DEF 14A 1 ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant    x

Filed by a Party other than the Registrant    ¨

Check the appropriate box:

¨ Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Under Rule 14a-12

BOULDER SPECIALTY BRANDS, INC.


(Name of Registrant as Specified In Its Charter)

 


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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  (4) Proposed maximum aggregate value of transaction:
       $465,000,000
 
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       $49,755
 
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¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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BOULDER SPECIALTY BRANDS, INC.

6106 Sunrise Ranch Drive

Longmont, Colorado 80503

April 27, 2007

Dear Stockholder:

I am pleased to inform you of a special meeting of the stockholders of Boulder Specialty Brands, Inc. relating to a proposed merger and related transactions. The special meeting will be held on May 17, 2007 at 10:00 a.m., eastern time at the Teaneck Marriott at Glenpointe, located at 100 Frank W Burr Boulevard, Teaneck, New Jersey 07666.

Our board of directors, taking into consideration the best interests of the stockholders, has unanimously approved a merger pursuant to which we will acquire privately-owned GFA Holdings, Inc., the owner of GFA Brands, Inc. GFA is a rapidly growing focused marketer of functional food products in the U.S. principally under the trade names Smart Balance® and Earth Balance®. Functional food is a food industry term used to define a food or a food ingredient that has been shown to affect specific functions or systems in the body and may play an important role in disease prevention.

To raise the additional cash necessary to complete the GFA merger, we have agreed to a private placement of common stock, Series A convertible preferred stock and warrants as well as a secured debt financing, both of which will close simultaneously with the GFA merger. Also in connection with the GFA merger, our board of directors has proposed the adoption of an amended and restated certificate of incorporation and a stock plan.

We are seeking stockholder approval for the GFA merger, the private placement, the amendment and restatement of our certificate of incorporation, the stock plan and the adjournment of the special meeting if necessary to solicit additional proxies for approval of any of the proposals. The reasons for these five proposals, as well as other important information for you to consider in deciding how to vote, are described in detail in the attached notice and proxy statement. Our board of directors unanimously recommends that you vote “FOR” each proposal.

YOUR VOTE ON THESE MATTERS IS IMPORTANT. Even if you plan to attend and vote in person at the meeting, please promptly submit voting instructions by signing and dating each proxy card and returning it in the accompanying postage-paid return envelope. If you hold your shares in street name through a bank, broker or other nominee, please follow their instructions in order to assure that your shares are voted at the meeting.

I look forward to seeing you at the meeting.

Sincerely,

Stephen B. Hughes

Chairman


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BOULDER SPECIALTY BRANDS, INC.

6106 Sunrise Ranch Drive

Longmont, Colorado 80503

(303) 682-1982

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY 17, 2007

AND PROXY STATEMENT

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Boulder Specialty Brands, Inc., a Delaware corporation, will be held on May 17, 2007 at 10:00 a.m. eastern time, at the Teaneck Marriott at Glenpointe, located at 100 Frank W Burr Boulevard, Teaneck, New Jersey 07666, for the following purposes:

 

   

Proposal 1: to approve a merger pursuant to an Agreement and Plan of Merger, dated September 25, 2006, with GFA Holdings, which provides for a wholly-owned subsidiary of Boulder to merge with and into GFA Holdings, with GFA Holdings becoming a wholly-owned subsidiary of Boulder, in exchange for approximately $465 million in cash (which includes the assumption of post-closing bonus payments, net of tax benefits), subject to adjustment as provided in the merger agreement;

 

   

Proposal 2: to approve the issuance, pursuant to a securities purchase agreement with investors in a private placement, of (i) our common stock, (ii) Series A convertible preferred stock that will be convertible into our common stock and (iii) investor warrants that will be exercisable for our common stock upon any redemption of the related shares of Series A convertible preferred stock, in order to raise a portion of the funds required to complete the GFA merger;

 

   

Proposal 3: to approve an amendment and restatement of our certificate of incorporation to: (i) increase the total number of shares of stock that we will have authority to issue from 76 million, of which 1 million are preferred shares, to 300 million, of which 50 million will be preferred shares; (ii) to designate 15,388,889 shares of preferred stock as Series A convertible preferred stock; (iii) to change our name from “Boulder Specialty Brands, Inc.” to “Smart Balance, Inc.;” and (iv) to make other changes that the investors in the private placement and our lenders in the secured debt financing have required;

 

   

Proposal 4: to approve the adoption of a stock plan, pursuant to which we will reserve up to 9,650,000 shares of common stock for issuance to our officers, directors, employees and consultants;

 

   

Proposal 5: to approve the adjournment of the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to approve the GFA merger, the private placement, the amendment and restatement of our certificate of incorporation or the stock plan; and

 

   

to transact such other business related to the above proposals as may properly come before the meeting or any adjournment or postponement.

The foregoing items of business are more fully described in the accompanying proxy statement, which is first being sent to Boulder stockholders on or about April 27, 2007.

Each Boulder stockholder holding shares of our common stock issued in our initial public offering has the right to vote against the merger and, at the same time as the vote, demand that we convert those shares into cash equal to a pro rata portion of the funds in the trust account from our initial public offering. These shares of common stock will be converted into cash only if: (i) you vote against the merger; (ii) you make an affirmative election on the proxy card to convert the shares into cash; (iii) the GFA merger is completed; and (iv) you hold such shares of common stock until the date the merger is completed. We anticipate that the per share conversion amount will be approximately $7.88 as of December 31, 2006.

Our board of directors has fixed the close of business on April 5, 2007 as the record date for the determination of stockholders entitled to notice of and to vote at this special meeting and any adjournment or postponement.


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It is very important that your shares be represented at the special meeting whether or not you plan to attend. Please complete, date and sign the enclosed proxy card and mail it promptly in the enclosed pre-addressed, postage-paid envelope. If you hold your shares in street name through a bank, broker or other nominee, please follow their instructions in order to assure that your shares are voted at the meeting.

Our board of directors unanimously recommends that you vote “FOR” Proposals 1, 2, 3, 4 and 5. Although Proposals 1, 2 and 3 are separate matters to be voted upon by you, each of these proposals is expressly conditioned upon the approval of the others and, in the event one of those proposals does not receive the necessary vote to approve that proposal, we will not complete any of the transactions identified in Proposals 1, 2 and 3. This means, that you must approve Proposals 1, 2 and 3 if you wish to approve the GFA merger.

Because the GFA merger will not be completed unless our stockholders approve Proposals 1, 2 and 3, and because Proposal 3 regarding the amendment and restatement of our certificate of incorporation requires the affirmative vote of the holders of at least 75% of our outstanding common stock, your abstention or failure to vote will have the same effect as a vote against each of these proposals.

By order of the Board of Directors,

Stephen B. Hughes

Chairman

April 27, 2007


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TABLE OF CONTENTS

 

     Page

SUMMARY TERM SHEET

   1

Reasons for the Special Meeting

   1

The Special Meeting of Stockholders of Boulder

   1

Proposal 1: The Merger Agreement

   1

Proposal 2: The Private Placement

   4

Proposal 3: Amendment and Restatement of our Certificate of Incorporation

   5

Proposal 4: The Stock Plan

   6

Proposal 5: Adjournment

   7

Risk Factors

   7

Supermajority Voting Requirement

   8

Recommendation of Our Board of Directors

   8

Questions and Answers Regarding Voting on the Proposals

   8

SELECTED HISTORICAL FINANCIAL INFORMATION OF GFA

   11

SELECTED HISTORICAL FINANCIAL INFORMATION OF BOULDER

   12

SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

   13

RISK FACTORS

   14

Risks Associated with GFA’s Business

   14

Risks Related to the Food and Beverage Industries

   18

Risks Related to Boulder

   20

Risks Relating to the Simultaneous Private Placement

   24

Risks Relating to the Simultaneous Secured Debt Financing

   26

FORWARD-LOOKING STATEMENTS

   28

PROPOSAL 1: THE MERGER PROPOSAL

   30

General Description of the Merger

   30

Background of the Merger

   30

Interest of Boulder Directors and Officers in the Merger

   35

Interest of Citigroup in the Merger; Fees

   36

Our Reasons for the Merger

   36

Strategic Fit

   37

Due Diligence

   38

Fairness Opinion

   39

Merger Financing

   46

Appraisal or Dissenters Rights

   46

United States Federal Income Tax Consequences of the Merger

   46

Regulatory Matters

   46

Consequences if Merger Proposal is Not Approved

   47

Right to Convert Shares to Cash

   49

Required Vote

   49

Recommendation

   49

THE MERGER AGREEMENT

   50

Structure of the Merger

   50

Merger Price

   50

Closing of the Merger

   52

Conditions to the Completion of the Merger

   52

Interim Covenants Relating to the Conduct of Business

   53

Access to Information

   53

No Solicitation by Boulder or GFA

   54

Fees and Expenses

   54

Representations and Warranties of GFA

   54

Representations and Warranties of Boulder

   55

Qualification of Representations and Warranties

   55

 

