’s ability to consummate an alternative
strategic transaction; and
•
the possibility that the acquisition might not be consummated and the effect of substantial expenses incurred in connection with the acquisition.
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In concluding that the acquisition is in the best interests of ePAK and its shareholders, and in
approving the acquisition agreements and the acquisition, the ePAK board considered a number of factors, including:
•
its belief that the combination of ePAK and Ascend, which would have a significantly stronger capital position than ePAK individually and would be a public company,
would provide ePAK with a substantial amount of capital for future expansion or strategic acquisitions and an increased ability to raise additional capital;
•
its belief that the combined company will have greater resources to effectively compete in the market for ePAK’s products and services;
•
its belief that the addition of Don K. Rice to the combined company’s management team as chairman will provide the company with valuable experience and strong
leadership; and
•
the availability of a public trading market for the Continuing Pubco shares to be received by ePAK shareholders will, after the expiration of the applicable
restriction period on the transferability, provide the shareholders with more investment liquidity than that associated with their current interests in ePAK, for which there are no established trading markets.
The foregoing discussion of the factors considered by the ePAK board is not meant to be exhaustive, but includes some of the more material factors
considered by it in coming to their conclusions.
Material U.S. Federal Income Tax Consequences of the Acquisition
See “
Redomestication Proposal—Material U.S. Federal Income Tax Considerations of the Acquisition and Redomestication Merger.”
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THE ACQUISITION AGREEMENT
The following summary of the material provisions of the acquisition agreement is
qualified by reference to the complete text of the acquisition agreement, a copy of which is attached as
Annex A
to this proxy statement/prospectus as it may be amended. All stockholders are encouraged to read the acquisition agreement in its
entirety for a more complete description of the terms and conditions of the acquisition and redomestication merger.
Structure of Acquisition
On July 30, 2007, Ascend Acquisition Corp. (“Ascend”), a Delaware corporation, entered into an agreement and plan of
reorganization (the “acquisition agreement”) by which it will acquire e.Pak Resources (S) Pte. Ltd. (“ePAK” or the “Company”). In connection with this acquisition, Ascend will reincorporate and move its domicile
from Delaware to Bermuda via a merger (“redomestication merger”) with Ascend Company Limited, a Bermuda exempted company that is owned by Don K. Rice as nominee for Ascend (“ACL”), with the combined company continuing after the
redomestication merger (“Continuing Pubco”) existing as a Bermuda exempted company. Immediately following the closing of the transactions, the current stockholders and warrant and option holders of Ascend and ePAK will be the security
holders of the Continuing Pubco.
ePAK Holdings Limited (“EHL”), ePAK’s sole shareholder, approved and adopted the
acquisition agreement and the transactions contemplated thereby by virtue of its execution of the acquisition agreement. Accordingly, no further action is required to be taken by ePAK shareholders to approve the acquisition. Within 12 months after
the acquisition of ePak, EHL will liquidate and distribute the common stock of Continuing Pubco in pursuance of a plan of reorganization with respect to EHL.
Closing and Effective Time of the Acquisition
The closing of the acquisition will take place promptly following the
satisfaction of the conditions set forth in the acquisition agreement, which are summarized below under “
The Acquisition Agreement—Conditions to the Closing of the Acquisition
,” including the consummation of the redomestication
merger, unless Ascend and ePAK agree in writing to another time. The acquisition is expected to be consummated promptly after the special meeting of Ascend’s stockholders described in this proxy statement/prospectus.
Acquisition Consideration
Transaction Shares
In consideration of the acquisition, EHL will receive, at closing, the aggregate number of shares of Continuing Pubco’s common stock
(the “Transaction Shares”) determined by a formula set forth in Section 1.07(b) of the acquisition agreement that effectively allocates to EHL and holders of options to purchase shares of EHL a post-issuance ownership of the
outstanding common stock of Continuing Pubco immediately following the closing based on a comparison of (1) ePAK’s twelve month trailing EBITDA at June 30, 2007, as adjusted for various expenses and liabilities of ePAK, including
expense and bank charges associated with borrowings, option expense, expenses incurred by EHL and ePAK in connection with the proposed transaction with Ascend, amounts accrued under EHL’s profit sharing plan, expenses incurred in connection
with the conversion and audit of ePAK’s financial statements and certain other expenses (“Subject Adjusted EBITDA”), multiplied by 5.72, plus the aggregate exercise price of the EHL Options and (2) the value of Ascend’s
trust at closing as adjusted for various liabilities of Ascend (“Adjusted Ascend Trust Value”), less the number of ordinary shares issuable upon the exercise of the Assumed Options (see “Assumption of Options” below). The
acquisition agreement provides for a grace range on Subject Adjusted EBITDA, such that if it is within 5% of $6,675,000, it will be deemed to be $6,675,000 for purposes of calculating the number of Transaction Shares to be issued. Similarly, the
acquisition agreement provides for a grace range on Adjusted Ascend Trust Value, such that if it is within 5% of $38,200,000, it will be deemed to be $38,200,000 for purposes of calculating the number of Transaction Shares to be issued.
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As of the date hereof, based on (a) information and projections currently available to the parties,
including Subject Adjusted EBITDA of $6.7 million (resulting in a 5.72 multiple result of $38.3 million) and estimated Adjusted Ascend Trust Value of $38.2 million, and (b) 8,566,666 shares of Ascend common stock currently outstanding, the
aggregate number of Transaction Shares that will be issued at closing to EHL, excluding those underlying the Assumed Options, will be 8,601,002 shares, or 50.1% of the outstanding common stock of Continuing Pubco immediately following the closing.
The foregoing figures give no effect to any additional shares that may be issued to EHL post-closing, as described below, and assume none of Ascend’s currently outstanding common stock is converted into cash as permitted by Ascend’s
certificate of incorporation. The maximum and minimum percentage ownership of EHL in the outstanding ordinary shares of Continuing Pubco immediately following the closing is effectively limited under the terms of the acquisition agreement to a low
of 50.1% and a high of 54.5%, respectively.
Assumption of Options
At the closing date, all outstanding EHL Options will be, without any action on the part of any
holder of EHL Option, assumed by Continuing Pubco, and each EHL Option will become an option to acquire ordinary shares of Continuing Pubco on the same terms and conditions as were applicable under the EHL Option, except that the number of shares
purchasable upon exercise of such option and the exercise price thereof shall be proportionately adjusted to provide that the aggregate number of ordinary shares issuable upon the exercise thereof shall equal that number of Transaction Shares that
the holder of such EHL Option would have received had he or she exercised the EHL Option prior to the closing, and that the aggregate exercise price of the Assumed Option shall remain the same as the aggregate exercise price of such EHL Option.
Continuing Pubco will file a registration statement on Form S-8 on or as soon as practicable after the 91
st
day after the closing date with respect to all
of its ordinary shares subject to the Assumed Options that may be registered on Form S-8.
Contingent Consideration
EHL also will be entitled to receive additional ordinary shares of Continuing Pubco if the last reported sales price of Continuing
Pubco’s ordinary shares is equal to or exceeds one or more of the dollar amounts set forth in the table below under the caption “Share Price Trigger” on any twenty (20) trading days during any thirty (30) consecutive trading
day period at any time during the period commencing on the closing date and ending on the 180th day after the closing date. EHL would receive the aggregate number of shares for each and every corresponding share price trigger met or exceeded as
follows, for a total issuance of up to 442,625 shares:
Share Price Trigger
Number of Shares
$6.00
88,525
$6.50
88,525
$7.00
88,525
$7.50
88,525
$8.00
88,525
EHL also will be entitled to receive (1) 88,525 additional ordinary shares from Continuing
Pubco if Continuing Pubco has combined consolidated Share Issuance EBITDA (as defined below) of $14,727,000 or more for the year ending December 31, 2008, (2) 88,525 additional ordinary shares from Continuing Pubco if Continuing Pubco has
combined consolidated Share Issuance EBITDA of $24,268,000 or more for the year ending December 31, 2009 and (3) 88,525 additional ordinary shares from Continuing Pubco if Continuing Pubco has combined consolidated Share Issuance EBITDA of
$37,935,000 or more for the year ending December 31, 2010, for a total issuance of up to 265,575 additional shares.
“Share
Issuance EBITDA” for purposes of determining whether EHL and its designees are to receive these additional shares shall consist of Continuing Pubco’s operating earnings for the applicable period before interest expense and bank charges
associated with borrowings, depreciation and amortization expense and taxes, as
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adjusted for various expenses and liabilities of the Continuing Pubco, including option expense, expenses incurred by EHL and ePAK in connection with the
proposed transaction with Ascend, amounts accrued under the Continuing Pubco management bonus pool (see “Employment Agreements” below), expenses incurred in connection with the conversion and audit of ePAK’s financial statements, fees
and expenses resulting from the audit of the financial statements of the Continuing Pubco and compliance with the requirements of the Sarbanes-Oxley Act of 2002 and certain other expenses described in Section 1.14(b) of the acquisition
agreement.
If Continuing Pubco triggers a redemption of its public warrants, then, upon completion of the redemption of all of the
warrants (or, in the event that any of the warrants are exercised in connection with such redemption, Continuing Pubco’s receipt of all funds related to any such exercise during the redemption period), EHL also will receive an aggregate of
442,625 additional ordinary shares from Continuing Pubco.
Post-Closing Ownership of Ascend Common Stock
As a result of the acquisition, and assuming that:
•
no Ascend stockholder demands that Ascend convert its shares to cash as permitted by Ascend’s certificate of incorporation, EHL will own approximately 50.1% of
the outstanding Continuing Pubco common stock and the current stockholders of Ascend will own approximately 49.9% of the outstanding Continuing Pubco common stock immediately after the closing of the acquisition; and
•
assuming 19.99% of the Public Shares votes against the acquisition and such stock is converted into cash, EHL will own approximately 54.4% of the outstanding
Continuing Pubco common stock and the current stockholders of Ascend will own approximately 45.6% of the outstanding Continuing Pubco common stock immediately after the closing of the acquisition.
The foregoing is based on (a) information and projections currently available to the parties, including projected Subject Adjusted EBITDA of $6.7
million and estimated Adjusted Ascend Trust Value of $38.2 million, and (b) approximately 8.6 million shares of Ascend common stock currently outstanding. Based on this information, at closing of the acquisition, an aggregate of
approximately 8.6 shares of Continuing Pubco common stock would be issued at closing to EHL.
The foregoing figures give no effect to any
additional shares that may be issued to EHL post-closing, as described above.
Indemnification
The acquisition agreement provides for the obligation of Continuing Pubco to indemnify EHL and its officers, directors and shareholders for breaches of
representations and warranties made and covenants undertaken by Ascend and ACL in the acquisition agreement. The payment of any indemnity obligations of Continuing Pubco shall be satisfied by the issuance by Continuing Pubco of the number of its
ordinary shares equal to the difference obtained by subtracting (i) the number of Transaction Shares from (ii) that number of Transaction Shares that would have been issued at the Closing pursuant to Section 1.7 had the Ascend Trust
Value been reduced by the amount of the Losses subject to such indemnification.
The acquisition agreement also provides the obligation of
EHL (and any other recipient of transaction consideration in the Share Transfer) to indemnify Continuing Pubco for breaches of representations and warranties made and covenants undertaken by ePAK and EHL in the acquisition agreement. As the sole
remedy for this indemnity obligation, Continuing Pubco will have recourse against EHL and any recipients of Continuing Pubco shares issued in the acquisition solely during the period beginning on the closing date and ending on the one year
anniversary thereof, and for such further period as may be required pursuant to the indemnification provisions of the acquisition agreement. The aggregate amount of this indemnity obligation will be limited solely to the fair market value, as of the
time an indemnity claim
is established, of the number of shares of Continuing
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Pubco common stock equal to (X) 15% of the sum of the Transaction Shares plus the number of shares issuable upon exercise of the Assumed Options, minus (Y)
the sum of the quotients obtained by dividing the dollar amount of each previous indemnity claim by the fair market value, as of the time such previous indemnity claim was established, of one share of Continuing Pubco common stock. EHL and any
recipients of Continuing Pubco shares issued in the acquisition may pay any indemnity claim in cash, or in its sole discretion, shares of Continuing Pubco common stock valued at a per share price equal to the fair market value as determined in the
acquisition agreement. The indemnification agreement is attached to this proxy statement/prospectus as
Annex G
. We encourage you to read the indemnification agreement in its entirety.
The board of directors of Ascend has appointed to take all necessary actions and
make all decisions regarding Continuing Pubco’s right to indemnification under the acquisition agreement. If ceases to so act, Continuing Pubco’s board of directors
shall appoint as a successor a person who was a director of Ascend prior to the closing who would qualify as an “independent” director of Continuing Pubco and who had no relationship with ePAK prior to the
closing. , and any successor, is charged with making determinations whether Continuing Pubco may be entitled to indemnification, and may make a claim for indemnification by
giving notice to , with a copy to , specifying the details of the
claim. may accept the claim or dispute it. If the claim is disputed by and not ultimately resolved by
negotiation, it shall be determined by arbitration. Upon a claim and its value becoming established by the parties or through arbitration, it is payable in cash or shares as described above.
Lock-Up and Registration Rights
The recipients of
Continuing Pubco’s common stock in the Share Transfer and Ascend’s founding stockholders have agreed not to sell any of these shares until after the six-month anniversary of the closing date. Beginning following the closing, the recipients
of the ordinary shares in the Share Transfer will have the right (exercisable by holders of at least a majority of such shares) to demand on two occasions that Continuing Pubco cause a registration statement to be filed and declared effective under
the Securities Act of 1933, as amended, covering the resale of any and all of such shares. In addition, such persons will receive piggyback and Form S-3 registration rights with respect to such shares. The registration rights agreement is attached
to this proxy statement/prospectus as
Annex H
. We encourage you to read the registration rights agreement in its entirety.
Post-Transaction
Management
The current executive officers of ePAK will continue in their positions with ePAK after the acquisition. Steve Dezso,
ePAK’s current president and chief executive officer, also will become the president and chief executive officer of Continuing Pubco upon consummation of the acquisition. Mao Shi Khoo, ePAK’s current chief operating officer, also will
become the chief operating officer of Continuing Pubco upon consummation of the acquisition. Don K. Rice, Ascend’s current chairman of the board, will become chairman of the board of Continuing Pubco upon consummation of the acquisition. Jim
Thomas, ePAK’s current chief technology officer, also will become the chief technology officer of Continuing Pubco upon consummation of the acquisition. Jason Lee, ePAK’s current vice president, finance, will become the senior vice
president, finance of Continuing Pubco upon consummation of the acquisition. Chok Chun Weng, ePAK’s current vice president, South Asia sales, will become the senior vice president, South Asia sales of Continuing Pubco upon consummation of the
acquisition. Jeff Blaine ePAK’s current vice president, North Asia sales, will become the senior vice president, North Asia sales of Continuing Pubco upon consummation of the acquisition. Richard Brook, ePAK’s current vice president,
business development, will become the executive vice president, business development of Continuing Pubco upon consummation of the acquisition.
Employment Agreements
A condition to the closing of the acquisition is that each of Messrs. Dezso, Khoo, Thomas, Chok,
Blaine and Brook enter into an employment agreement with Continuing Pubco, effective upon the consummation of the
65
acquisition. The form of employment agreement to be used for each of Messrs. Dezso, Khoo, Thomas, Chok and Blaine is attached to this proxy
statement/prospectus as
Annex I.
The form of employment agreement to be used for Mr. Brook is attached to this proxy statement/prospectus as
Annex J
. For a summary of the employment agreements, see the section entitled
“
Directors and Executive Officers of Continuing Pubco Following the Acquisition—Employment Agreements
.” We encourage you to read the employment agreements in their entirety.
Election of Directors; Voting Agreement
Upon
consummation of the acquisition, the board of directors of Continuing Pubco will be comprised of five members. The board will include three persons designated by EHL, such designees initially being Mr. Dezso, a Hock Voon Loo and Steve San
Filippo, and two persons designated by certain stockholders of Ascend (“Founding Ascend Holders”), such designees initially being Mr. Rice and Warren “Budd” Florkiewicz. The majority of the board shall be “independent
directors” within the meaning of the Nasdaq rules. EHL, on the one hand, and the Founding Ascend Holders, on the other hand, have entered into a voting agreement pursuant to which they have agreed to vote for the other’s designees to the
board of directors of Continuing Pubco through the annual meeting of the stockholders of Continuing Pubco to be held in 2010. The board will be separated into classes as follows:
•
Steve San Filippo who will serve in the class to stand for reelection in 2008.
•
Don K. Rice and Hock Voon Loo, who will serve in the class to stand for reelection in 2009.
•
Steve Dezso and Warren “Budd” Florkiewicz, who will serve in the class to stand for reelection in 2010.
Ascend’s directors do not currently receive any cash compensation for their services as members of the board of directors. However, in the future,
non-employee directors of Continuing Pubco may receive certain cash fees and stock-based awards as the board of directors may determine.
Representations and Warranties
The acquisition agreement contains representations and warranties of each of ePAK and Ascend
relating, among other things, to:
•
proper corporate organization and similar corporate matters;
•
capital structure of each constituent company;
•
the authorization, performance and enforceability of the acquisition agreement;
•
licenses and permits;
•
taxes;
•
financial information and absence of undisclosed liabilities;
•
holding of leases and ownership of other properties, including intellectual property;
•
contracts;
•
title to properties and assets;
•
environmental matters;
•
title to and condition of other assets;
•
absence of certain changes;
•
employee matters;
•
compliance with laws;
66
•
product liability and product recalls;
•
litigations; and
•
compliance with applicable provisions of securities laws.
Covenants
Ascend and ePAK have each agreed to take such actions as are necessary, proper or advisable to consummate the
acquisition. Each of them has also agreed, subject to certain exceptions, to continue to operate its respective businesses in the ordinary course prior to the closing and not to take the following actions without the prior written consent of the
other party:
•
waive any stock repurchase rights, accelerate, amend or (except as specifically provided for in the acquisition agreement) change the period of exercisability of
options or restricted stock, or reprice options granted under any employee, consultant, director or other stock plans or authorize cash payments in exchange for any options granted under any of such plans;
•
grant any severance or termination pay to any officer or employee except pursuant to applicable law, written agreements outstanding, or policies, or adopt any new
severance plan, or amend or modify or alter in any manner any severance plan, agreement or arrangement;
•
transfer or license to any person or otherwise extend, amend or modify any material rights to any intellectual property of ePAK or Ascend, as applicable, or enter
into grants to transfer or license to any person future patent rights, other than in the ordinary course of business consistent with past practices provided that in no event will ePAK or Ascend license on an exclusive basis or sell any intellectual
property of the ePAK or Ascend, as applicable;
•
declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock, equity securities or property) in respect of any capital stock
or split, combine or reclassify any capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any capital stock;
•
purchase, redeem or otherwise acquire, directly or indirectly, any shares of capital stock of ePAK and Ascend, as applicable, including repurchases of unvested
shares at cost in connection with the termination of the relationship with any employee or consultant pursuant to agreements in effect on the date of the acquisition agreement;
•
issue, deliver, sell, authorize, pledge or otherwise encumber, or agree to any of the foregoing with respect to, any shares of capital stock or any securities
convertible into or exchangeable for shares of capital stock, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into or exchangeable for shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such shares or convertible or exchangeable securities;
•
amend its certificate of incorporation or bylaws or equivalent company documents;
•
acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of Ascend or ePAK ,
as applicable, or enter into any joint ventures, strategic partnerships or alliances or other arrangements that provide for exclusivity of territory or otherwise restrict such party’s ability to compete or to offer or sell any products or
services;
•
sell, lease, license, encumber or otherwise dispose of any properties or assets, except sales of inventory in the ordinary course of business and the sale, lease or
disposition of assets (other than through licensing) of property or assets that are not material to its business;
67
•
except for borrowing under ePAK’s existing credit facilities in the ordinary course of business, incur any indebtedness for borrowed money in excess of $25,000
in the aggregate or guarantee any such indebtedness of another person, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of Ascend or ePAK, as applicable, enter into any “keep
well” or other agreement to maintain any financial statement condition or enter into any arrangement having the economic effect of any of the foregoing;
•
adopt or amend any employee benefit plan, policy or arrangement, any employee 2007 incentive plan, or enter into any employment contract or collective bargaining
agreement (other than offer letters and letter agreements entered into in the ordinary course of business consistent with past practice with employees who are terminable “at will”), pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates or fringe benefits (including rights to severance or indemnification) of its directors, officers, employees or consultants, except in the ordinary course of business consistent with past
practices;
•
pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), or litigation
(whether or not commenced prior to the date of the acquisition agreement) other than the payment, discharge, settlement or satisfaction, in the ordinary course of business consistent with past practices or in accordance with their terms, or
liabilities previously disclosed in financial statements to the other party in connection with the acquisition agreement or incurred since the date of such financial statements, or waive the benefits of, agree to modify in any manner, terminate,
release any person from or knowingly fail to enforce any confidentiality or similar agreement to which ePAK is a party or of which ePAK is a beneficiary or to which Ascend is a party or of which Ascend is a beneficiary, as applicable;
•
except in the ordinary course of business consistent with past practices, modify, amend or terminate any material contract of ePAK or Ascend, as applicable, or
waive, delay the exercise of, release or assign any material rights or assign any material rights or claims thereunder;
•
except as required by applicable U.S. or Singapore GAAP, revalue any of its assets or make any change in accounting methods, principles or practices;
•
except in the ordinary course of business consistent with past practices, incur or enter into any agreement, contract or commitment requiring such party to pay in
excess of $100,000 in any 12 month period;
•
engage in any action that could reasonably be expected to cause the acquisition to fail to qualify as a “reorganization” under Section 368(a) of the
Code;
•
settle any litigation to which any director, officer of stockholder of such company is a party or, in the case of ePAK, where the consideration given is other than
monetary;
•
make or rescind any tax elections that, individually or in the aggregate, could be reasonably likely to adversely affect in any material respect the tax liability
or tax attributes of such party, settle or compromise any material income tax liability or, except as required by applicable law, materially change any method of accounting for tax purposes or prepare or file any return in a manner inconsistent with
past practice;
•
form, establish or acquire any subsidiary except as contemplated by the acquisition agreement;
•
make capital expenditures in excess of $300,000, except in accordance with prudent business and operational practices consistent with prior practice;
•
make or omit to take any action which would be reasonably anticipated to have a material adverse effect;
•
enter into any transaction with or distribute or advance any assets or property to any of its officers, directors, partners, stockholders or other affiliates; or
•
agree in writing or otherwise agree, commit or resolve to take any of the foregoing actions.
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The acquisition agreement also contains additional covenants of the parties, including covenants
providing for:
•
each party to use commercially reasonable efforts to obtain all necessary approvals from stockholders, governmental agencies and other third parties that are
required for the consummation of the transactions contemplated by the acquisition agreement;
•
ePAK to maintain insurance polices providing insurance coverage for its business and its assets in the amounts and against the risks as are commercially reasonable
for the businesses and risks covered;
•
the protection of confidential information of the parties and, subject to the confidentiality requirements, the provision of reasonable access to information;
•
Ascend to prepare and file this proxy statement/prospectus;
•
ePAK to provide financial statements audited in accordance with U.S. GAAP for the fiscal years ended December 31, 2006, 2005 and 2004 by November 15,
2007;
•
the ePAK stockholder to release and forever discharge ePAK and its directors, officers, employees and agents, from any and all rights, claims, demands, judgments,
obligations, liabilities and damages arising out of or resulting from such stockholder’s status as a holder of an equity interest in ePAK, and employment, service, consulting or other similar agreement entered into with ePAK prior to the
consummation of the acquisition agreement;
•
ePAK and the ePAK stockholder to waive their rights to make claims against Ascend to collect from the trust account established for the benefit of the Ascend
stockholders who purchased their securities in Ascend’s IPO for any moneys that may be owed to them by Ascend for any reason whatsoever, including breach by Ascend of the acquisition agreement or its representations and warranties therein;
•
the ePAK stockholder to repay to ePAK at or prior to the consummation of the acquisition, all direct and indirect indebtedness and other obligations owed by them to
ePAK;
•
each party to use commercially reasonable efforts to secure the consent of third parties as necessary to consummate the acquisition as contemplated by the
acquisition agreement; or
•
Continuing Pubco to maintain Ascend’s current policies of directors’ and officers’ liability insurance with respect to claims arising from facts and
events that occurred prior to the consummation of the acquisition for a period of six years after the consummation of the acquisition.
Conditions to the Closing of the Acquisition
General conditions
Consummation of the acquisition is conditioned on the Ascend stockholders, at a meeting called for these purposes, (i) adopting the acquisition
agreement and approving the transactions contemplated thereby, including the acquisition, (ii) approving the redomestication merger and (ii) approving the 2007 incentive plan.
The adoption of the acquisition agreement will require the affirmative vote of the holders of a majority of the shares of Ascend’s common stock
issued in its IPO (“Public Shares”), including holders who purchase Public Shares subsequent to the IPO, and voted on the matter. The holders of the Ascend common stock issued prior to its IPO, including the current officers and directors
of Ascend, have agreed to vote such shares in the matter of the approval of the acquisition agreement to the same effect as the majority of the Public Shares are voted. Additionally, if holders owning 20% or more of the Public Shares both vote
against the acquisition and exercise their right to convert their Public Shares into a pro-rata portion of the funds held in trust by Ascend for the benefit of the holders of the Public Shares, then the acquisitions contemplated by the acquisition
agreement cannot be consummated. The approval of the equity 2007 incentive plan will require the affirmative vote of a majority of the outstanding Ascend common stock present in person or by proxy at the stockholder meeting.