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     Page

Termination

   56

Effect of Termination

   56

No Indemnification

   56

Shareholders’ Representative

   57

GFA Employees

   57

PROPOSAL 2: THE PRIVATE PLACEMENT

   58

Background

   58

Necessity of Stockholder Approval

   58

Description of the Private Placement

   58

Securities Purchase Agreement

   60

Registration Rights

   62

Interest of Our Officers, Directors and Principal Stockholders in the Private Placement

   62

Effect of the Private Placement on Existing Stockholders

   63

Required Vote

   64

Recommendation

   65

PROPOSAL 3: AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION

   66

General

   66

Change in Capital Structure

   66

Change of Name of the Company

   67

Other Changes Generally

   67

Deletion of Provisions Governing Compromises and Arrangements

   67

Election to Opt Out of Statutory Restrictions on Business Combinations with Interested Stockholders

   67

Action by Written Consent

   68

Required Vote

   68

Recommendation

   68

PROPOSAL 4: THE STOCK PLAN

   69

Background

   69

Description of the Stock Plan

   69

Certain United States Federal Income Tax Consequences

   72

Management of Boulder

   73

Required Vote

   74

Recommendation

   74

PROPOSAL 5: ADJOURNMENT

   75

Purpose

   75

Required Stockholder Vote to Approve the Adjournment Proposal

   75

INFORMATION ABOUT GFA

   76

Background of GFA

   76

Overview of GFA’s Products

   76

Earth Balance® Products

   77

Other Smart Balance® and Earth Balance® Products

   78

Industry Overview and Trends

   78

Growth Strategy

   79

Sales And Distribution

   79

GFA’s Target Consumer

   80

Marketing

   80

Manufacturers

   80

Competition

   81

Intellectual Property

   81

 

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Government Regulation and Environmental Matters

   82

Employees

   83

Properties

   84

Legal Proceedings

   84

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GFA

   85

GFA Company Overview

   85

Results of Operations

   87

Liquidity and Capital Resources

   90

Contractual Obligations

   92

Off Balance Sheet Arrangements

   92

Supply, Availability and General Risk Conditions

   92

Seasonality and Quarterly Results

   92

Contingent Liabilities

   92

Related Party Transactions

   92

Critical Accounting Policies and Estimates

   93

Recent Accounting Pronouncements

   95

Quantitative and Qualitative Disclosures About Market Risk

   96

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BOULDER

   97

Overview

   97

Results of Operations and Known Trends or Future Events

   97

Liquidity and Capital Resources

   98

Off-Balance Sheet Arrangements; Commitments and Contractual Obligations

   102

Related Party Transactions

   102

Critical Accounting Policies and Estimates

   103

Qualitative and Qualitative Disclosures About Market Risk

   104

BENEFICIAL OWNERSHIP OF SECURITIES

   105

Stock Ownership

   105

Escrowed Common Stock

   108

PRICE RANGE OF SECURITIES AND DIVIDENDS

   110

Holders

   110

Dividends

   110

DESCRIPTION OF SECURITIES

   112

General

   112

Common Stock

   112

Preferred Stock

   112

Series A Convertible Preferred Stock

   113

Description of Warrants Proposed to be Issued in the Private Placement

   116

Existing Public Warrants and Founding Director Warrants

   117

STOCKHOLDER PROPOSALS

   118

REGISTERED PUBLIC ACCOUNTING FIRM AND INDEPENDENT AUDITOR

   119

WHERE YOU CAN FIND MORE INFORMATION

   119

INDEX TO FINANCIAL STATEMENTS

   FS-1

ANNEXES

 

Annex A    Merger Agreement
Annex B   

Opinion of Duff & Phelps, LLC

Annex C   

Securities Purchase Agreement

Annex D   

Registration Rights Agreement

Annex E   

Investor Warrant

Annex F   

Restated Certificate of Incorporation

Annex G   

Stock Plan

 

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SUMMARY TERM SHEET

The following summary term sheet is qualified in its entirety by the detailed information appearing elsewhere in this proxy statement. This summary term sheet may not contain all of the information that is important to you as a stockholder. Accordingly, we encourage you to carefully read this entire proxy statement, including its Annexes. References in this proxy statement to “Boulder,” “we,” “our,” “us” and “company,” unless otherwise indicated, refer to Boulder Specialty Brands, Inc. We refer to GFA Holdings, Inc., together with its wholly owned subsidiary, GFA Brands, Inc., as “GFA”. Page numbers shown in the subheadings below refer to pages in this proxy statement where more complete information about the subject may be found.

Reasons for the Special Meeting

Our board of directors has called a special meeting of the stockholders of Boulder to consider and vote on the following related proposals:

 

   

Proposal 1: to approve a merger pursuant to a merger agreement with GFA;

 

   

Proposal 2: to approve the private placement of our common stock, Series A convertible preferred stock and investor warrants in order to raise a portion of the funds required to complete the GFA merger;

 

   

Proposal 3: to approve related amendments to and the restatement of our certificate of incorporation;

 

   

Proposal 4: to approve the adoption of a stock plan; and

 

   

Proposal 5: to approve the adjournment of the special meeting to a later date, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to approve Proposals 1, 2, 3 or 4.

The Special Meeting of Stockholders of Boulder

 

   

The special meeting of stockholders is scheduled to be held at 10:00 a.m., eastern time, on May 17, 2007 at the Teaneck Marriott at Glenpointe, located at 100 Frank W Burr Boulevard, Teaneck, New Jersey 07666.

 

   

Our board of directors has fixed the close of business on April 5, 2007 as the record date for the determination of holders of our common stock entitled to notice of and to vote at the special meeting.

Proposal 1: The Merger Agreement

The Merging Companies

 

   

Boulder is a blank check company that was formed to serve as a vehicle for the acquisition of an operating business and/or brand in the consumer food and beverage industry with a fair market value equal to at least 80% of Boulder’s net assets at the time of the business combination. Boulder’s principal business address is 6106 Sunrise Ranch Drive, Longmont, Colorado 80503.

 

   

BSB Acquisition Co., Inc. is a wholly owned subsidiary of Boulder, established in connection with the GFA merger and has no other business other than serving as a vehicle for the acquisition of GFA. BSB’s principal business address is 6106 Sunrise Ranch Drive, Longmont, Colorado 80503.

 

   

GFA is a privately-owned focused marketer of functional food products in the United States principally under the trade names Smart Balance® and Earth Balance®. Functional food is a food industry term used to define a food or a food ingredient that has been shown to affect specific functions or systems in the body and may play an important role in disease prevention. GFA’s principal business address is 211 Knickerbocker Road, Cresskill, New Jersey 07626.

 

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Reasons for the Merger (page 36)

Our management believes that GFA and the Smart Balance® and Earth Balance® brands represent an excellent strategic fit with our investment criteria.

Opinion of Our Financial Advisor (page 39)

In the opinion of Duff & Phelps, LLC, dated September 25, 2006, the proposed merger consideration to be paid by us pursuant to the merger agreement is fair to us from a financial point of view.

Structure of the Merger; Merger Price (page 50)

If the merger becomes effective, the following will occur:

 

   

A wholly-owned subsidiary of Boulder will merge with and into GFA and GFA will become a wholly-owned subsidiary of Boulder.

 

   

We will pay GFA’s stockholders cash consideration equal to $465 million (which includes the assumption of post-closing bonus payments, net of tax benefits), subject to adjustment as provided in the merger agreement.