69
In addition, the consummation of the transactions contemplated by the acquisition agreement is
conditioned upon other conditions, including:
•
the delivery by each party to the other party of a certificate to the effect that the representations and warranties of the delivering party are true and correct in
all material respects as of the closing and all covenants contained in the acquisition agreement have been materially complied with by the delivering party;
•
the receipt of necessary consents and approvals by third parties and the completion of necessary proceedings;
•
Continuing Pubco’s common stock and warrants being listed for trading on either the Nasdaq Global Market or Nasdaq Capital Market and there being no action or
proceeding pending or threatened against Continuing Pubco by the National Association of Securities Dealers, Inc. (NASD) to prohibit or terminate the quotation of Continuing Pubco’s common stock on either the Nasdaq Global Market or Nasdaq
Capital Market; and
•
no order, stay, judgment or decree being issued by any governmental authority preventing, restraining or prohibiting in whole or in part, the consummation of such
transactions.
ePAK’s conditions to closing
The obligations of ePAK to consummate the transactions contemplated by the acquisition agreement, in addition to the general conditions described above,
are conditioned upon each of the following, among other things:
•
there shall have been no material adverse effect with respect to Ascend since the date of the acquisition agreement;
•
ePAK shall have received from Graubard Miller, counsel to Ascend, a legal opinion, which among other things, opines on the validity and enforceability of the
acquisition agreement and the transactions contemplated thereby; substantially in the form annexed to the acquisition agreement, which is customary for transactions of this nature;
•
Ascend shall have executed and delivered an employment agreement for each of Messrs. Dezso, Khoo, Chok, Thomas, Blaine and Brook on the terms described in this
proxy statement/prospectus and such employment agreement shall be in full force and effect as of the closing of the acquisition;
•
the voting agreement between certain stockholders of Ascend and EHL shall be in full force and effect, and the EHL designees shall have been elected to Continuing
Pubco’s board of directors; and
•
the trust fund established for the benefit of the holders of Ascend’s public common stock shall contain no less than $39,354,720 and shall be dispersed to
Continuing Pubco and ePAK immediately upon the closing, less: (a) all liabilities of Ascend and Merger Sub due and owing or incurred at or prior to the closing, which shall be paid as and when due (including any loans by insiders of Ascend to
Ascend, which shall be paid at closing), (b) all amounts payable to stockholders of Ascend that elect to convert their shares of Ascend common stock into cash, which shall be paid as soon as practicable following closing, (c) all Ascend
and Merger Sub tax liabilities, which shall be paid as and when due, (d) all professional fees related to these transactions, which shall be paid at closing, as well as other fees and expenses incurred by Ascend and Merger Sub in connection
with the acquisition agreement and the transactions contemplated thereby, and (e) all finders fees and investment banking fees (including those payable to EarlyBirdCapital, Inc. as a finder’s fee and for deferred underwriting commissions
earned by it in connection with Ascend’s IPO), which shall be paid at closing.
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Ascend’s conditions to closing
The obligations of Ascend to consummate the transactions contemplated by the acquisition agreement, in addition to the general conditions described above,
are conditioned upon each of the following, among other things:
•
there shall have been no material adverse effect with respect to ePAK since the date of the acquisition agreement;
•
the employment agreement between Continuing Pubco and each of Messrs. Dezso, Khoo, Chok, Thomas, Lee, Blaine and Brook, shall have been executed by each of them and
such employment agreements shall be in full force and effect; as of the closing of the acquisition;
•
Continuing Pubco shall have received from Yeo Wee Kiong Law Corporation and Mallesons Stephen Jaques, counsels to ePAK, legal opinions, which among other things,
opines on the validity and enforceability of the acquisition agreement and the transactions contemplated thereby substantially in the form annexed to the acquisition agreement, which is customary for transactions of this nature;
•
the voting agreement between certain stockholders of Ascend and EHL shall be in full force and effect, and the Ascend designees shall have been elected to
Continuing Pubco’s board of directors;
•
EHL and its affiliates shall have repaid any and all amounts owed by them to ePAK;
•
Ascend shall have received financial statements for ePAK audited in accordance with US GAAP for the years ended December 31, 2006, 2005 and 2004 and such
audited financials shall not indicate any material adverse changes to the financial results or condition of ePAK on a consolidated basis as compared to the financial statements for the same periods audited in accordance with Singapore GAAP, which
were previously provided to Ascend; and
•
Subject Adjusted EBITDA shall not be less than $5,673,500.
Termination
The acquisition agreement provides that it may be terminated at any time, but not later than the closing, as
follows:
•
at anytime, by mutual written consent of Ascend on the one hand and EHL on the other hand;
•
by EHL if the acquisition shall not have been consummated by December 31, 2007 for any reason; provided, however, that if by such date all of closing
conditions contained the acquisition agreement that are in the control of Ascend have been satisfied by Ascend or properly waived by EHL, but for the lack of receiving (1) final SEC clearance of the registration statement of which the proxy
statement/prospectus is a part and/or the meeting of Ascend’s stockholders has not yet taken place and/or (2) approval from Nasdaq of Continuing Pubco’s Nasdaq listing application and Ascend has taken all commercially reasonable
actions (excluding those actions solely in the control of ePAK) to satisfy these conditions, including filing the registration statement with the SEC as contemplated by the acquisition agreement and responding to all SEC comments in a reasonably
timely manner and filing the Nasdaq listing application, such date shall be extended to May 17, 2008; and provided further, that the right to terminate the acquisition agreement shall not be available to EHL if any of its or its affiliates actions
or failure to act has been a principal cause of or resulted in the failure of the acquisition to occur on or before such date and such action or failure to act constitutes a breach of the acquisition agreement;
•
by either party if a governmental entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the acquisition, which order, decree, ruling or other action is final and nonappealable;
71
•
by either party if the other party has breached any of its covenants or representations and warranties in any material respect and has not cured its breach within
thirty days of the notice of an intent to terminate, provided that the terminating party is itself not in breach;
•
by either party if, at the Ascend stockholder meeting, the acquisition agreement and the transactions contemplated thereby shall fail to be approved and adopted by
the affirmative vote of the holders of Ascend’s common stock, or 20% or more of the Public Shares request conversion of their shares into the pro rata portion of the trust fund in accordance with Ascend’s certificate of incorporation; or
•
by Ascend if Subject Adjusted EBITDA is less than $5,673,500.
If permitted under the applicable law, either ePAK or Ascend may waive any inaccuracies in the representations and warranties made to such party contained in the acquisition agreement and waive compliance with any
agreements or conditions for the benefit of itself or such party contained in the acquisition agreement. The condition requiring that the holders of fewer than 20% of the shares of Ascend common stock issued in its IPO affirmatively vote against the
acquisition proposal and properly demand conversion of their shares into cash may not be waived. We cannot assure you that all of the conditions will be satisfied or waived. Ascend’s board of directors will resolicit stockholder approval of the
acquisition if a party waives a material condition to the acquisition agreement or such changes in the terms of the acquisition render the disclosure previously provided materially misleading.
Effect of Termination
In the event of proper
termination by either Ascend or ePAK, the acquisition agreement will become void and have no effect, without any liability or obligation on the part of Ascend or ePAK, except that:
•
the confidentiality obligations set forth in the acquisition agreement will survive;
•
the rights of the parties to bring actions against each other for breach of the acquisition agreement will survive; and
•
the fees and expenses incurred in connection with the acquisition agreement and the transactions contemplated thereby will be paid by the party incurring such
expenses.
The acquisition agreement does not provide for specific penalties or payments in the event of a material
breach by a party of its covenants or warranties or a refusal or wrongful failure of the other party to consummate the acquisition. In such event, the non-wrongful party would be entitled to assert its legal rights for breach of contract against the
wrongful party.
Fees and Expenses
All
fees and expenses incurred in connection with the acquisition agreement and the transactions contemplated thereby will be paid by the party incurring such expenses whether or not the acquisition agreement is consummated.
Confidentiality; Access to Information
Ascend and
ePAK will afford to the other party and its financial advisors, accountants, counsel and other representatives prior to the completion of the acquisition reasonable access during normal business hours, upon reasonable notice, to all of their
respective properties, books, records and personnel to obtain all information concerning the business, including the status of product development efforts, properties, results of operations and personnel, as each party may reasonably request. Ascend
and ePAK will maintain in confidence any non-public information received from the other party, and use such non-public information only for purposes of consummating the transactions contemplated by the acquisition agreement.
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Amendments
The acquisition agreement may be amended by the parties thereto at any time by execution of an instrument in writing signed on behalf of each of the parties.
Extension; Waiver
At any time prior to the closing, any party to the acquisition agreement may, in
writing, to the extent legally allowed:
•
extend the time for the performance of any of the obligations or other acts of the other parties to the agreement;
•
waive any inaccuracies in the representations and warranties made to such party contained in the acquisition agreement or in any document delivered pursuant to the
acquisition agreement; and
•
waive compliance with any of the agreements or conditions for the benefit of such party contained in the acquisition agreement.
Public Announcements
Ascend and ePAK have agreed
that until closing or termination of the acquisition agreement, the parties will:
•
cooperate in good faith to jointly prepare all press releases and public announcements pertaining to the acquisition agreement and the transactions governed by it;
and
•
not issue or otherwise make any public announcement or communication pertaining to the acquisition agreement or the transaction without the prior consent of the
other party, which shall not be unreasonably withheld by the other party, except as may be required by applicable laws or court process.
Arbitration
Any disputes or claims arising under or in connection with the acquisition agreement or the transactions
contemplated thereunder will be resolved by binding arbitration. Arbitration will be commenced by the filing by a party of an arbitration demand with the American Arbitration Association (“AAA”). The arbitration will be governed and
conducted by applicable AAA rules, and any award or decision shall be conclusive and binding on the parties. Each party consented to the exclusive jurisdiction of the federal and state courts located in the State of Texas, Travis County, for such
purpose. The arbitration shall be conducted in Texas. Each party shall pay its own fees and expenses for the arbitration, except that any costs and charges imposed by the AAA and any fees of the arbitrator shall be assessed against the losing party.
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REDOMESTICATION PROPOSAL
General
We are seeking to reincorporate and relocate our public company from Delaware to Bermuda. In the redomestication merger, Ascend and ACL will be amalgamated, resulting in a single combined company, Continuing Pubco.
Immediately following the redomestication merger, Continuing Pubco will be renamed “ePAK International Limited” and will be a public company, reporting under the Exchange Act, and its securities will be listed on Nasdaq. Consummation of
the redomestication merger is a condition to the consummation of the acquisition. Accordingly, if the redomestication merger is not approved by Ascend’s stockholders, the acquisition will not be consummated.
We believe that the redomestication of our public company to Bermuda will provide us with material cost savings by allowing our company to be subject to
a reduced overall tax rate, and will give our company more flexibility and simplicity in the manner in which we are able to conduct our corporate transactions. The principal cost savings will result from Continuing Pubco not being subject to United
States taxation regimes. Holding companies incorporated in the United States, such as Ascend, are generally obligated to pay taxes at the U.S. rate of 35% on internal corporate dividends paid to them from their foreign operating subsidiaries, which
results in an added cost to internal cash management and reduces funds available for operations, capital improvements and acquisitions. Holding companies incorporated outside the United States that have operations outside of the United States, such
as Continuing Pubco, typically are not subject to United States internal dividend tax. Accordingly, such holding companies are able to move capital within the holding company structure and to structure new acquisitions and diversifications more
easily and with greater flexibility.
The full texts of the certificate of incorporation and by-laws of Continuing Pubco, as same
will be restated and amended immediately prior to the redomestication merger, are set forth in
Annex D
to this proxy statement/prospectus. The discussion, including the comparison of rights, set forth below is qualified in its
entirety by reference to these documents.
Adoption of the Redomestication Proposal
The board of directors of each of Ascend and Ascend’s wholly owned subsidiary, ACL, has unanimously approved the redomestication merger. The board of
directors of Ascend unanimously recommends a vote “FOR” the approval of the redomestication proposal.
The affirmative vote of
the holders of a majority of Ascend’s outstanding shares of common stock is required for approval of the redomestication proposal. Abstentions and broker non-votes will have the effect of a vote against the proposal.
The consummation of the redomestication merger is a condition to the consummation of the acquisition. Similarly, consummation of the acquisition is a
condition to the consummation of the redomestication merger. Accordingly, neither proposal will be implemented unless the other is approved by the stockholders of Ascend.
Redomestication Merger Procedure
The redomestication merger will be achieved by the merger of
Ascend, a Delaware corporation, and ACL, a Bermuda exempted company formed by Ascend for the purpose of affecting the redomestication merger. The certificate of incorporation and by-laws, the equivalent of a certificate of incorporation and bylaws
of a United States company, of ACL will be restated and amended immediately prior to closing of the redomestication merger in the form of
Annex D
to this proxy statement/prospectus, and will be the certificate of incorporation and by-laws of
Continuing Pubco immediately following the redomestication merger.
In the redomestication merger, Continuing Pubco will issue its common
stock and warrants in exchange for the outstanding common stock and warrants of Ascend on a one-for-one basis. This prospectus covers an
74
aggregate of 23,600,001 shares of common stock, 14,733,334 warrants and one purchase option to be issued by Continuing Pubco in the exchange. The
aforementioned shares to be issued include 8,566,667 shares issuable in exchange for all of the outstanding shares of common stock of Ascend, 14,133,334 shares that may be issued on exercise of warrants to be issued hereby, 300,000 shares that may
be issued on exercise of the purchase option to be issued hereby and 600,000 shares that may be issued on exercise of warrants that may be issued on exercise of the purchase option to be issued hereby. The warrants to be issued hereby include
14,133,334 warrants to be issued in exchange for a like number of outstanding warrants of Ascend and 600,000 warrants that may be issued on exercise of the purchase option to be issued hereby. The purchase option will be issued in exchange for the
outstanding underwriter’s unit purchase option that was issued in connection with the May 2006 initial public offering by Ascend. The warrants and purchase option issued by Continuing Pubco hereby will have substantially identical terms to
those of Ascend for which they are exchanged, except that they will be exercisable for the purchase of shares of Continuing Pubco’s common stock.
Immediately following the consummation of both the redomestication merger and the acquisition, the former stockholders of Ascend and EHL, the sole shareholder of ePAK, will be the stockholders of Continuing Pubco.
Ascend’s units will be separated into their component securities immediately prior to the redomestication merger and each unit will cease to exist as a separate security. Following the redomestication merger, the Ascend common stock and
warrants no longer will be eligible to trade on the OTC-BB. It is anticipated that the shares of common stock and warrants of Continuing Pubco will be traded on Nasdaq.