 

   

Boulder stockholders will not receive anything in the merger. Boulder stockholders will continue to hold the shares of Boulder common stock that they owned before the merger.

Conditions to the Completion of the Merger (page 52)

The stockholders of GFA have already approved the merger. The obligation of GFA to consummate the merger is subject to, among other things, the condition that our representations and warranties must be true and correct in all respects except where any failure to be true and correct has not had, individually or in the aggregate, a material adverse effect on our ability to complete the merger.

The obligation of Boulder to consummate the merger is subject to, among other things, the satisfaction of the following conditions:

 

   

GFA’s representations and warranties must be true and correct in all respects except where any failure to be true and correct has not had, individually or in the aggregate, a material adverse effect on GFA;

 

   

Boulder stockholders must have approved the merger;

 

   

Holders of less than 20% of the shares of Boulder common stock issued in our initial public offering have voted against the merger and exercised their rights to convert their shares;

 

   

Boulder must have obtained $180 million of debt financing (including a $20 million revolving credit facility) pursuant to the terms of a commitment letter with Bank of America, N.A. and Banc of America Securities LLC;

 

   

Boulder must have sold common stock and Series A convertible preferred stock in the private placement sufficient to raise at least $246 million; and

 

   

Boulder stockholders must have approved the amendments to our certificate of incorporation to authorize additional shares of stock.

Termination of the Merger (page 56)

The merger agreement may be terminated for a number of reasons prior to closing, including upon the following circumstances:

 

   

By Boulder if there are material and adverse changes, discrepancies or differences in certain financial statements to be delivered by GFA;

 

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By Boulder or the GFA shareholders’ representative appointed by the merger agreement if the merger has not been completed by May 31, 2007, subject to certain extensions;

 

   

By GFA if Bank of America, N.A. and Banc of America Securities LLC indicate that they are unwilling to fund the debt financing in accordance with the terms of the commitment letter or any of the investors in the private placement indicates that it is unwilling to fund or otherwise breaches its commitment to fund, but only if we are unable to obtain substitute financing within 15 days; or

 

   

By GFA if, starting five days after this proxy statement is filed with the Securities and Exchange Commission, the average combined closing price of the Boulder common stock and warrants is below $7.80 over any 10 consecutive trading days.

Consequences if the Merger Proposal is Not Approved (page 47)

Our certificate of incorporation and other documents require us to liquidate unless:

 

   

We complete a business combination no later than June 16, 2007, or

 

   

We have entered into a letter of intent, agreement in principle or definitive agreement to complete a business combination prior to June 16, 2007, in which case completion of the business combination must take place no later than December 16, 2007.

If the GFA merger is not approved by our stockholders, or is not completed for any reason, we would need to raise additional working capital in order to be able to pursue an alternate business combination. Although we will seek to raise additional equity capital or obtain loans from our founders, initial stockholders or private investors in order to pursue an alternative business combination, there can be no assurance that we will be able to do so in amounts sufficient to enable us to pursue and complete an alternate business combination. Currently, Stephen B. Hughes, our chairman of the board of directors, has agreed to provide us with a working capital loan of up to $500,000. Our liabilities incurred in connection with the merger and our other operating activities exceed the funds available to us. The funds in our trust account from our initial public offering consist of the net offering proceeds, plus interest (other than $750,000 we were permitted to use as working capital). None of these trust funds are available to us to pursue alternate business combinations.

Even if we are able to raise enough working capital to identify and evaluate prospective businesses for an alternate business combination, we will be limited by time constraints imposed by our certificate of incorporation. Accordingly, we will be required to seek stockholder approval for liquidation if we are not successful in raising sufficient additional capital or we do not engage in an alternate business combination within the required time frames.

The holders of a majority of our outstanding stock must approve our dissolution in order for us to distribute the funds held in our trust account. We cannot assure you that our stockholders will approve our dissolution in a timely manner or will ever approve our dissolution. As a result, we cannot provide investors with assurances of a specific time frame for our dissolution.

If stockholders approve our dissolution, we will distribute amounts held in our trust account pro rata to the holders of the shares of common stock issued in our initial public offering, subject to the costs of liquidation and to valid claims of creditors who have not waived claims against the trust account. We cannot estimate the actual amount that would be distributed, which will be less than the $8.00 price paid by investors in our initial public offering. The actual amount distributed on any liquidation will depend on when liquidation occurs, the expenses we incur prior to liquidation and interest rates on funds held in the trust account.

 

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Right to Convert Shares of Our Common Stock to Cash (page 49)

Each stockholder that holds shares of our common stock issued in our initial public offering has a right to vote against the GFA merger and receive cash equal to a pro rata portion of funds in our trust account, which will be approximately $7.88 per share as of December 31, 2006. These shares will be converted into cash only if:

   

the stockholder votes against the merger and at the same time as the vote demands to convert the shares to cash;

 

   

the GFA merger is completed; and

 

   

the stockholder requesting the conversion holds such shares until the date the GFA merger is completed.

These rights are granted by our certificate of incorporation. Our stockholders do not have appraisal rights in connection with the merger under applicable Delaware corporation law.

As of April 20, 2007, the closing price of our common stock on the OTC Bulletin Board was $9.90 per share.

Regulatory Matters (page 46)

The merger is not subject to any federal or state regulatory requirement or approval other than the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the filings necessary to effectuate the merger and the restated certificate of incorporation with the Secretary of State of Delaware.

No Solicitation by Boulder or GFA (page 54)

Boulder and GFA have each agreed not to solicit, negotiate, act upon or entertain in any way any competing proposals until the closing of the merger or the termination of the merger agreement.

Required Stockholder Vote to Approve the GFA Merger (page 49)

Approval of the GFA merger will require that:

 

   

a majority of the shares of our common stock issued in our initial public offering that vote on this proposal at the special meeting vote in favor of the proposal; and

 

   

holders of 20% or more of the shares issued in our initial public offering do not vote against the merger and demand to convert their shares into cash.

The GFA merger is also conditioned upon the approval of Proposals 2 and 3, which means that our stockholders must also approve Proposals 2 and 3 for the GFA merger to occur.

Proposal 2: The Private Placement

General Description of the Private Placement (page 58)

We entered into a securities purchase agreement with investors that provides for the investors, simultaneously with the closing of the GFA merger, to purchase:

 

   

14,410,188 shares of our common stock at a price of $7.46 per share; and

 

   

15,388,889 shares of Series A convertible preferred stock and investor warrants at a combined price of $9.00 per share/warrant.

 

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Effect of the Private Placement (page 63)

The private placement will result in aggregate net proceeds of approximately $234 million after payment of placement fees, which will be used to pay a portion of the GFA merger consideration. In the event that the GFA merger is not approved or completed, the private placement will not be completed.

If the private placement closes, our current stockholders, who own 100% of our common stock, will own approximately 34.9% of our common stock immediately after the private placement, assuming the conversion of all Series A convertible preferred stock at that time (or the exercise of all of the related investor warrants, which become exercisable upon the redemption of the Series A convertible preferred stock) but assuming no exercise of our public warrants.

Conditions to the Completion of the Private Placement (page 60)

The conditions that must be satisfied before we and the investors become obligated to close the private placement include, among other things:

 

   

trading in our common stock must not have been suspended; and

 

   

our stockholders must have approved the issuance of our securities in the private placement and the related amendment and restatement of our certificate of incorporation.

The obligation of each investor to buy securities in the private placement is subject to the fulfillment, or waiver by such investor, of additional closing conditions, including:

 

   

there must have been no material adverse change with respect to either GFA or Boulder; and

 

   

investors must have, in the aggregate, purchased our securities at closing for a total investment amount equal to the greater of (i) $240 million, or (ii) the amount, together with the $160 million of net proceeds of the debt financing (plus up to $10 million from the revolver in certain circumstances) and other available cash, that is sufficient to complete the GFA merger, including fees and expenses.

Required Stockholder Vote to Approve the Private Placement (page 64)

Approval of the private placement requires the affirmative vote of holders of a majority of the shares of our common stock present, in person or by proxy, at the special meeting. Approval of the private placement is also conditioned upon the approval of Proposals 1 and 3.