Your percentage ownership of our public company will not be affected by the redomestication merger. Concurrently with the redomestication merger, and as part of the acquisition, however, there will be the dilutive
issuance of a substantial number of shares of common stock of Continuing Pubco as consideration of Continuing Pubco’s acquisition of ePAK. See the sections of this proxy statement/prospectus entitled “
The Acquisition Proposal.
”
You are not required to surrender the certificates evidencing your Ascend common stock and warrants in order to affect the exchange for
Continuing Pubco common stock and warrants. The issued and outstanding certificates of Ascend will represent your rights as a holder of common stock and/or warrants of Continuing Pubco. ACCORDINGLY, PLEASE DO NOT DESTROY OR DISCARD YOUR CURRENT
CERTIFICATES FOR ASCEND SECURITIES. You may, however, submit your Ascend certificates to our transfer agent, Continental Stock Transfer and Trust Company, 17 Battery Place, New York, New York 10004 (212-509-4000) following the redomestication merger
for new certificates evidencing the corresponding Continuing Pubco securities if you so choose, subject to normal requirements as to proper endorsement, signature guarantee, if required, and payment of applicable taxes.
If you have lost your certificates, you can contact our transfer agent to have new certificates issued. You may be requested to post a bond or other
security to reimburse us for any damages or costs if the lost certificate is later delivered for sale or transfer.
Management of Continuing Pubco (ePAK
International Limited)
The board of directors of Continuing Pubco will be comprised of five members who initially will be
Messrs. Steve Dezso, Don K. Rice, Hock Voon Loo, Warren “Budd” Florkiewicz and Steve San Filippo. The majority of the board shall be “independent directors” within the meaning of the Nasdaq rules.
The current executive
officers of ePAK will assume equivalent offices with Continuing Pubco following the redomestication merger. Mr. Dezso, ePAK’s current president and chief executive officer, also will become the president chief executive officer of Continuing
Pubco upon consummation of the acquisition. Mr. Rice, Ascend’s current chairman of the board, will become chairman of the board of Continuing Pubco upon consummation of the acquisition. See the section entitled “
Directors
and Executive Officers of Continuing Pubco Following the Acquisition
.”
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Appraisal Rights
If the redomestication merger occurs, the Ascend stockholders who do not vote in favor of the redomestication merger have the right to demand in cash the fair value of their Ascend shares (exclusive of any element of
value arising from the accomplishment or expectation of the merger) instead of taking the Continuing Pubco common stock. Holders of options or warrants to purchase Ascend common stock do not have any appraisal rights.
A holder of Ascend common stock will not have its shares of Ascend common stock converted into Continuing Pubco common stock if such holder validly
exercises and perfects statutory appraisal rights with respect to the Ascend shares. In the event such holder withdraws the demand for appraisal or otherwise becomes ineligible to exercise appraisal rights, the shares will automatically convert into
shares of the Continuing Pubco common stock on the same basis as the other shares of Ascend common stock that are converted in the redomestication merger.
To perfect the appraisal right, stockholders must not vote in favor of the redomestication merger and then mail or deliver a written demand for appraisal, before the taking of the vote on the redomestication proposal
at the special meeting of Ascend stockholders. This written demand must be separate from any written consent or vote against approval of the redomestication merger. Voting against approval of the redomestication merger or failing to vote on the
proposal will not constitute a demand for appraisal within the meaning of Section 262 of the Delaware General Corporations Law. The written demand should be delivered to:
Ascend Acquisition Corp.
435 Devon Park Drive, Building 400
Wayne, Pennsylvania 19087
Attention: Don K.
Rice
A written demand for appraisal of the Ascend shares is only effective if it reasonably informs Ascend of the identity of the
stockholder and that the stockholder demands appraisal of his, her or its shares. Accordingly, the written demand for appraisal should specify the stockholder’s name and mailing address, the number of shares of Ascend stock owned and that the
stockholder is thereby demanding appraisal.
A dissenting stockholder who is the record owner, such as a broker, of Ascend stock as a
nominee for others, may exercise a right of appraisal with respect to the common stock held for one or more beneficial owners, while not exercising such right for other beneficial owners. In that case, the record stockholder should specify in the
written demand the number of shares as to which the stockholder wishes to demand appraisal. If the written demand does not expressly specify the number of shares, Ascend will assume that the written demand covers all the shares of Ascend common
stock that are in the nominee’s name.
It is important that Ascend receive all written demands promptly as provided above. Failure to
comply with any of these conditions will result in the stockholder only being entitled to receiving the shares of Continuing Pubco in the redomestication merger.
Dissenting stockholders must not approve the redomestication merger. If a dissenting stockholder votes in favor of the merger, the stockholder’s right to appraisal will terminate, even if the stockholder
previously filed a written demand for appraisal. A vote against approval of the redomestication merger is not required in order to exercise appraisal rights.
Dissenters must continuously hold their shares of Ascend common stock from the date they make the demand for appraisal through the closing of the redomestication merger. Record holders of Ascend common stock who make
the appraisal demand, but subsequently sell their shares of common stock prior to the merger will lose any right to appraisal in respect of the sold shares.
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Within 120 days after the effective date of the merger, either the Continuing Pubco or any stockholder
who has complied with the conditions of Section 262 may file a petition in the Delaware Court of Chancery demanding that the Chancery Court determine the fair value of the shares of stock held by all the stockholders who are entitled to
appraisal rights. Neither Ascend nor the Continuing Pubco has any intention at this time of filing this petition. Because the Continuing Pubco has no obligation to file this petition, if no dissenting stockholder files this petition within 120 days
after the closing, the dissenting stockholder may lose its rights of appraisal.
A dissenting stockholder who no longer wishes to exercise
appraisal rights must withdraw the holder’s demand for appraisal rights within 60 days after the effective date of the redomestication merger. A stockholder also may withdraw a demand for appraisal after 60 days after the effective date of the
merger, but only with the written consent of the Continuing Pubco. If a stockholder effectively withdraws a demand for appraisal rights, the stockholder will receive the merger consideration provided in the redomestication merger.
If the stockholder is in compliance with the demand requirements, its is entitled to receive from the Continuing Pubco a statement setting for the
aggregate number of shares for which appraisal has been demanded and the aggregate number of stockholders making the demand. To obtain this statement, the stockholder must make a written demand to the Continuing Pubco within 120 days after the
effective date of the redomestication merger. The Continuing Pubco must make the statement before the later of (i) the 10th day after receiving such request or (ii) the 10th day after the period win which demand for appraisal rights must
be made has expired.
If a Chancery Court proceeding is commenced by a dissenting stockholder, the Continuing Pubco has 20 days to provide
the court with the names of dissenting stockholders with which it has not settled a claim for appraisal. The court may then send notice of a hearing to all the stockholders demanding appraisal rights, and then conduct a hearing to determine whether
the stockholders have fully complied with Section 262 and their entitlement to the appraisal rights under that section. The court may require deposit of the stock certificates of dissenting stockholders with the court. A dissenting stockholder
who does not follow this requirement may be dismissed from the proceeding.
The Chancery Court will determine the value of the shares. To
determine the fair value, the court will consider all relevant factors, and will exclude any appreciation or depreciation due to the anticipation or accomplishment of the redomestication merger. Whether or not an investment banking firm has
determined that the merger is fair is not an opinion that the merger consideration is fair value under Section 262. Upon determination of the value, the Continuing Pubco will be ordered to pay that value, together with simple or compound
interest as the court directs. To receive payment, the dissenting stockholders must surrender their stock certificates to the Continuing Pubco.
The costs of the appraisal proceeding may be assessed against the Continuing Pubco and the stockholders as the court determines. See a copy of Section 262 of the Delaware General Corporate Law attached hereto as
Annex P
.
Comparison of Corporate Governance and Stockholder Rights
Continuing Pubco will be an exempted company organized under the Bermuda Companies Act. Bermuda law and Continuing Pubco’s certificate of incorporation and by-laws will govern the rights of our stockholders. The
Bermuda Companies Act differs in some material respects from laws generally applicable to United States corporations and their stockholders. In addition, the certificate of incorporation and by-laws will differ in certain material respects from the
certificate of incorporation and by-laws of Ascend. As a result, when you become a stockholder of Continuing Pubco your rights will differ in some regards as compared to when you were a stockholder of Ascend. Below is a summary chart outlining
important similarities and differences in the corporate governance and stockholder rights associated with each of Ascend and Continuing Pubco. You also should review the certificate of incorporation and by-laws of Continuing Pubco (as same will be
restated and
77
amended immediately prior to the redomestication merger) attached as
Annex D
to this proxy statement/ prospectus, as well as the Delaware corporate
law and corporate laws of Bermuda, including the Bermuda Companies Act, to understand how these laws apply to Ascend and Continuing Pubco.
Provision
Ascend
(A Delaware General Corporation)
Continuing Pubco
(An Exempted Company under
Bermuda
Law)
Applicable legislation
General Corporation Law of the State of Delaware
The Companies Act of 1981
General business restrictions
None.
Certain restrictions on local business operation and local land ownership.
Reporting under the Exchange Act of 1934
Common stock and warrants registered under the Exchange Act and company files quarterly, annual and other reports under the Exchange Act.
Same.
Authorized capital
31 million shares of which 30 million are shares of common stock and one million are shares of preferred stock.
71 million shares of which 70 million are shares of common stock and one million are shares of preferred stock.
Preferred stock
Directors may fix the designations, powers, preferences, rights, qualifications, limitations and restrictions by resolution.
Same.
Taxation
Delaware imposes a franchise tax on Ascend based on assumed par value of securities. Delaware corporations are also subject to US federal laws and federal and state income taxes.
No taxes on profits, income or dividends. No capital gains tax, estate tax or death duty.
Certain disclosures required to be made to State corporate or other authority
Not applicable.
Ultimate beneficial ownership of securities is disclosed to the Bermuda Monetary Authority, but not publicly disclosed. Identity of directors and officers is available for public inspection.
Election of directors
By stockholders by a majority of the votes cast at a duly noticed and held meeting where a quorum is present.
Same.
Term of directors
Directors serve for an annual term.
Staggered board of three classes, each class serving for three years.
Directors—Number
Three
Five
Filing of board vacancies
Remaining directors may appoint directors to fill vacancies until next annual meeting of stockholders.
Same.
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Provision
Ascend
(A Delaware General Corporation)
Continuing Pubco
(An Exempted Company under
Bermuda
Law)
Removal of directors
By stockholders with or without cause unless board is classified or elected by cumulative voting.
As prescribed by Continuing Pubco’s by-laws, the shareholders may, in a special general meeting (the “SGM”) called for the purpose, remove a director. Given that Continuing
Pubco’s board will be classified into three classes, such removal can only be for “cause.” Notice of the intention to remove a director must be served on the director no less than 14 days before the SGM called for that purpose, and
the director shall be entitled to attend and be heard at the SGM.
Directors—Powers
All powers to govern the corporation not reserved to the stockholders.
Same.
Directors—Committees
Directors may establish one or more committees with the authority that the board determines.
Same.
Directors—Consent Action
Directors may take action by written consent of all directors in lieu of action by meeting.
Same.
Directors—Appoint Officers
Directors appoint the officers of the corporation, subject to the by-laws, with such powers as they determine.
Same.
Quorum required for board meetings
Generally a majority of the authorized directors.
Same.
Vote required for board approvals
Generally majority of the quorum.
Same.
Indemnification of directors
As prescribed by Ascend’s certificate of incorporation, directors’ are not liable for breach of fiduciary duty, except for breach of duty of loyalty to corporation or stockholders,
actions not in good faith or involving knowing violation of law or under certain other circumstances. Ascend has undertaken to indemnify any directors acting in good faith, in a manner reasonably believed to be in or not opposed to the best
interests of the corporation. Ascend maintains insurance on behalf of directors.
As prescribed by Continuing Pubco’s by-laws, directors will be exempt from and indemnified for any liability for negligence, default, breach of duty or trust, except for liability in
respect of fraud or dishonesty. Continuing Pubco will maintain insurance on behalf of directors.
79
Provision
Ascend
(A Delaware General Corporation)
Continuing Pubco
(An Exempted Company under
Bermuda
Law)
Interested director transactions
Under Delaware law, transactions entered into by Ascend in which a director has an interest would be voidable unless (i) the material facts as to the interested director’s relationship or
interests are disclosed or are known to the board of directors and the board in good faith authorized the transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than
a quorum, (ii) the material facts as to the director’s relationship or interest and as to the transaction are disclosed or are known to the stockholders entitled to vote on the transaction and the transaction is specifically approved in good
faith by vote of the stockholders or (iii) the transaction is fair to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee of the board of directors or the stockholders. Under Delaware law, the
interested director could be held liable for a transaction in which that director derived an improper personal benefit.
Under Bermuda law, transactions entered into by Continuing Pubco in which a director has an interest are not voidable, nor can the interested director be liable to Continuing Pubco for any
profit realized pursuant to such transactions; provided that the nature of the interest is disclosed at the first opportunity at a meeting of directors, or in writing to the directors.
Annual meeting of stockholders
One annual shareholder meeting every 13 months. In lieu of a meeting, shareholders may elect directors and take other action by written consent. Delaware law permits the board of directors or
any person who is authorized under a corporation’s certificate of incorporation or bylaws to call a special meeting of stockholders.
One annual general meeting every calendar year. Bermuda law provides that a special general meeting may be called by the board of directors and must be called upon the request of shareholders
holding not less than 10% of the paid-up capital of the company carrying the right to vote.