Proposal 3: Amendment and Restatement of our Certificate of Incorporation

General (page 66)

The merger agreement and the securities purchase agreement require that amendments be made to our certificate of incorporation, including the following:

Change in Capital Structure (page 66)

As a result of the proposed private placement and the proposed stock plan, we require additional shares of common stock and preferred stock to be authorized by our certificate of incorporation. The restated certificate of incorporation increases the total number of authorized shares and designates 15,388,889 of the preferred shares as the Series A convertible preferred stock.

 

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Series A Convertible Preferred Stock and Investor Warrants (page 113)

The Series A convertible preferred stock will:

 

   

be senior to our common stock as to the payment of dividends and rights on liquidation;

 

   

bear cumulative preferential dividends, payable quarterly, that compound at the initial annual rate of 8%, which may increase to as much as 15%;

 

   

be convertible into common stock at the holder’s election, or mandatorily (if, for example, the holders of a majority of the Series A convertible preferred stock so requested), at an initial conversion price of $9.00 per share, plus accrued but unpaid dividends (which our lenders will not allow us to pay in cash), with the conversion price subject to reduction (1) by an aggregate of 9% if we default in listing or registration obligations for the underlying common stock, and (2) also on the basis of anti-dilution provisions;

 

   

be redeemable at our option, subject to our common stock meeting certain price thresholds, at the liquidation preference of $9.00 per share, plus accrued but unpaid dividends and a premium if redeemed before the fifth anniversary of closing; and

 

   

vote together with our common stock on an as-converted basis.

If we redeem shares of Series A convertible preferred stock, the related investor warrants will become exercisable at the conversion price of the Series A convertible preferred stock in effect on the date of redemption, until the later of: (1) ten years after issuance, or (2) five years after the warrant first becomes exercisable.

Change the Name of Our Company (page 67)

The name of our company will be changed from “Boulder Specialty Brands, Inc.” to “Smart Balance, Inc.”, which incorporates GFA’s well-known brand.

Other Changes (page 67)

Other proposed changes required in the restated certificate of incorporation by the investors in the private placement or our lenders in the secured debt financing include opting out of Delaware’s anti-takeover statute.

Required Stockholder Vote to Approve the Restated Certificate of Incorporation (page 68)

Approval of the restated certificate of incorporation requires the affirmative vote of holders of at least 75% of the outstanding shares of our common stock. The amendment and restatement of our certificate of incorporation is also conditioned upon the approval of Proposals 1 and 2, which means that our stockholders must also approve Proposals 1 and 2 for the amendment and restatement of our certificate of incorporation to be authorized.

Proposal 4: The Stock Plan

Background and General Description (page 69)

We are seeking your approval for the adoption of the Smart Balance, Inc. Stock and Awards Plan, which provides for the issuance of a maximum of 9,650,000 shares of our common stock in connection with the grant of options, restricted stock and/or other stock-based awards to our officers, employees, consultants and advisors.

The stock plan is intended to promote the long-term growth and financial success of Boulder and to increase stockholder value by inducing, attracting and retaining officers, employees, consultants and advisors.

 

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Effect of the Failure to Approve the Stock Plan (page 74)

If the stock plan is not approved by stockholders, it may be more difficult for us to induce, attract and retain qualified officers, employees, consultants and advisors. Our inability to induce, attract and retain such persons would make it more difficult for us to implement our business plan.

Required Stockholder Vote to Approve the Stock Plan (page 74)

Approval of the adoption of the stock plan requires the affirmative vote of holders of a majority of the shares of our common stock present, in person or by proxy, at the special meeting. However, if Proposals 1, 2 and 3 are not approved, we will not adopt the stock plan.

Proposal 5: Adjournment

Reason for Adjournment (page 75)

In the event there are not sufficient votes at the time of the special meeting to approve Proposals 1, 2, 3 or 4, our chief executive officer, acting in his capacity as chairperson of the meeting, may submit a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies.

Required Stockholder Vote to Approve the Adjournment Proposal (page 75)

Approval of the adoption of the adjournment proposal requires the affirmative vote of holders of a majority of the shares of our common stock present, in person or by proxy, at the special meeting.

Risk Factors (page 14)

You should consider the various risk factors involved with the proposals you are asked to vote on at the special meeting. In addition to matters discussed above, these risk factors include:

 

   

Risks involved with GFA’s business, including its dependence on (1) license agreements with Brandeis University, (2) third party manufacturers, and (3) a small number of customers;

 

   

The fact that GFA’s representations and warranties in the merger agreement will not survive the merger;

 

   

The substantial dilutive effect on our current stockholders from the private placement and the additional dilution in the future from the conversion of the Series A convertible preferred stock, for which we have reserved, including a cushion for possible reductions in the conversion price, a total of 60 million shares of common stock;

 

   

The ability of the investors in the private placement to control our voting stock immediately after the merger and the right of the holders of a majority of the outstanding shares of Series A convertible preferred stock to veto corporate actions such as additional debt or equity financings and acquisitions;

 

   

The possible adverse impact on the market price of our common stock from resales of common stock by the investors who purchase shares in the private placement;

 

   

The debt service requirements for the $180 million of debt financing that we must incur in order to pay a portion of the GFA merger consideration;

 

   

The fact that if the GFA merger does not occur for any reason, we may fail to complete an alternate business combination within the time period required by our certificate of incorporation and will be required to liquidate and that upon liquidation, stockholders will receive less than the $8.00 per share price paid in our initial public offering and could be required by creditors to return distributions they receive out of the trust account holding proceeds from our initial public offering; and

 

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The financial interest of our officers and directors in (1) obtaining expense reimbursements that exceed amounts from the proceeds of our initial public offering held outside the trust account or (2) avoiding payments under indemnity agreements designed to avoid claims against the trust account if we are required to liquidate, which may have influenced their motivation in causing us to undertake the GFA merger.

Supermajority Voting Requirement

Although each proposal is a separate matter to be voted on by you, Proposals 1, 2 and 3 are expressly conditioned upon the approval of the others and, in the event any one of those proposals does not receive the necessary vote to approve that proposal, we will not complete any of the transactions identified in Proposals 1, 2 and 3. This means that you must approve Proposals 1, 2 and 3 if you wish to approve the GFA merger. Proposal 3 requires the affirmative vote of 75% of our outstanding shares of common stock, which is a higher standard than that required for the approval of the other proposals.

Recommendation of Our Board of Directors

The board of directors believes that the merger proposal is fair to, and in the best interests of, all our stockholders, including those who acquired shares in our initial public offering. Accordingly, our board of directors unanimously recommends that you vote “FOR” Proposals 1, 2, 3, 4 and 5.

Questions and Answers Regarding Voting on the Proposals

 

Q: Why am I receiving this proxy statement?

 

A: We are furnishing this proxy statement to you as part of the solicitation of proxies by our board of directors for use at the special meeting in connection with the proposals specified in the notice of the special meeting.

 

Q: What is a quorum?

 

A: A quorum is the number of shares that must be represented, in person or by proxy, in order for business to be transacted at the special meeting.

More than one-half of the total number of shares of our common stock outstanding as of the record date (a quorum) must be represented, either in person or by proxy, in order to transact business at the special meeting. Abstentions and broker non-votes are counted for purposes of determining the presence of a quorum.

However, in order to vote on Proposal 1, more than one-half of the shares of our common stock purchased in our initial public offering must be represented, because only the holders of those shares may vote on the merger proposal.

In order to approve the amendment and restatement of our certificate of incorporation, at least 75% of our outstanding common stock must vote in favor of the proposal, and, therefore, we will need at least 75% of our shares of common stock to be represented, either in person or by proxy, in order to consider Proposal 3.

 

Q: Who may vote?

 

A: You can vote your shares of common stock if our records indicate that you owned the shares at the close of business on the record date, which is April 5, 2007. On the record date, there were 15,951,050 outstanding shares of Boulder common stock.

Our outstanding warrants do not have voting rights and will not be entitled to vote at the special meeting.

 

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Q: How many votes do I have?

 

A: Each share of our common stock is entitled to one vote per share at the special meeting. The enclosed proxy card shows the number of shares you are entitled to vote.

 

Q: How do I vote by proxy?

 

A: Follow the instructions on the enclosed proxy card to vote on each proposal to be considered at the special meeting. Sign and date the proxy card and mail it back to us in the enclosed postage-paid return envelope. The proxyholders named on the proxy card will vote your shares as you instruct. If you sign, date and return the proxy card, but do not vote on a proposal, the proxyholders will vote “FOR” Proposals 1, 2, 3, 4 and 5. Therefore, if you wish to vote “FOR” all the proposals, you may simply sign, date and return your proxy card on or before May 16, 2007.

 

Q: What is the effect if I return my proxy card marked “ABSTAIN” or if I fail to vote?

 

A: A properly executed proxy card marked “ABSTAIN” will have the effect of a vote against Proposals 2, 3, 4 and 5. A failure to vote your shares (by failing to submit a properly executed proxy card and failing to vote in person at the meeting) will have the effect of a vote against Proposal 3 and, assuming the presence of a quorum, will have no effect on the vote on Proposals 1, 2, 4 and 5. However, because the GFA merger will not be completed unless stockholders approve Proposals 1, 2 and 3, and because Proposal 3 regarding the amendment and restatement of our certificate of incorporation requires the affirmative vote of the holders of at least 75% of our outstanding common stock, your abstention or failure to vote on Proposal 3 will have the same effect as a vote against each of these proposals.

 

Q: If I am opposed to the merger, how do I convert my shares to cash?

 

A: Unless you affirmatively vote against Proposal 1, and affirmatively elect on the proxy card to convert your shares of common stock to a pro rata portion of the funds in the trust account, your shares of common stock will not be converted into such funds.

 

Q: What do I need to do now?

 

A: After you carefully read this proxy statement, mail your signed proxy card in the enclosed postage-paid return envelope as soon as possible so that your shares may be represented at the special meeting. In order to assure that your vote is counted, please vote your proxy as instructed on your proxy card even if you currently plan to attend the special meeting in person. If you have received multiple proxy cards, your shares may be registered in different names or in more than one account. It is important that you complete, sign, date and return each proxy card that you receive.

 

Q: May I change my vote after I have mailed my proxy card?

 

A: Yes. You may change your vote at any time before your proxy card is voted at the special meeting. You may change your vote in any of the following ways:

 

   

by sending a written notice of revocation to Boulder Specialty Brands, Inc., Attn: Stephen B. Hughes, 6106 Sunrise Ranch Drive, Longmont, Colorado 80503 stating that you would like to revoke your proxy;

 

   

by sending a completed proxy card bearing a later date than your original proxy card; or

 

   

by attending the special meeting and voting in person.

Attending the special meeting without voting will not revoke a proxy. If you wish to revoke your proxy in a manner other than by attending the special meeting and voting in person, we must receive your notice of revocation or later dated proxy no later than the beginning of the special meeting.

 

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If your shares are held in an account with a broker, bank or other nominee, you should contact your broker, bank or other nominee to change your vote.

 

Q: May I vote in person?

 

A: Yes. If your shares are not held in “street name” through a broker, bank or other nominee, you may attend the special meeting and vote your shares in person. If your shares are held in “street name,” you must obtain a proxy from your broker, bank or other nominee in order to attend the special meeting and vote. Whether or not you plan to attend the meeting in person, we ask that you return a completed proxy card in order to ensure that your vote is counted.

 

Q: If my shares are held in “street name” by my broker, bank, or other nominee, will my broker, bank or other nominee vote my shares for me?

 

A: Your broker, bank or other nominee will not be able to vote your shares without instructions from you. You should instruct your broker, bank or other nominee to vote your shares following the procedure provided by your broker, bank or other nominee. If you do not provide instructions, your shares will not be voted.

 

Q: Who pays for this proxy solicitation?

 

A: We will bear the expense of soliciting proxies, including the cost of preparing, printing and mailing this proxy statement and the accompanying proxy card. We have engaged Morrow & Co., Inc. for a fee of $12,500, plus reimbursement for out-of-pocket expenses, to aid in the solicitation of proxies.

 

Q: Who can help answer my questions?

 

A: If you have additional questions about any of the proposals to be voted on at the special meeting, you should contact:

Boulder Specialty Brands, Inc.

Attn: Robert S. Gluck

6106 Sunrise Ranch Drive

Longmont, Colorado 80503

(303) 682-1982

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF GFA

The following financial information regarding GFA is provided to assist you in the analysis of the financial aspects of the merger. GFA’s historical information was derived from its audited consolidated financial statements as of and for the years ended December 31, 2006 and December 31, 2005 and for the period from February 5, 2004 to December 31, 2004. This information was also derived from combined audited financial statements from its predecessor companies, New Industries Corporation and Fitness Foods, Inc. for the three-month period ended March 31, 2004 and from unaudited financial statements for the years ended December 31, 2003 and 2002. The information is only a summary and should be read in conjunction with the historical consolidated financial statements and related notes contained elsewhere in this proxy statement. The historical results included below and elsewhere in this document are not indicative of the future performance of GFA.

(in thousands)

 

     GFA Holdings, Inc.    GFA
Holdings, Inc
   Combined Predecessor Companies
    

Year Ended

December 31,

   Period from
Feb. 5, 2004 to
Dec. 31, 2004(1)
   Period from
Jan. 1, 2004 to
Mar. 31, 2004(1)
   Year Ended December 31,
     2006    2005    2004(1)          2003(1)    2002(1)
               (unaudited)              (unaudited)    (unaudited)
               Pro Forma                    

Consolidated Statement of Operations data:

                    

Net Revenue

   $ 158,468    $ 114,710    $ 83,999    $ 66,765    $ 17,234    $ 64,119    $ 45,396

Gross profit

     88,707      67,007      47,195      37,557      9,638      36,470      26,065

Operating income

     24,054      15,275      8,866      6,482      2,384      10,290      2,879

Selected Balance Sheet data (end of period):

                    

Total assets

     118,877      113,308      110,927      110,927      108,899      25,308      24,805

Long-term debt, current portion

     4,725      5,846      13,594      13,594      —        —        —  

Long-term debt, noncurrent portion

     —        12,879      19,331      19,331      3,021      —        —  

Deferred tax liability, noncurrent

     6,801      5,041      1,864      1,864         

(1)

On February 5, 2004 GFA was organized and on March 31, 2004 it acquired certain assets of New Industries Corporation, formerly known as GFA Brands, Inc. (an Ohio corporation), referred to as “GFA Ohio”. Also on March 31, 2004 GFA issued 100,000 shares of common stock to Fitness Foods, Inc. (“FFI”) in exchange for certain of FFI’s assets as part of a contribution agreement between FFI and GFA. The audited results for the period from January 1, 2004 through March 31, 2004 are the combined statements for GFA Ohio and FFI before the acquisitions on March 31, 2004. The unaudited results for 2003 and 2002 are the combined amounts for GFA Ohio and FFI. The results from February 5, 2004 through December 31, 2004 are for GFA. The pro forma results for the 12 months ended December 31, 2004 are the combined amounts for GFA Ohio and FFI for the period from January 1, 2004 through March 31, 2004 and for GFA from inception, February, 5, 2004, through December 31, 2004. Although GFA was formed on February 5, 2004, it had no operating activity until it acquired the assets of GFA Ohio and FFI on March 31, 2004.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION

 

    

Twelve months

ended
December 31, 2006

   

May 31, 2005

(inception)
December 31, 2006

   

May 31, 2005

(inception) to

December 31, 2005

 

Statement of operations data:

      

Formation and operating costs

   $ 1,924,602     $ 2,034,156     $ 109,554  

Expenses settled with founders stock

     —         2,359,856       2,359,856  
                        

Operating loss

   $ (1,924,602 )   $ (4,394,012 )   $ (2,469,410 )

Gain (loss) on derivative liabilities

     (15,266,445 )     (13,457,879 )     1,808,566  

Interest income

     4,220,026       4,243,768       23,742  

Income taxes

     (808,140 )     (808,140 )     —    
                        

Net loss

   $ (13,779,161 )   $ (14,416,263 )   $ (637,102 )
                        

Weighted average number of shares outstanding

     14,355,945       10,524,943       4,025,031  
                        

Net loss per share—basic and diluted

   $ (0.96 )   $ (1.37 )   $ (0.16 )
                        
     December 31, 2006           December 31, 2005  

Balance sheet data (at period end):

      

Cash and cash equivalents

   $ 569,142       $ 1,548,609  

Investments held in trust—restricted

     101,073,611         98,354,755  

Deferred costs

     3,589,990         —    
                  

Total assets

   $ 106,284,163       $ 100,280,424  
                  

Derivative liabilities

   $ 32,284,925       $ 17,018,480  

Total current liabilities

     40,863,120         21,507,996  

Common stock subject to possible conversion

     19,661,116         19,661,116  

Total stockholders’ equity

     45,327,304         59,111,312  
                  

Total liabilities and stockholders’ equity

   $ 106,284,163       $ 100,280,424  
                  

 

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SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial information combines (i) the historical balance sheets of GFA as of December 31, 2006, and Boulder as of December 31, 2006, giving effect to the merger of GFA and Boulder, the private placement and the secured debt financing as if they had occurred on December 31, 2006, and (ii) the historical statements of operations of GFA for the period January 1, 2006 to December 31, 2006 and Boulder for the period from January 1, 2006 to December 31, 2006, giving effect to the merger of GFA and Boulder and related transactions as if they had occurred in the beginning of the period.