Meeting of stockholders—Notice
Not less than 10 days or more than 60 days.
Same.
Bermuda law also requires that shareholders be given at least five (5) days’ advance notice of a general meeting but the accidental omission to give notice to any person does not invalidate the proceedings at a
meeting.
80
Provision
Ascend
(A Delaware General Corporation)
Continuing Pubco
(An Exempted Company under
Bermuda
Law)
Voting rights
Each Ascend stockholder is entitled to one vote for each share of stock held by the stockholder. Delaware law provides that a majority of the shares entitled to vote, present in person or
represented by proxy, constitutes a quorum at a meeting of stockholders. In matters other than the election of directors, with the exception of special voting requirements related to extraordinary transactions, the affirmative vote of a majority of
shares present in person or represented by proxy at the meeting and entitled to vote is required for stockholder action, and the affirmative vote of a plurality of shares is required for the election of directors.
Generally the same.
Stockholder proposals
In general, to bring a matter before an annual meeting or to nominate a candidate for director, a stockholder must give notice of the proposed matter
or nomination not less than 60 days and not more than 90 days prior to public disclosure of the date of annual meeting.
In the event that less than 70 days notice or prior public disclosure of the date of the meeting is given or made to stockholder, to be timely, the notice must be received by the company no later than the close of
business on the 10
th
day following the day on which such notice of the date of the meeting was mailed or public disclosure was made, whichever first
occurs.
The Bermuda Companies Act provides that shareholders may, as set forth below and at their own expense (unless a company otherwise resolves), require a company to give notice of any resolution
that the shareholders can properly propose at the next annual general meeting and/or to circulate a statement prepared by the requesting shareholders in respect of any matter referred to in a proposed resolution or any business to be conducted at a
general meeting. The number of shareholders necessary for such a requisition is either that number of shareholders representing at least 5% of the total voting rights of all shareholders having a right to vote at the meeting to which the requisition
relates or 100 or more shareholders.
81
Provision
Ascend
(A Delaware General Corporation)
Continuing Pubco
(An Exempted Company under
Bermuda
Law)
Access to books and records
Delaware law permits any stockholder to inspect or obtain copies of a corporation’s stockholder list and its other books and records for any purpose reasonably related to such person’s
interest as a stockholder.
Members of the general public have the right to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda. These documents include a
company’s certificate of incorporation, its memorandum of association (including its objects and powers) and any alteration to its memorandum of association. The shareholders have the additional right to inspect the by-laws of the company,
minutes of general meetings and the company’s audited financial statements, which must be presented at the annual general meeting.
Dividends
Ascend may generally pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year. Delaware
law also provides that dividends may not be paid out of net profits at any time when capital is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets.
Continuing Pubco may pay dividends that are declared from time to time by its board of directors unless there are reasonable grounds for believing that the company is or would, after the
payment, be unable to pay its liabilities as they become due or that the realizable value of its assets would then be less than the aggregate of its liabilities and issued share capital and share premium accounts. The excess of the consideration
paid on issue of shares over the aggregate par value of such shares must (except in certain limited circumstances) be credited to a share premium account. Share premium may be distributed in certain limited circumstances, for example to pay up
unissued shares which may be distributed to shareholders in proportion to their holdings, but is otherwise subject to limitation.
82
Provision
Ascend
(A Delaware General Corporation)
Continuing Pubco
(An Exempted Company under
Bermuda
Law)
Amendment of Charter Documents
Amendment of certificate of incorporation of Ascend: requires the vote of the majority of shares entitled to vote present at a meeting at which a
quorum is present (or written consent of holders of a majority of shares entitled to vote).
Amendment of by-laws: Majority vote of stockholders is required to amend the by-laws.
Same.
Takeovers
Delaware law provides that a parent corporation, by resolution of its board of directors and without any stockholder vote, may merge with any subsidiary of which it owns at least 90% of the
outstanding shares of each class of stock that is entitled to vote on the transaction. Upon any such merger, dissenting stockholders of the subsidiary would have appraisal rights.
Bermuda law provides that where an offer is made for shares of a company and, within four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer
accept, the offeror may by notice require the non-tendering shareholders to transfer their shares on the terms of the offer. Dissenting shareholders may apply to the court within one month of the notice objecting to the transfer. The burden is on
the dissenting shareholders to show that the court should exercise its discretion to enjoin the required transfer, which the court will be unlikely to do unless there is evidence of fraud or bad faith or collusion between the offeror and the holders
of the shares who have accepted the offer as a means of unfairly forcing out minority stockholders.
Availability of merger as form of corporate reorganization
Yes, by merger or consolidation or sale of substantially all assets.
Notice: 20 days for stockholder meeting. No notice if by written consent (subject to 30 days notice of appraisal rights to non-consenting stockholders).
Vote Required: Majority of shares entitled to vote present at a meeting at which a quorum is present
or written consent of holders of a majority of shares entitled to vote, in each case
Yes, by way of amalgamation which is permitted under the Companies Act 1981.
Notice: 5 days notice for shareholder meeting or such longer period as may be specified in the
Company’s by-laws.
Vote Required: Unless the by-laws otherwise provide,
three-fourths of those voting at such meeting must approve the amalgamation, where the quorum for purposes of the approval of the amalgamation is
83
Provision
Ascend
(A Delaware General Corporation)
Continuing Pubco
(An Exempted Company under
Bermuda
Law)
subject to additional rights imposed by terms of Preferred Stock or Certificate of Incorporation. Separate series or class vote when series adversely
affected in a manner different from other series or classes.
Appraisal Rights:
Generally, non-consenting stockholders have the right to demand payment in cash at fair market value in connection with merger or acquisition, except in the case of a sale of assets for cash.
two persons at least holding or representing by proxy more than one-third of the issued shares. All shareholders have the right to vote on an
amalgamation.
Appraisal Rights: Generally non-consenting shareholders who are not
satisfied that they have been offered fair value for their shares may within one month apply to the court to appraise the fair value of their shares.
SEC Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act of 1933 is permitted as described in the table above to directors, officers or
persons controlling Continuing Pubco, Ascend and Continuing Pubco have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
Material U.S. Federal Income Tax Considerations of the Acquisition and Redomestication Merger
The following section represents the opinion of Graubard Miller, counsel to Ascend, regarding the material U.S. federal income tax consequences of the
acquisition and redomestication merger to Ascend stockholders who are U.S. Holders (as defined below) and hold their shares of Ascend common stock as capital assets (generally, for investment) within the meaning of Section 1221(a) of the Internal
Revenue Code of 1986 (as amended), which we refer to as the Code. This discussion is based on the Code, Treasury regulations promulgated thereunder, published rulings and court decisions, all as currently in effect as of the date hereof, and all of
which are subject to change, possibly with retroactive effect. Tax considerations under state, local and foreign laws, or federal laws other than those pertaining to the income tax are not addressed. A U.S. Holder is: a beneficial owner of Ascend
common stock that is an individual citizen or resident of the United States, a corporation or other entity treated as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to U.S. federal income taxation regardless of its source, or a trust that is subject to the primary supervision of a U.S. court and the control of one of more U.S. persons or has a valid
election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. If a partnership (including for this purpose any entity or arrangement, domestic or foreign, treated as a partnership for U.S. federal income tax purposes)
is a beneficial owner of Ascend common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A beneficial owner of Ascend common stock that is a
partnership, and the partners in such partnership, should consult their own tax advisors about the U.S. federal income tax consequences of the acquisition and redomestication merger.
This discussion does not address all of the U.S. federal income tax consequences that may be relevant to particular holders in light of their individual
circumstances, or to holders that are subject to special rules, such as:
•
insurance companies;
•
financial institutions;
84
•
tax-exempt organizations;
•
dealers in securities or currencies;
•
traders in securities that elect to use a mark to market method of accounting;
•
persons that hold ascend common stock as part of a straddle, hedge, constructive sale or conversion transaction; or
•
persons who acquired their stock pursuant to the exercise of employee options or otherwise as compensation.
The acquisition and redomestication merger each have been structured to qualify as a reorganization under the Code. In connection with the filing of the
Registration Statement of which this document is a part, Ascend has received an opinion of Graubard Miller, its counsel, to the effect that the redomestication merger and concurrent acquisition will qualify as a reorganization within the meaning of
Section 368(a) of the Code and Treasury Regulations Sections 1.367(a)-3(c). The tax opinion issued to Ascend by Graubard Miller is attached to this proxy statement/prospectus as Annex F. Graubard Miller has consented to the use of its opinion
in this proxy statement/prospectus.
If (i) not more 50% of the outstanding shares of Continuing Pubco are issued in connection with
the transactions to the Ascend stockholders that are U.S. persons (treating any shares owned by a partnership or other entity or arrangement taxed as a partnership for U.S. federal income tax purposes as owned proportionately by its partners) and
(ii) the fair market value of ePak equals or exceeds the fair market value of Ascend at the time of the transactions, gain or loss generally will not be recognized on the exchange of Ascend common stock for the common stock of Continuing Pubco
by any holder of Ascend common stock that owns less than 5% of the common stock of Continuing Pubco following the redomestication merger. The U.S. federal tax basis of the common stock of Continuing Pubco received by the holder of Ascend common
stock in the redomestication merger will be the same as the adjusted tax basis of the Ascend common stock surrendered in exchange therefore. The holding period of the common stock of Continuing Pubco received in the redomestication merger by a
holder of Ascend common stock will include the period during which such Ascend common stock was held as a capital asset on the date of the redomestication merger.
If (i) not more 50% of the outstanding shares of Continuing Pubco are issued in connection with the transactions to the Ascend stockholders that are U.S. persons (treating any shares owned by a partnership or
other entity or arrangement taxed as a partnership for U.S. federal income tax purposes as owned proportionately by its partners) and (ii) the fair market value of ePak equals or exceeds the fair market value of Ascend at the time of the
transactions, an Ascend stockholder who owns five (5%) percent or more of the common stock of Continuing Pubco will recognize gain upon the exchange of such stockholder’s stock in Ascend for common stock of Continuing Pubco, unless such
stockholder files a gain recognition agreement with the stockholder’s income tax return for the taxable year that includes the date of the redomestication merger. Gain is measured by the difference between the fair market value of the shares of
Continuing Pubco common stock received and the tax basis of that stockholder’s shares of Ascend common stock. The gain recognition agreement requires, among other things, the five-percent or more Continuing Pubco stockholder:
•
to waive the statute of limitations on a Form 8838,
•
to file a statement with his or her income tax return for each of the five full taxable years following the year of the redomestication merger certifying that a
taxable disposition of substantially all of the assets of Continuing Pubco has not occurred; and
•
if such a disposition has occurred, to include in income the previously unrecognized gain on the conversion of the shares and pay interest on any resulting tax.
Ascend stockholders required to file gain recognition agreements as described above are strongly encouraged to consult
their own tax advisors regarding the specific information to be included in such agreements, and the requirements for recognizing gain with respect to the Ascend securities.
85
If (i) more than 50% of the outstanding shares of Continuing Pubco are issued in connection with the
transactions to the Ascend stockholders that are U.S. persons (treating any shares owned by a partnership or other entity or arrangement taxed as a partnership for U.S. federal income tax purposes as owned proportionately by its partners) or
(ii) the fair market value of ePak is less than the fair market value of Ascend at the time of the transactions, an Ascend stockholder, regardless of the percentage of common stock owned, will recognize gain for U.S. federal income tax purposes
equal to the difference between the fair market value of the Continuing Pubco common stock and the tax basis of the Ascend common stock for which it is exchanged.
The percentage of Continuing Pubco common stock that will be issued to the Ascend stockholders in the transactions will not exceed 49.9% of the outstanding shares of Continuing Pubco common stock, including as
outstanding certain shares that EHL or the other recipients of transaction Shares may elect to return to Continuing Pubco to satisfy indemnity claims, if any. Ascend believes that the fair market value of ePAK equals or exceeds the fair market value
of Ascend. However, the determination of the relative fair market values of ePAK and Ascend is inherently factual and cannot be made with precision. If the Internal Revenue Service were to successfully challenge either the percentage ownership of
the Ascend stockholders or the relative fair market values of ePAK and Ascend, Ascend stockholders would recognize gain upon the redomestication merger.
A stockholder of Ascend who exercises conversion rights and effects a termination of the stockholder’s interest in Ascend will be required to recognize gain or loss upon the exchange of that stockholder’s
shares of common stock of Ascend for cash. Such gain or loss will be measured by the difference between the amount of cash received and the tax basis of that stockholder’s share of Ascend common stock. This gain or loss will be long-term
capital gain or loss if the holding period for the share of Ascend common stock is more than one year.
The foregoing U.S. federal income
tax consequences are not affected by the changes made to the Code by the American Jobs Creation Act of 2004 in the treatment of domestic business entities which expatriate from the United States to a foreign jurisdiction. These new provisions
generally apply to the direct or indirect acquisition of substantially all of the properties of a domestic enterprise by a foreign corporation if there is at least 60% or 80% of continuing share ownership in the successor foreign entity by the
former stockholders of the U.S. corporation and substantial business activities are not conducted in the jurisdiction in which such successor is created or organized. Under the terms of the acquisition agreement, immediately following the
redomestication merger and acquisition, the current holders of Ascend will own less than 60% of the then outstanding shares of Continuing Pubco common stock.
For United States federal income tax purposes, the gross amount of all dividends paid with respect to Continuing Pubco’s common stock out of current or accumulated earnings and profit (“E&P”) to a
United States Holder generally will be treated as foreign source ordinary income to such holder. United States corporations that hold shares of Continuing Pubco’s common stock will not be entitled to the dividends received deduction available
for dividends received from United States corporations. To the extent a distribution exceeds E&P, it will be treated first as a return of capital to the extent of the basis of the United States Holder, and then as gain from the sale of a capital
asset.
Upon consummation of the acquisition and redomestication merger, Ascend should not incur any material amount of federal income or
other tax as a result thereof. An evaluation will be made to establish whether Ascend has any intangible assets which would be deemed transferred to Continuing Pubco in connection with the redomestication merger. If there are any such intangible
assets, it is not expected that they will be of a substantial value and any federal income tax will not be of material significance. The Internal Revenue Service may not agree with this conclusion, in which event there may be a significant tax
obligation for Continuing Pubco to pay based on the value of the assets of Ascend at the time of the redomestication merger.
The
conclusions expressed above are based on current law. Future legislative, administrative or judicial changes or interpretations, which can apply retroactively, could affect the accuracy of those conclusions. No rulings have been or will be sought
from the Internal Revenue Service concerning the tax consequences of the transactions contemplated by the securities purchase agreement or redomestication merger.
86
The discussion does not address all of the tax consequences that may be relevant to particular taxpayers
in light of their personal circumstances or to taxpayers subject to special treatment under the Code. Such taxpayers include non-U.S. persons, insurance companies, tax-exempt entities, dealers in securities, banks and persons who acquired their
stock interests pursuant to the exercise of employee options or otherwise as compensation.
Because of the complexity of the tax laws,
and because the tax consequences to any particular stockholder may be affected by matters not discussed above, each stockholder is urged to consult a tax advisor with respect to the specific tax consequences of the transactions contemplated by the
redomestication merger and the stock purchase to him, her or it, including the applicability and effect of state, local and non-U.S. tax laws, as well as U.S. federal tax laws.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE REDOMESTICATION PROPOSAL.
87
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
The following unaudited pro forma condensed combined balance sheet combines Ascend’s historical balance sheet and that of ePAK as of June 30,
2007, giving effect to the transactions described in the acquisition agreement as if they had occurred on June 30, 2007. The following unaudited pro forma condensed combined statements of operations combine Ascend’s historical statements
of operations for the six months ended June 30, 2007 and the year ended December 31, 2006 with those of ePAK for the six months ended June 30, 2007 and the year ended December 31, 2006, in each case giving effect to the
acquisition as if it had occurred on January 1, 2006.
The acquisition will be accounted for as a “reverse merger” and
recapitalization since the stockholders of ePAK will own at least 50.1% of the outstanding shares of the common stock immediately following the completion of the acquisition, will have the right to appoint three of the five directors to the board
and, other than chairman of the board, will have its current officers assuming all corporate offices of Continuing Pubco, including chief executive officer, chief operating officer and all other day-to-day operating positions. Accordingly, ePAK will
be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of ePAK. The assets and liabilities and the historical operations that will be reflected in the Ascend financial
statements after consummation of the acquisition will be those of ePAK and will be recorded at the historical cost basis of ePAK. Ascend’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and
results of operations of ePAK upon consummation of the acquisition.
The pro forma adjustments give effect to events that are directly
attributable to the transactions discussed below that have a continuing impact on the operations of Ascend and are based on available data and certain assumptions that management believes are factually supportable.
The unaudited pro forma condensed combined financial statements described above should be read in conjunction with Ascend’s historical financial
statements and those of ePAK and the related notes thereto. The pro forma adjustments are preliminary and the unaudited pro forma information is not necessarily indicative of the financial position or results of operations that may have actually
occurred had the acquisition taken place on the dates noted, or of Continuing Pubco’s future financial position or operating results.
Consummation of the acquisition is conditioned upon, among other things, the Ascend stockholders adopting and approving the acquisition agreement. If Ascend stockholders owning 20% or more of Ascend common stock sold in the IPO vote against
the acquisition and exercise their right to convert their shares of Ascend common stock issued in the IPO into a pro rata portion of the funds held in the trust account, then the acquisition cannot be consummated. Consequently, up to 1,379,999
shares of Ascend common stock, representing 19.99% of the Public Shares are subject to possible conversion in this manner. This would represent an aggregate maximum conversion liability of approximately $8.0 million as of June 30, 2007.
The following unaudited pro forma financial statements have been prepared using two different assumptions with respect to the number of
outstanding shares of Continuing Pubco stock immediately following the acquisition, as follows:
•
assuming no conversions—this presentation assumes that no stockholders of Ascend seek to convert their shares into a pro rata share of the trust account; and
•
assuming maximum conversions—this presentation assumes stockholders of Ascend owning 19.99% of the stock sold in Ascend’s initial public offering seek
conversion.
In the case of both assumptions, the data is based on (a) information and projections currently
available to the parties, including projected Subject Adjusted EBITDA of $6.7 million and estimated Adjusted Ascend Trust Value of $38.2 million, and (b) approximately 8.6 million shares of Ascend common stock currently outstanding,
88
resulting in the issuance to EHL at closing of approximately 8.6 million shares, or 50% of the after-issued outstanding shares of Continuing Pubco. The
acquisition agreement provides for a grace range on Subject Adjusted EBITDA, such that if it is within 5% of $6,675,000, it will be deemed to be $6,675,000 for purposes of calculating the number of Transaction Shares to be issued. Similarly, the
acquisition agreement provides for a grace range on Adjusted Ascend Trust Value, such that if it is within 5% of $38,200,000, it will be deemed to be $38,200,000 for purposes of calculating the number of Transaction Shares to be issued.
We are providing this information to aid you in your analysis of the financial aspects of the acquisition. The unaudited pro forma condensed combined
financial statements described above should be read in conjunction with Ascend’s historical financial statements and those of ePAK and the related notes thereto. The pro forma adjustments are preliminary and the unaudited pro forma information
is not necessarily indicative of the financial position or results of operations that may have actually occurred had the acquisition taken place on the dates noted, or of Continuing Pubco’s future financial position or operating results.
89
ePAK International Limited
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 2007
(IN THOUSANDS)
Maximum Approval
Minimum Approval
Ascend
Historical
ePAK
Historical
Pro Forma
Adjustments
Pro Forma
Combined
Pro Forma
Adjustments
Pro Forma
Combined
Current assets:
Cash and cash equivalents
$
187
$
1,239
$
40,005
(a)
$
39,726
$
40,005
(a)
$
31,730
(1,705
)(b)
(1,705
)(b)
(7,996
)(c)
Restricted cash and cash equivalents
390
390
390
Investments held in trust
40,005
—
(40,005
)(a)
—
(40,005
)(a)
—
Accounts receivable, net of allowance for doubtful accounts of $28 at June 30, 2007
—
7,283
—
7,283
—
7,283
Inventories
—
10,408
—
10,408
—
10,408
Deferred tax assets
7
—
7
—
7
Other current assets
40
1,008
—
1,048
—
1,048
Total current assets
40,232
20,335
(1,705
)
58,862
(9,701
)
50,866
Long-term deposits
—
13
—
13
—
13
Property plant & equipment, net
—
14,997
—
14,997
—
14,997
Total assets
$
40,232
$
35,345
$
(1,705
)
$
73,872
$
(9,701
)
$
65,876
Current liabilities:
Accounts payable
$
—
$
9,242
$
—
$
9,242
$
—
$
9,242
Accrued liabilities
—
1,575
—
1,575
—
1,575
Current maturities of long-term debt
—
530
—
530
—
530
Short-term borrowings
—
5,485
—
5,485
—
5,485
Short-term loan from Parent Company
—
4,819
(4,819
)(c)
—
(4,819
)(c)
—
Income taxes payable
—
1,024
—
1,024
—
1,024
Other current liabilities
173
—
—
173
—
173
Deferred interest
298
—
(298
)(c)
—
(298
)(c)
—
Deferred payment due underwriter
952
—
(952
)(b)
—
(952
)(b)
—
Total current liabilities
1,423
22,675
(6,069
)
18,029
(6,069
)
18,029
Long-term debt, net of current maturities
—
1,233
—
1,233
—
1,233
Deferred tax liabilities
—
263
—
263
—
263
Total liabilities
1,423
24,171
(6,069
)
19,525
(6,069
)
19,525
Common stock subject to possible conversion
7,698
—
(7,698
)(c)
—
(7,698
)(c)
—
Redeemable common shares:
Convertible contingently redeemable common shares at redemption value, 13,166,667
—
25,244
(25,244
)(c)
—
(25,244
)(c)
—
Shareholders’ equity (deficit)
Common stock
1
400
(399
)(c)
2
(399
)(c)
2
Additional paid-in capital
30,529
—
39,039
(c)
68,815
31,043
(c)
60,819
(753
)(b)
(753
)(b)
Accumulated deficit
581
(14,525
)
(581
)(c)
(14,525
)
(581
)(c)
(14,525
)
Non-distributable reserves
—
121
—
121
—
121
Accumulated other comprehensive loss
—
(66
)
—
(66
)
—
(66
)
Total shareholders’ equity (deficit)
31,111
(14,070
)
37,306
54,347
29,310
46,351
Total liabilities and shareholders’ equity (deficit)
$
40,232
$
35,345
$
(1,705
)
$
73,872
$
(9,701
)
$
65,876
90
ePAK International Limited
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS
ENDED JUNE 30, 2007
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Maximum Approval
Minimum Approval
Ascend
Historical
ePAK
Historical
Pro Forma
Adjustments
Pro Forma
Combined
Pro Forma
Adjustments
Pro Forma
Combined
Net Sales
$
20,463
$
20,463
$
20,463
Cost of Sales
13,304
13,304
13,304
Gross Profit
7,159
7,159
7,159
Selling, general and administrative expense
$
(359
)
(5,257
)
(5,616
)
$
(5,616
)
Research and development
(95
)
$
—
(95
)
$
—
(95
)
Operating (loss) profit
(359
)
1,807
—
1,448
—
1,448
Other income (expense):
Interest income
525
10
535
535
Other income
—
5
5
5
Interest expense
—
(239
)
(239
)
—
(239
)
Other expense
—
(206
)
(206
)
—
(206
)
Total other income (expense)
525
(430
)
—
95
—
95
Income before income taxes
166
1,377
—
1,543
—
1,543
Income tax benefit (expense)
33
(225
)
(192
)
(192
)
Net income
199
1,152
—
1,351
—
1,351
Accretion of convertible contingently redeemable common shares
(1,038
)
1,038
(e)
—
1,038
(e)
—
Net income attributable to common shareholders
$
199
$
114
$
1,038
$
1,351
$
1,038
$
1,351
Pro forma net income per share:
Basic
$
0.08
$
0.09
Diluted
$
0.07
$
0.08
91
ePAK International Limited
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31, 2006
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Maximum Approval
Minimum Approval
Ascend
Historical
ePAK
Historical
Pro Forma
Adjustments
Pro Forma
Combined
Pro Forma
Adjustments
Pro Forma
Combined
Net Sales
$
36,146
$
36,146
$
36,146
Cost of Sales
23,083
23,083
23,083
Gross Profit
13,063
13,063
13,063
Selling, general and administrative expense
$
(268
)
(9,797
)
(10,065
)
(10,065
)
Research and development
(180
)
$
—
(180
)
$
—
(180
)
Operating (loss) profit
(268
)
3,086
—
2,818
—
2,818
Other income (expense):
Interest income
684
22
706
706
Other income
—
15
15
15
Interest expense
—
(354
)
(354
)
(354
)
Other expense
—
(268
)
(268
)
(268
)
Total other income (expense)
684
(585
)
—
99
—
99
Income before income taxes
416
2,501
—
2,917
—
2,917
Income tax expense
(33
)
(322
)
(355
)
(355
)
Net income
383
2,179
—
2,562
—
2,562
Accretion of convertible contingently redeemable common shares
(2,060
)
2,060
(e)
—
2,060
(e)
—
Net income attributable to common shareholders
$
383
$
119
$
2,060
$
2,562
$
2,060
$
2,562
Pro forma net income per share:
Basic
$
0.15
$
0.16
Diluted
$
0.15
$
0.16
92
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
All amounts and balances have been
rounded and presented to the nearest thousands, except share data.
NOTE 1 PRO FORMA ADJUSTMENTS
Adjustments included in the column under the heading “Pro Forma Adjustments” include the following:
(a)
To reflect the release of funds held in trust by Ascend.
(b)
To reflect payment of deferred underwriters fees of $952 and a finders fee, estimated at $753, due to EarlyBirdCapital, Inc.
(c)
To reflect issuance of Ascend/ePAK International common stock, and (Assuming Minimum Approval) payment to dissenting Ascend stockholders. To eliminate the Ascend’s retained
earnings as the accounting acquiree under the reverse acquisition application of the purchase method of accounting. This reflects the forgiveness of a short-term, intercompany loan from ePAK’s Holding Company, which is accounted for as a
capital contribution in equity from the holding company.
(d)
Interest income that was deferred by Ascend in the amount of $130 and $169 for the six months ended June 30, 2007 and the year ended December 31, 2006 would have been recorded as
income if the transaction had taken place at the beginning of each period. These amounts have not been included in interest income for such periods since they do not meet the requirements for pro forma income statement adjustments under SEC
guidelines.