They have been prepared using two different levels of approval of the merger by the Boulder stockholders, as follows:

 

   

Assuming No Conversions: assumes that none of the holders of shares sold in our initial public offering vote against the merger and convert their shares into a pro rata portion of the trust account from our initial public offering; and

 

   

Assuming Maximum Conversions: assumes that holders of 19.99% of the shares sold in our initial public offering vote against the merger and convert their shares into a pro rata portion of the trust account from our initial public offering.

(in thousands except income (loss) per share amounts and weighted average shares outstanding)

 

    Year Ended December 31, 2006  
    Assuming No
Conversions
    Assuming
Maximum
Conversions
 

Consolidated Statements of Operations Data:

   

Net sales

  $ 158,468     $ 158,468  

Cost of goods sold

    69,761       69,761  
               

Gross profit

    88,707       88,707  

Operating expenses

    70,644       70,644  
               

Operating income (loss)

    18,063       18,063  

Other income (expense)

    (30,419 )     (31,256 )
               

Income (loss) before income taxes

    (12,356 )     (13,193 )

Income tax expense

    1,410       1,075  
               

Net income (loss)

  $ (13,766 )   $ (14,268 )
               

Net income (loss) per share:

   

Basic

  $ (0.48 )   $ (0.52 )

Diluted

  $ (0.48 )   $ (0.52 )

Weighted average shares outstanding

   

Basic

    28,766,133       27,555,724  

Diluted

    28,766,133       27,555,724  

Selected Balance Sheet Data (at period end)

   

Cash and cash equivalents

  $ 3,237     $ 3,143  

Total assets

  $ 516,688     $ 516,594  

Total shareholders’ equity

  $ 149,127     $ 139,033  

 

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RISK FACTORS

You should carefully consider the following risk factors, together with all of the other information included in this proxy statement, before you decide whether to vote or instruct your vote to be cast to approve the merger proposal and other related proposals. As substantially all, if not all, of our operations will be those of GFA upon completion of the merger, many of the following risk factors relate to the business and operations of GFA and Boulder, as the owner of such business.

Risks Associated with GFA’s Business

If GFA fails to meet its obligations under its license agreement, GFA may lose its rights to key technologies on which its business depends.

Approximately 76% of GFA’s sales for the year ended December 31, 2006 depend upon its exclusive and perpetual license of certain technology from Brandeis University. The licensed technology covers all Smart Balance® margarine, except for the spray product, all Earth Balance® margarine and all Smart Balance® popcorn. The license agreement imposes obligations upon GFA, such as payment obligations and obligations to diligently pursue the development of commercial products under the licensed patents. If the licensor believes that GFA has failed to meet its obligations under the license agreement, the licensor could seek to limit or terminate GFA’s license rights, which could lead to costly and time-consuming litigation and, potentially, a loss of the licensed rights. During the period of any such litigation, our ability to continue to sell existing products and to carry out the development and commercialization of potential products could be materially adversely affected. If GFA’s license rights are restricted or ultimately lost, we would be forced to re-formulate all of the affected products noted above and refrain from making any cholesterol ratio improvement claims on our packaging, consumer advertising and promotion materials. We would also lose the ability to sub-license and receive sub-license fees for the Brandeis technology. Sub-licensing fees accounted for approximately $263,000 in income in 2006. It is difficult to accurately quantify the economic impact on GFA if it defaulted under its license agreement except to conclude that our ability to continue our business could be severely adversely affected or ultimately terminated.

GFA’s business depends on its ability to protect its intellectual property effectively. Our inability to protect GFA’s intellectual property could harm the value of its brand and adversely affect its business.

GFA’s business depends substantially on the legal protection of proprietary rights in intellectual property it owns and licenses. GFA also claims proprietary rights in various unpatented technologies, know-how, trade secrets and trademarks relating to its products and manufacturing processes. Our ability to implement our business plan depends in part on our ability to expand brand recognition using GFA’s trademarks, service marks, trade dress and other proprietary intellectual property, including its name and logos. If existing contractual measures fail to protect GFA’s proprietary rights, or if any third party misappropriates or infringes on GFA’s intellectual property, any advantage those proprietary rights provide may be negated and the value of GFA’s brands may be harmed, which could have a material adverse effect upon our business and might prevent GFA’s brands from achieving or maintaining market acceptance. Monitoring infringement of intellectual property rights is difficult and we cannot be certain that the precautions GFA has taken will prevent the unauthorized use of its intellectual property and know-how, particularly in countries where the laws may not protect its proprietary rights as adequately as the laws of the United States. Accordingly, other parties, including competitors, may duplicate GFA’s products using its proprietary technologies. Pursuing legal remedies against persons infringing on its patents or otherwise improperly using GFA’s proprietary information is a costly and time-consuming process that would divert management’s attention and other resources from the conduct of its business, which could cause delays and other problems with the marketing and sales of its products, as well as delays in deliveries. GFA has commenced legal actions against third parties infringing on the patents in the past and is currently involved in settling litigation with C.F. Sauer Co. As part of that litigation, C.F. Sauer Co. requested the re-examination of three of the patents licensed by GFA. Two of the licensed patents have emerged from the re-examination with all claims upheld, and GFA has received certificates of reexamination. The other licensed

 

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patent has completed the substantive portion of the reexamination with all claims upheld, and GFA expects to receive a certificate of reexamination in the near future. There can be no assurances that we will not encounter claims with respect to prior users of intellectual property relating to GFA’s products. If so, this could harm GFA’s image, brand or competitive position and cause us to incur significant penalties and costs.

GFA relies on a combination of common law trademark rights, U.S. federal registration rights, and trade secret laws to protect its proprietary rights. GFA uses the term “smart balance” in its trade name and in its current product line names. The term “smart balance” and variations thereof are widely used for many food products other than those sold by GFA. Such widespread use may weaken GFA’s trademark rights and may dilute any unique or distinctive significance the term “smart balance” may have as a means of identifying GFA’s products. There can be no assurance that we will be able to enforce GFA’s trademark rights for current products or register trademarks or obtain common law trademark rights using “smart balance” for any new product lines we may introduce. On April 4, 2007, Kellogg North America Company filed a Notice of Opposition before the Trademark Trial and Appeal Board opposing our registration application for the “smart balance” mark for use with cereal. The inability to have the exclusive right to use of the term “smart balance” in new product names could weaken our ability to create a strong “smart balance” brand in existing and new product categories.

Common law trademark rights do not provide the same level of protection as afforded by the United States federal registration of a trademark. Common law trademark rights are limited to the geographic area in which the trademark is actually used, plus a reasonable zone of future expansion, while U.S. federal registration on the Principal Register provides the registrant with superior rights throughout the United States, subject to certain exceptions.

To the extent that GFA has registered its trademarks in foreign jurisdictions where its products are or may be sold, the protection available in such jurisdictions may not be as extensive as the protection available in the United States.

A substantial portion of GFA’s revenues are derived from the sales of its Smart Balance® margarine products and our future ability to maintain and grow its revenues depends upon continued sales of these products. Any adverse developments with respect to the sale of Smart Balance® margarine products could significantly reduce revenues and have a material adverse affect on GFA’s ability to remain profitable and achieve future growth.

Approximately 70% of GFA’s revenues for the year ended December 31, 2006 resulted from sales of its Smart Balance® margarine products. GFA has commercially launched other Smart Balance® products in a highly and increasingly competitive market and it cannot be certain that such products will achieve continued commercial success.

We cannot be certain that GFA will be able to continue to commercialize its products or that any of its products will continue to be accepted in their markets. Specifically, the following factors, among others, could affect market acceptance of Smart Balance® margarine products:

 

   

the introduction of new products into the functional food market;

 

   

the level and effectiveness of our sales and marketing efforts;

 

   

any unfavorable publicity regarding these products or similar products;

 

   

litigation or threats of litigation with respect to these products;

 

   

the price of the product relative to other competing products;

 

   

any changes in government policies and practices; and

 

   

regulatory developments affecting the manufacture, marketing or use of these products.

Any adverse developments with respect to the sale of Smart Balance® margarine products could significantly reduce revenues and have a material adverse effect on our ability to maintain profitability and achieve our business plan.

 

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GFA has no long-term contracts with its customers which require the purchase of a minimum amount of its products. The absence of long-term contracts could result in periods during which we must continue to pay costs and service indebtedness without current revenues.

GFA’s customers do not provide GFA with firm, long-term volume purchase commitments. As a result of the absence of the long-term contracts, our post-combination business could have periods during which we have no or only limited orders for our products, but we will continue to have to pay the costs to maintain our work force and service our indebtedness without the benefit of current revenues. We cannot assure that we will be able to timely find new customers to supplement periods where we experience no or limited purchase orders or that we can recover fixed costs as a result of experiencing reduced purchase orders. Periods of no or limited purchase orders for our products could have an adverse affect on our net income or cause us to incur losses.

GFA is dependent on a relatively small number of significant customers, and the loss of a significant customer or significant reduction in purchase volume by any such customer could have a material adverse affect on GFA’s revenues and net income.

A limited number of supermarket chains and food wholesalers have historically accounted, and are likely to continue to account in the future, for a substantial portion of GFA’s revenues. GFA’s three largest customers in 2006 accounted for approximately 32% of GFA’s sales revenues in 2006, with Wal-Mart and C&S Wholesale Grocers, Inc. accounting for approximately 13% and 10%, respectively. No other single customer accounted for more than 10% of GFA’s sales revenues in 2006. GFA’s customers typically purchase GFA’s products with standard purchase orders and, in general, are not bound by long-term contracts. There can be no assurance that Wal-Mart and C&S Wholesale Grocers, Inc. or GFA’s other significant customers will continue their relationships with GFA. The loss of Wal-Mart as a customer or the loss of a number of other major customers or a significant reduction in purchase volume by such customers could have a material adverse effect on GFA’s business, results of operations and financial condition.

GFA is dependent on third-party manufacturers, and the loss of a manufacturer or the inability of a manufacturer to fulfill its orders or to maintain the quality of GFA’s products could adversely affect GFA’s ability to make timely deliveries of product or result in product recalls.

GFA does not own or operate any manufacturing facilities and is dependent on third parties for the manufacture of its products. GFA currently relies on and may continue to rely on two manufacturers to produce all of its margarine. If either of GFA’s two manufacturers were unable or unwilling to produce GFA’s products in a timely manner or to produce sufficient quantities to support GFA’s growth, if any, GFA would have to identify and qualify new manufacturers. As GFA expands its operations, it may have to seek new manufacturers and suppliers or enter into new arrangements with existing ones. One of GFA’s third-party manufacturers for its margarine products is in Chapter 11 bankruptcy proceedings and, on April 3, 2007, the bankruptcy court approved the sale of all of this manufacturer’s assets, including its leases and executory contracts, to a company that has indicated that it will assume the manufacturer’s contracts and will continue to produce products for GFA. To date, GFA has not experienced any interruptions in supply from this manufacturer. GFA is in the process of locating and qualifying alternative sources of supply in the event this third-party manufacturer or its assignee are unable to continue to produce GFA’s products. However, only a limited number of manufacturers have the ability to produce a high volume of GFA’s products, and it could take a significant period of time to locate and qualify such alternative production sources. In addition, GFA may encounter difficulties or be unable to negotiate pricing or other terms as favorable as those it currently enjoys. There can be no assurance that GFA would be able to identify and qualify new manufacturers in a timely manner or that such manufacturers could allocate sufficient capacity in order to meet GFA’s requirements, which could adversely affect GFA’s ability to make timely deliveries of product. In addition, there can be no assurance that the capacity of GFA’s current manufacturers will be sufficient to fulfill GFA’s orders and any supply shortfall could materially and adversely affect GFA’s business, results of operations, and financial condition. Shipments to and from the warehouses could be delayed for a variety of reasons, including weather conditions, strikes, and shipping delays. Any

 

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significant delay in the shipments of product would have a material adverse effect on GFA’s business, results of operations and financial condition and could cause GFA’s sales and earnings to fluctuate during a particular period or periods. GFA has from time-to-time experienced, and may in the future experience, delays in the production and delivery of product.

GFA’s manufacturers are required to maintain the quality of GFA’s products and to comply with GFA’s code book specifications and requirements for certain certifications. There can be no assurance that GFA’s manufacturers will continue to produce products that are consistent with GFA’s standards. GFA has occasionally received, and may from time to time receive, shipments of products that fail to conform to GFA’s standards. The failure of any manufacturer to produce products that conform to GFA’s standards could materially and adversely affect our reputation in the marketplace and result in product recalls, product liability claims and severe economic loss.

Changes in consumer preferences and discretionary spending may have a material adverse effect on GFA’s revenue, results of operations and financial condition.

The food processing industry in general and the functional food industry in particular are subject to changing consumer trends, demands and preferences. Trends within the functional food industry change often and the failure of GFA to anticipate, identify or react to changes in these trends could, among other things, lead to reduced demand and price reductions, and could have a material adverse effect on GFA’s business, results of operations and financial condition. These changes might include consumer demand for new products or formulations that include health promoting ingredients such as nutraceuticals. GFA’s success depends, in part, on its ability to anticipate the tastes and dietary habits of consumers and to offer products that appeal to their preferences on a timely and affordable basis.

GFA relies primarily upon one distributor to deliver its margarine products, and the inability of that distributor to make timely deliveries or support our growth could adversely affect our revenues and net income.

GFA currently uses and we may continue to use one distributor to deliver a significant portion of its margarine products from the third-party manufacturers to customers. If the distributor were unable or unwilling to deliver such products in a timely manner or to support our growth, if any, we would have to identify and qualify new distributors. There can be no assurance that we would be able to identify and qualify new distributors in a timely manner, which could adversely affect our ability to make timely deliveries of our products. We continue to evaluate alternative options to GFA’s current distribution system.

Fluctuations in various food and supply costs could adversely affect GFA’s operating results.

GFA’s manufacturers obtain most of the key ingredients used in GFA’s products from third-party suppliers. As with most food products, the availability and cost of raw materials used in GFA’s products can be affected by a number of factors beyond its control, such as general economic conditions affecting growing decisions, weather conditions such as frosts, drought, and floods, and plant diseases, pests and other acts of nature. Because GFA does not control the production of raw materials, it is also subject to delays caused by interruption in production of materials based on conditions not within its control. Such conditions include job actions or strikes by employees of suppliers, weather, crop conditions, transportation interruptions, natural disasters or other catastrophic events. There can be no assurance that GFA’s manufacturers will be able to obtain alternative sources of raw materials at favorable prices, or at all, if any of them experience supply shortages. The inability of GFA’s manufacturers to obtain adequate supplies of raw materials for its products at favorable prices, or at all, as a result of any of the foregoing factors or otherwise could cause an increase in GFA’s cost of sales and a corresponding decrease in gross margin, or cause GFA’s sales and earnings to fluctuate from period to period . Such fluctuations and decrease in gross margin could have a material adverse effect on GFA’s business, results of operations and financial condition.

 

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GFA’s advertising is regulated for accuracy, and if its advertising is determined to be false or misleading, we may face fines or sanctions.