(e)
To remove effect of ePAK equity structure adjustment in income statement, as convertible contingently redeemable shares would no longer be redeemable
(f)
Pro forma net income per share was calculated by dividing pro forma net income by the weighted average number of shares outstanding, as follows:
June 30, 2007
December 31, 2006
Assuming
Maximum
Approval
Assuming
Minimum
Approval
Assuming
Maximum
Approval
Assuming
Minimum
Approval
ePAK
8,601,002
8,601,002
8,601,002
8,601,002
Ascend
8,566,667
7,187,357
8,566,667
7,187,357
Pro Forma basic shares outstanding
17,167,669
15,788,359
17,167,669
15,788,359
Dilutive effect of warrants
1,536,780
1,536,780
—
—
Pro Forma fully diluted shares outstanding
18,704,449
17,325,139
17,167,669
15,788,359
The final purchase accounting may be impacted by contingent consideration as follows:
ePAK’s stockholders will also be entitled to receive, on an all or none basis, an additional 88,525 shares, for each of the next three fiscal
years beginning with the fiscal year ending December 31, 2008, if the combined company achieves the following EBITDA targets:
FY Ending December 31,
EBITDA Target
2008
$
14,727,000
2009
$
24,268,000
2010
$
37,935,000
As additional consideration, ePAK’s stockholders will be entitled to receive up to 442,625
shares if the last reported sales price on any twenty trading days during any consecutive thirty day trading period within six months of the closing of the transaction meets or exceeds the following values:
Share Price Trigger
Number of Market
Price Shares
$6.00
88,525
$6.50
88,525
$7.00
88,525
$7.50
88,525
$8.00
88,525
In addition, ePAK stockholders will be entitled to 442,625 shares upon the redemption of ePAK
International’s publicly traded warrants and its corresponding receipt of funds.
93
THE 2007 EQUITY INCENTIVE PLAN PROPOSAL
We are requesting that stockholders vote in favor of adopting the
2007 Equity Incentive Plan (the “2007 incentive plan”). The board of Ascend has approved the 2007 incentive plan, subject to approval from the stockholders at the Special Meeting. Upon consummation of the redomestication merger, the 2007
incentive plan will be utilized by Continuing Pubco with respect to the officers, directors and employees of and consultants to Continuing Pubco and ePAK (referred to together in this section as the “Company”).
The board believes strongly that the 2007 incentive plan will be essential to the Company’s success. In particular, the board believes that the
employees of the Company are the most valuable asset of the Company and that the awards permitted under the 2007 incentive plan are vital to the Company’s ability to attract and retain outstanding and highly skilled individuals in the extremely
competitive labor markets in which they compete. Such awards also are crucial to the Company’s ability to motivate employees to achieve its goals.
Vote Required
The approval of the 2007 incentive plan requires the affirmative vote of a majority of the votes cast on the
proposal at the Annual Meeting.
Description of the 2007 Incentive Plan
The following is a summary of the principal features of the 2007 incentive plan and its operation. The summary is qualified in its entirety by reference
to the 2007 incentive plan itself set forth in Annex E.
General
The 2007 incentive plan provides for the grant of the following types of incentive awards: (i) stock options, (ii) stock appreciation rights,
(iii) restricted stock, (iv) restricted stock units, and (v) performance shares and performance units. Each of these is referred to individually as an “Award.” Those who will be eligible for Awards under the 2007 incentive
plan include employees, directors and consultants who provide services to the Company and its affiliates. As of September 30, 2007, approximately 87 employees, directors and consultants would be eligible to participate in the 2007 incentive plan.
Number of Shares of Common Stock Available Under the 2007 Incentive Plan
The board has reserved 2,600,000 shares of the Company’s common stock for issuance under the 2007 incentive plan. Shares subject to awards that
expire, terminate or are cancelled without having been exercised or awards that are forfeited to or repurchased by the Company will become available for future grant under the 2007 incentive plan, subject to certain exceptions such as shares
withheld to satisfy tax obligations.
If the Company declares a dividend or other distribution or engages in a recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company, or other change in the corporate structure of the Company affecting the
Company’s common stock, the Administrator will adjust the number and class of shares that may be delivered under the 2007 incentive plan, the number, class, and price of shares covered by each outstanding Award, and the numerical per-person
limits on Awards.
Administration of the 2007 Incentive Plan
The board, or a committee of directors or of other individuals satisfying applicable laws and appointed by the board (referred to herein as the
“Administrator”), will administer the 2007 incentive plan. To the extent desirable to qualify awards as “performance based compensation” under Section 162(m) of the Internal Revenue Code (the “Code”) or to exempt
transactions under Rule 16b-3 of the Securities Exchange Act of 1934, the
94
committee must qualify as “outside directors” under Section 162(m) of and/or as “non-employee directors” under Rule 16b-3.
Subject to the terms of the 2007 incentive plan, the Administrator has the sole discretion to select the employees, consultants, and directors who will receive Awards, determine the terms and conditions of Awards, and to interpret the provisions of
the 2007 incentive plan and outstanding Awards. The Administrator has discretion to implement an exchange program whereby outstanding awards may be cancelled and exchanged for new awards (which may have a lower exercise price and different terms).
Options
The
Administrator is able to grant nonstatutory stock options and incentive stock options under the 2007 incentive plan. The Administrator determines the number of shares subject to each option, although the 2007 incentive plan provides that a
participant may not receive options for more than 1,000,000 shares in any fiscal year, except in connection with his or her initial service as an employee with the Company, in which case he or she may be granted an option to purchase up to an
additional 500,000 shares.
The Administrator determines the exercise price of options granted under the 2007 incentive plan, provided the
exercise price must be at least equal to the fair market value of the Company’s common stock on the date of grant. In addition, the exercise price of an incentive stock option granted to any participant who owns more than 10% of the total
voting power of all classes of the Company’s outstanding stock must be at least 110% of the fair market value of the common stock on the grant date.
The term of an option may not exceed ten years, except that, with respect to any participant who owns 10% of the voting power of all classes of the Company’s outstanding capital stock, the term of an incentive
stock option may not exceed five years.
After a termination of service with the Company, a participant will be able to exercise the vested
portion of his or her option for the period of time stated in the Award agreement. If no such period of time is stated in the participant’s Award agreement, the participant will generally be able to exercise his or her option for (i) three
months following his or her termination for reasons other than death or disability, and (ii) twelve months following his or her termination due to death or disability. In no event may an option be exercised later than the expiration of its
term.
Stock Appreciation Rights
The Administrator will be able to grant stock appreciation rights, which are the rights to receive the appreciation in fair market value of common stock between the exercise date and the date of grant. The Company can
pay the appreciation in either cash or shares of common stock. Stock appreciation rights will become exercisable at the times and on the terms established by the Administrator, subject to the terms of the 2007 incentive plan. The Administrator,
subject to the terms of the 2007 incentive plan, will have complete discretion to determine the terms and conditions of stock appreciation rights granted under the 2007 incentive plan; provided, however, that the exercise price may not be less than
100% of the fair market value of a share on the date of grant. The term of a stock appreciation right may not exceed ten years. No participant will be granted stock appreciation rights covering more than 1,000,000 shares during any fiscal year,
except that a participant may be granted stock appreciation rights covering up to an additional 500,000 shares in connection with his or her initial service as an employee with the Company.
After termination of service with the Company, a participant will be able to exercise the vested portion of his or her stock appreciation right for the
period of time stated in the Award agreement. If no such period of time is stated in a participant’s Award agreement, a participant will generally be able to exercise his or her stock appreciation right for (i) three months following his
or her termination for reasons other than death or disability, and (ii) twelve months following his or her termination due to death or disability. In no event will a stock appreciation right be exercised later than the expiration of its term.
95
Restricted Stock
Awards of restricted stock are rights to acquire or purchase shares of the Company’s common stock, which vest in accordance with the terms and conditions established by the Administrator in its sole discretion.
For example, the Administrator may set restrictions based on the achievement of specific performance goals. The Award agreement will generally grant the Company a right to repurchase or reacquire the shares upon the termination of the
participant’s service with the Company for any reason (including death or disability). The Administrator will determine the number of shares granted pursuant to an Award of restricted stock, but no participant will be granted a right to
purchase or acquire more than 1,000,000 shares of restricted stock during any fiscal year, except that a participant may be granted up to an additional 500,000 shares of restricted stock in connection with his or her initial employment with the
Company.
Restricted Stock Units
Awards of restricted stock units result in a payment to a participant only if the vesting criteria the Administrator establishes is satisfied. For example, the Administrator may set restrictions based on the
achievement of specific performance goals. Upon satisfying the applicable vesting criteria, the participant will be entitled to the payout specified in the Award agreement. Notwithstanding the foregoing, at any time after the grant of restricted
stock units, the Administrator may reduce or waive any vesting criteria that must be met to receive a payout. The Administrator, in its sole discretion, may pay earned restricted stock units in cash, shares, or a combination thereof. Restricted
stock units that are fully paid in cash will not reduce the number of shares available for grant under the 2007 incentive plan. On the date set forth in the Award agreement, all unearned restricted stock units will be forfeited to the Company. The
Administrator determines the number of restricted stock units granted to any participant, but no participant may be granted more than 1,000,000 restricted stock units during any fiscal year, except that the participant may be granted up to an
additional 500,000 restricted stock units in connection with his or her initial employment with the Company.
Performance Units and
Performance Shares
The Administrator will be able to grant performance units and performance shares, which are Awards that will result
in a payment to a participant only if the performance goals or other vesting criteria the Administrator may establish are achieved or the Awards otherwise vest. The Administrator will establish performance or other vesting criteria in its
discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. During any fiscal year, no participant will receive more than
1,000,000 performance shares and no participant will receive more than 1,000,000 performance units, except that a participant may be granted performance shares covering up to an additional 500,000 shares in connection with his or her initial
employment with the Company. Performance units will have an initial dollar value established by the Administrator on or before the date of grant. Performance shares will have an initial value equal to the fair market value of a share of the
Company’s common stock on the grant date.
Performance Goals
Awards of restricted stock, restricted stock units, performance shares and performance units under the 2007 incentive plan may be made subject to the
attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m) of the Code and may provide for a targeted level or levels of achievement including: (i) revenue, gross margin, operating
margin, operating income, pre-tax profit, earnings before interest, taxes and depreciation, net income, cash flow, expenses, the market price of the shares, earnings, return on stockholder equity, return on capital, product quality, economic value
added, number of customers, market share, return on investments, profit after taxes, customer satisfaction, business divestitures and acquisitions, supplier awards from significant customers, new product development, working capital, individual
objectives, time to market, return on net assets, and sales. The performance goals may differ from participant to participant and from Award to Award and may be used to measure the performance of the Company’s business as a whole or one of the
Company’s business units and may be measured relative to a peer group or index.
96
Transferability of Awards
Awards granted under the 2007 incentive plan are generally not transferable, and all rights with respect to an Award granted to a participant generally
will be available during a participant’s lifetime only to the participant.
Change of Control
In the event of a change of control of the Company, each outstanding Award will be assumed or an equivalent option or right substituted by the successor
corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation, or the parent or subsidiary of the successor corporation, refuses to assume or substitute for the Award, the participant will fully vest
in and have the right to exercise all of his or her outstanding options or stock appreciation rights, including shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on restricted stock will lapse, and, with
respect to restricted stock units, performance shares and performance units, all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. In addition, if an option or stock
appreciation right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a change of control, the Administrator will notify the participant in writing or electronically that the option or stock appreciation right
will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period.
Amendment and Termination of the 2007 Incentive Plan
The Administrator will have the authority to amend, alter, suspend or terminate the 2007 incentive plan, except that stockholder approval will be required for any amendment to the 2007 incentive plan to the extent
required by any applicable laws. No amendment, alteration, suspension or termination of the 2007 incentive plan will impair the rights of any participant, unless mutually agreed otherwise between the participant and the Administrator and which
agreement must be in writing and signed by the participant and the Company. The 2007 incentive plan will terminate on the tenth anniversary of its adoption by the stockholders, unless the board terminates it earlier.
Number of Awards Granted to Employees, Consultants, and Directors
The number of Awards that an employee, director or consultant may receive under the 2007 incentive plan is in the discretion of the Administrator and therefore cannot be determined in advance.
Federal Tax Aspects
The following paragraphs are a
summary of the general federal income tax consequences to U.S. taxpayers and the Company of Awards granted under the 2007 incentive plan. Tax consequences for any particular individual may be different.
Nonstatutory Stock Options
No
taxable income is reportable when a nonstatutory stock option with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant will recognize ordinary
income in an amount equal to the excess of the fair market value (on the exercise date) of the shares purchased over the exercise price of the option. Any taxable income recognized in connection with an option exercise by an employee of the Company
is subject to tax withholding by the Company. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
97
Incentive Stock Options
No taxable income is reportable when an incentive stock option is granted or exercised (except for purposes of the alternative minimum tax, in which case
taxation is the same as for nonstatutory stock options). If the participant exercises the option and then later sells or otherwise disposes of the shares more than two years after the grant date and more than one year after the exercise date, the
difference between the sale price and the exercise price will be taxed as capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the shares before the end of the two- or one-year holding periods
described above, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option.
Stock Appreciation Rights
No taxable
income is reportable when a stock appreciation right with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant will recognize ordinary income in an
amount equal to the amount of cash received and the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares.
A participant generally will not have taxable income at the time an Award of restricted stock, restricted stock units, performance shares or performance
units are granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the Award becomes either (i) freely transferable, or (ii) no longer subject to substantial
risk of forfeiture. However, the recipient of a restricted stock Award may elect to recognize income at the time he or she receives the Award in an amount equal to the fair market value of the shares underlying the Award (less any cash paid for the
shares) on the date the Award is granted.
Tax Effect for the Company.
The Company generally will be entitled to a tax deduction in connection with an Award under the 2007 incentive plan in an amount equal to the ordinary
income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid to the Company’s Chief Executive
Officer and to each of its four most highly compensated executive officers. Under Section 162(m) of the Code, the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed
$1,000,000. However, the Company can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m) are met. These conditions include stockholder approval of the 2007 incentive plan, setting
limits on the number of Awards that any individual may receive and for Awards other than certain stock options, establishing performance criteria that must be met before the Award actually will vest or be paid. The 2007 incentive plan has been
designed to permit the Administrator to grant Awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby permitting the Company to continue to receive a federal income tax deduction in
connection with such Awards.
Section 409A
Section 409A of the Code provides certain requirements on non-qualified deferred compensation arrangements. These include new requirements with respect to an individual’s election to defer compensation and
the individual’s selection of the timing and form of distribution of the deferred compensation. Section 409A also generally provides that distributions must be made on or following the occurrence of certain events (e.g., the
individual’s separation from service, a predetermined date, or the individual’s death). Section 409A imposes restrictions on an individual’s ability to change his or her distribution timing or form after the compensation has been
deferred. For certain individuals who are officers, Section 409A requires that such individual’s distribution commence no earlier than six months after such officer’s separation from service.
98
Awards granted under the Plan with a deferral feature will be subject to the requirements of
Section 409A. If an Award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the Award, to the extent vested, which may be prior to
when the compensation is actually or constructively received. Also, if an Award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on
compensation recognized as ordinary income, as well as interest on such deferred compensation. The Internal Revenue Service has not issued final regulations under Section 409A and, accordingly, the requirements of Section 409A (and the
application of those requirements to Awards issued under the Plan) are not entirely clear.
THE FOREGOING IS ONLY A SUMMARY OF THE
EFFECT OF UNITED STATES FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE INCENTIVE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A
PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING “FOR” THE
ADOPTION OF THE 2007 EQUITY INCENTIVE PLAN AND THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE INCENTIVE PLAN.
99
THE ADJOURNMENT PROPOSAL
The adjournment proposal allows Ascend’s board of directors to submit a
proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies in the event, based on the tabulated votes, there are not sufficient votes at the time of the special meeting to approve the
consummation of the acquisition. In no event will Ascend solicit proxies to adjourn the special meeting or consummate the acquisition beyond the date by which it may properly do so under its certificate of incorporation and Delaware law.
Consequences if Adjournment Proposal Is Not Approved
If an adjournment proposal is presented to the meeting and is not approved by the stockholders, Ascend’s board of directors may not be able to adjourn the special meeting to a later date in the event, based on
the tabulated votes, there are not sufficient votes at the time of the special meeting to approve the consummation of the acquisition. In such event, Ascend will be required to liquidate.
Required Vote
Adoption of the adjournment proposal
requires the affirmative vote of a majority of the issued and outstanding shares of Ascend’s common stock represented in person or by proxy at the meeting. Adoption of the adjournment proposal is not conditioned upon the adoption of any of the
other proposals.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE APPROVAL OF AN
ADJOURNMENT PROPOSAL, IF PRESENTED.
100
OTHER INFORMATION RELATED TO ASCEND
Business of Ascend
Ascend was formed on December 5, 2005, to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an
unidentified operating business. Prior to executing the acquisition agreement with ePAK, Ascend’s efforts were limited to organizational activities, completion of its IPO and the evaluation of possible business combinations.
IPO Proceeds Held in Trust
The registration
statement for Ascend’s IPO was declared effective May 11, 2006. On May 17, 2006, Ascend sold 6,000,000 units in the IPO and on May 22, 2006, Ascend sold an additional 900,000 units in the IPO pursuant to the underwriters
over-allotment option. Each of Ascend’s units consists of one share of common stock and two redeemable common stock purchase warrants. Each warrant entitles the holder to purchase from us one share of common stock at an exercise price of $5.00.
Ascend received net proceeds of approximately $37,203,000 from the IPO.
Don K. Rice, Ascend’s chairman of the board, chief executive
officer, president and treasurer, purchased 166,667 Units at $6.00 per unit (for an aggregate purchase price of $1,000,002) from Ascend. This purchase took place on a private placement basis simultaneously with the consummation of the IPO. The
“insider units” are identical to the units sold in the IPO; however, Mr. Rice has waived his right to receive distributions upon Ascend’s liquidation prior to a business combination with respect to the securities underlying the
insider units. Additionally, he has agreed that the insider units and underlying securities will not be sold or transferred by him until after we have completed a business combination.
Ascend’s management has broad discretion with respect to the specific application of the net proceeds of the IPO. $38,510,202, which includes
$1,000,002 relating to the sale of insider units and $952,200 deferred payment due to the underwriter of the IPO, of these net proceeds was placed in a trust account and has been invested in United States “government securities” within the
meaning of Section 2(a)(16) of the Investment Company Act of 1940 with a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940. The funds held in
the trust account will not be released until the earlier of the date on which Ascend consummates a business combination or liquidates its assets.
If the acquisition with ePAK is consummated, the trust account will be released to Continuing Pubco and used to pay for working capital and general corporate purposes of Continuing Pubco and ePAK and to pay expenses and other payments
required in connection with the acquisition, including:
•
amounts owed to stockholders of Ascend who do not approve the acquisition and elect to convert their shares of common stock into their pro rata share of the trust
account;
•
the deferred underwriting commissions of $952,200;
•
a finders fee equal to 1.5% of the total consideration in the acquisition (including any assumed indebtedness of ePAK);
•
professional fees; and
•
other transaction costs.
The
remaining proceeds also could potentially be used to pay off the existing debt of ePAK; fund working capital increases going forward; acquire other businesses; pay dividends; or repurchase Continuing Pubco common stock or warrants.
101
Fair Market Value of Target Business
Pursuant to Ascend’s certificate of incorporation, the initial target business that Ascend acquires must have a fair market value equal to at least 80% of Ascend’s net assets at the time of such acquisition.
Ascend’s board of directors determined that this test was met in connection with its acquisition of ePAK. Further, Ascend has received an opinion from Capitalink that the fair market value of ePAK was at least equal to 80% of Ascend’s net
assets at the time the acquisition agreement was signed.
Stockholder Approval of Business Combination
The approval of the acquisition proposal will require the affirmative vote of holders of a majority of the Public Shares, including holders who purchase
Public Shares subsequent to the IPO, and voted on the matter. If the holders of 20% or more of the Public Shares both vote against the acquisition proposal and properly demand that Ascend convert their shares into a pro rata portion of Ascend’s
trust account, calculated as of two business days prior to the anticipated date of the consummation of the acquisition, then the acquisition will not be consummated and Ascend will be forced to liquidate. The Ascend Inside Stockholders have agreed
to vote the common stock they purchased prior to the IPO (the “Original Shares”) on the acquisition proposal in accordance with the vote of holders of a majority of the Public Shares. The Ascend Inside Stockholders also have indicated that
they intend to vote their Original Shares in favor of all other proposals being presented at the meeting. These Ascend Inside Stockholders have also indicated they intend to vote any shares they acquired after the IPO for all of the proposals. As of
the record date, the Ascend Inside Stockholders have not acquired any additional shares of Ascend common stock since the IPO, except that Mr. Rice acquired 166,667 shares as part of his purchase of insider units concurrently with the
consummation of the IPO.
Liquidation if No Business Combination
Ascend’s certificate of incorporation provides for mandatory liquidation of Ascend in the event that Ascend does not consummate a business combination within 18 months from the date of consummation of its IPO, or
24 months from the consummation of the IPO if certain extension criteria have been satisfied. Such dates are November 11, 2007 and May 17, 2008, respectively. Ascend signed a letter of intent with ePAK on February 22, 2007 and signed
a definitive acquisition agreement with ePAK on July 30, 2007. As a result of having signed the letter of intent, Ascend satisfied the extension criteria; provided, however, that the terms of the acquisition agreement require that the
acquisition be consummated on or prior to February 13, 2008 or it is terminable by any party.
If Ascend does not complete the
acquisition or another business combination by May 17, 2008, it will be dissolved pursuant to Section 275 of the Delaware General Corporation Law (“DGCL”). In connection with such dissolution, the expected procedures of which are
set forth below, Ascend will distribute to all of its public stockholders, in proportion to their respective equity interests, an aggregate sum equal to the amount in the trust account, inclusive of any interest, plus remaining assets. The Ascend
Inside Stockholders have waived their rights to participate in any liquidation distribution with respect to shares of common stock owned by them immediately prior to the IPO. There will be no distribution from the trust account with respect to
Ascend’s warrants.
It is anticipated that, if Ascend is unable to complete the business combination with ePAK, the following will
occur:
•
Ascend’s board of directors will convene and adopt a specific plan of dissolution and liquidation, which it will then vote to recommend to Ascend’s
stockholders; at such time it will also cause to be prepared a preliminary proxy statement/prospectus setting out such plan of dissolution and liquidation as well as the board’s recommendation of such plan;
•
Ascend will promptly file a preliminary proxy statement/prospectus with the Securities and Exchange Commission;
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•
if the Securities and Exchange Commission does not review the preliminary proxy statement/prospectus, then, 10 days following the filing of such preliminary proxy
statement/prospectus, Ascend will mail the definitive proxy statement/prospectus to its stockholders, and 10 to 20 days following the mailing of such definitive proxy statement/prospectus, Ascend will convene a meeting of its stockholders, at which
they will vote on the plan of dissolution and liquidation; and
•
if the Securities and Exchange Commission does review the preliminary proxy statement/prospectus, Ascend currently estimates that it would receive their comments 30
days after the filing of such proxy statement/prospectus. Ascend would then mail the definitive proxy statement/prospectus to its stockholders following the conclusion of the comment and review process (the length of which cannot be predicted with
any certainty, and which may be substantial) and Ascend will convene a meeting of its stockholders at which they will vote on the plan of dissolution and liquidation.
Ascend expects that all costs associated with the implementation and completion of Ascend’s plan of dissolution and liquidation will be funded by
any remaining net assets not held in the trust account, although Ascend cannot assure you that there will be sufficient funds for such purpose. If such funds are insufficient, it is anticipated that Ascend’s management will advance the funds
necessary to complete such dissolution and liquidation (currently anticipated to be no more than approximately $50,000).
Ascend will not
liquidate the trust account unless and until its stockholders approve such plan of dissolution and liquidation. Accordingly, the foregoing procedures may result in substantial delays in Ascend’s liquidation and the distribution to its public
stockholders of the funds in the trust account and any remaining net assets as part of Ascend’s plan of dissolution and liquidation.
If Ascend were to expend all of the net proceeds of the IPO, other than the proceeds deposited in the trust account, the per share liquidation price as of
, 200 , the record date, would be approximately
$ , or $ less than the per-unit offering price of $ in Ascend’s IPO. The proceeds deposited in
the trust account could, however, become subject to the claims of Ascend’s creditors and there is no assurance that the actual per share liquidation price will not be less than
$ , due to those claims. If Ascend liquidates prior to the consummation of a business combination, Mr. Rice, chairman of the board and chief executive officer of Ascend will
be personally liable to pay debts and obligations to vendors and other entities that are owed money by Ascend for services rendered or products sold to Ascend, or to any target business, to the extent such creditors bring claims that would otherwise
require payment from moneys in the trust account. There is no assurance, however, that they would be able to satisfy those obligations. However, because Ascend was obligated to have, and subsequently did have, all vendors and service providers that
we engaged and owe money to, and the prospective target businesses we had negotiated with, waive any right, title, interest or claim of any kind they may have had in or to any monies held in the trust account, Ascend believes the likelihood of
Mr. Rice having to pay any such debts and obligations is minimal. Nevertheless, we cannot assure you that the per share distribution from the trust fund, if Ascend liquidates, will not be less than
$ , plus interest, then held in the trust fund due to claims of creditors.
Additionally, if Ascend is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against Ascend that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be
included in the bankruptcy estate and subject to the claims of third parties with priority over the claims of Ascend’s stockholders. Also, in any such case, any distributions received by stockholders in Ascend’s dissolution might be viewed
under applicable debtor/creditor or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by Ascend’s stockholders in the
dissolution. Furthermore, because Ascend intends to distribute the proceeds held in the trust account to its public stockholders as soon as possible after dissolution, this may be viewed or interpreted as giving preference to the public stockholders
over any potential creditors with respect to access to or distributions from Ascend’s assets. In addition, Ascend’s board of directors may be viewed as having breached their fiduciary duties to Ascend’s creditors or may have acted in
bad faith, thereby exposing itself and Ascend’s company to claims of punitive damages, by paying public stockholders from the trust account prior to
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addressing the claims of creditors or complying with certain provisions of the DGCL with respect to the dissolution and liquidation. We cannot assure you
that claims will not be brought against Ascend for these reasons.
To the extent any bankruptcy or other claims deplete the trust account,
we cannot assure you we will be able to return to Ascend’s public stockholders at least $ per share.
Under Sections 280 through 282 of the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of
distributions received by them in a dissolution. Pursuant to Section 280, if the corporation complies with certain procedures intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period
during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to
stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder
would be barred after the third anniversary of the dissolution. Although Ascend will seek stockholder approval to liquidate the trust account to its public stockholders as part of its plan of dissolution and liquidation, Ascend will seek to conclude
this process as soon as possible and as a result do not intend to comply with those procedures. Because we will not be complying with the foregoing provisions, Section 281(b) of the DGCL requires Ascend to adopt a plan that will provide for
Ascend’s
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