GFA’s advertising is subject to regulation by the Federal Trade Commission under the Federal Trade Commission Act, which prohibits dissemination of false or misleading advertising. In addition, the National Advertising Division of the Council of Better Business Bureaus, Inc., which we refer to as NAD, administers a self-regulatory program of the advertising industry to ensure truth and accuracy in national advertising. NAD both monitors national advertising and entertains inquiries and challenges from competing companies and consumers. Should our advertising be determined to be false or misleading, we may have to withdraw our campaign and possibly face fines or sanctions, which could have a material adverse affect on GFA’s sales and operating results.

Adverse publicity or consumer concern regarding the safety and quality of food products or health concerns may result in loss of sales.

GFA is highly dependent upon consumers’ perception of the safety, quality and possible dietary benefits of its products. As a result, substantial negative publicity concerning one or more of GFA’s products or other foods similar to GFA’s products could lead to a loss of consumer confidence in GFA’s products, removal of GFA’s products from retailers’ shelves and reduced sales and prices of GFA’s products. Any of these events could have a material adverse effect on GFA’s business, results of operations and financial condition.

If GFA conducts operations in a market segment that suffers a loss in consumer confidence as to the safety and quality of food products, our post-combination business could be adversely affected. The food industry has recently been subject to negative publicity concerning the health implications of genetically modified organisms, obesity, trans fatty acids, mad cow disease, avian flu and bacterial contamination. Developments in any of these areas including, but not limited to, a negative perception about our proprietary formulations, could cause GFA’s operating results to differ materially from results that it expects. Any of these events could harm GFA’s sales and our operating results, perhaps significantly.

Risks Related to the Food and Beverage Industries

GFA’s business operations may be subject to numerous laws and governmental regulations, exposing us to potential claims and compliance costs that could adversely affect our operations after the merger.

Manufacturers and marketers of food and beverage products are subject to extensive regulation by the Food and Drug Administration, which we refer to as the FDA, the United States Department of Agriculture, which we refer to as the USDA, and other national, state and local authorities. For example, the Food, Drug and Cosmetic Act and its regulations govern, among other things, the manufacturing, composition and ingredients, packaging and safety of foods. Under this act, the FDA regulates manufacturing practices for foods through its current “good manufacturing practices” regulations, and imposes ingredient specifications and requirements for many foods. Additionally, the USDA has adopted regulations with respect to a national organic labeling and certification program which were effective February 20, 2001 and fully implemented on October 21, 2002. Food and beverage manufacturing facilities and products are also subject to periodic inspection by federal, state and local authorities. Any changes in laws and regulations applicable to food and beverage products could increase the cost of developing and distributing GFA’s products and otherwise increase the cost of conducting our business after the business combination, which would adversely affect our financial condition. In addition, if we and/or GFA fail to comply with applicable laws and regulations, including future laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on our business, financial condition, results of operations or liquidity.

We may be subject to significant liability should the consumption of any of food or beverage products manufactured or marketed by GFA cause injury, illness or death. Regardless of whether such claims against

 

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GFA are valid, they may be expensive to defend and may generate negative publicity, both of which could adversely affect GFA’s operating results.

The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties or product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents or residues introduced during production processes. Although we may believe that GFA or its manufacturers are in material compliance with all applicable laws and regulations, if the consumption of GFA’s products causes or is alleged to have caused an illness in the future, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding an illness, injury or death could adversely affect GFA’s reputation with existing and potential customers and our corporate image and operating results. Moreover, claims or liabilities of this nature might not be covered by insurance or by any rights of indemnity or contribution that we or GFA may have against others. While we may have indemnification rights related to certain product liability claims prior to the completion of the business combination and while GFA has product liability insurance coverage in amounts we believe to be adequate, we cannot be sure that claims or liabilities will be asserted for which adequate indemnification or insurance will be available or that such claims or liabilities will not exceed the available amount of insurance coverage.

GFA’s food or beverage products may also experience product tampering, contamination or spoilage or be mislabeled or otherwise damaged. Under certain circumstances a product recall could be initiated, leading to a material adverse effect on GFA’s operations and our operating results. Recalls, though not mandated by the Food Drug and Cosmetic Act, may be required nonetheless to avoid seizures or civil or criminal litigation. Even if such a situation does not necessitate a recall, product liability claims could be asserted against us or GFA. A products liability judgment or a product recall involving GFA or us could have a material adverse effect on our business, financial condition, results of operations or liquidity. We do not currently maintain a crisis management system to respond to product recall or liability-related issues arising from the manufacture or sale of food or beverage products. If GFA lacks a crisis management system or has a crisis management system that, in our opinion, is insufficient, we intend to implement or upgrade the system. The implementation or upgrade process may be expensive and time consuming, and does not assure that we will be able to respond on a timely or effective basis if GFA encounters a crisis.

GFA is also heavily dependent on its manufacturers for compliance with sound and lawful production of its products. Therefore, if GFA does not have adequate insurance or contractual indemnification, product liabilities relating to defective products could have a material adverse effect on GFA’s business, results of operations, liquidity and financial condition.

Regardless of whether any claims against GFA are valid, or whether it is ultimately held liable, claims may be expensive to defend and may divert time and money away from its operations, which could have a detrimental effect on its performance. A judgment that is significantly in excess of GFA’s insurance coverage for any claims could materially and adversely affect its financial condition or results of operations. Any adverse publicity resulting from these allegations may also materially and adversely affect GFA’s reputation, which could adversely affect its results.

The food processing industry has been subject to a growing number of claims based on the nutritional content of food products as well as disclosure and advertising practices. GFA may also be subject to this type of proceeding in the future and, even if not, publicity about these matters (particularly directed at the quick-service and fast-casual segments of the industry) may harm GFA’s reputation and adversely affect its results.

Slotting fees and customer charges or charge-backs for promotion allowances, cooperative advertising and damaged, undelivered or unsold food or beverage products may have a significant impact on the operating results of GFA and may disrupt customer relationships on which GFA depends.

Retailers in the grocery industry charge slotting fees for access to shelf space and often enter into promotional and advertising arrangements with distributors and manufacturers that result in the sharing of

 

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promotional and advertising costs among the retailer, distributor and/or manufacturer. As the retail grocery industry has consolidated and become more competitive, retailers have sought greater participation by distributors and manufacturers in cooperative promotional and advertising arrangements, and are more inclined to pass on unanticipated increases in promotional and advertising costs to distributors and manufacturers. Additionally, retailers are exhibiting a greater willingness to take deductions for damaged, undelivered and unsold products or to return unsold products to distributors and manufacturers. The vast majority of distributors, including GFA, and manufacturers sell their food and beverage products to retailers without a right of return, however, the presence of only a small number of retailers may have the practical effect of requiring distributors and manufacturers to accept returns even if their policies do not obligate them to do so. If GFA is charged significant and unanticipated promotional allowances or advertising charges by retailers, or if its customers take substantial charge-backs or return material amounts of food or beverage products, the operating results and liquidity of GFA could be harmed substantially. Moreover, an unresolved disagreement with a retailer concerning promotional allowances, advertising charges, charge-backs or returns could significantly disrupt or cause the termination of a customer relationship, immediately reducing our post-merger sales and liquidity. Because of the limited number of retailers in the U.S. grocery market, the loss of even a single retailer could have a long-term negative impact on our financial condition and revenues.

Changes in retail distribution arrangements can result in the temporary loss of retail shelf space and disrupt sales of food or beverage products, which could cause GFA’s sales to fall.

From time to time, retailers change distribution centers that supply some of their retail stores or change sales agencies that are responsible for stocking and maintaining food and beverage products in parts of their stores. If a new distribution center has not previously distributed GFA’s products in that region or if a sales agency is not familiar with GFA’s products, there will be a delay in a distribution center’s ability to begin distributing new products in its region or to arrange for a sales agency to represent and stock GFA’s products. Even if a retailer approves the distribution of products in a new region, product sales may decline while the transition in distribution or sales arrangements takes place. If GFA does not get approval to have its products offered in a new distribution region or if getting this approval takes longer than anticipated, our operating results may suffer. Likewise, if GFA cannot establish a relationship with a sales agent to stock food or beverage products in one or a number of stores or if GFA temporarily loses shelf space during the time it takes to do so, its sales may decline.

Risks Related to Boulder

If we are unable to complete the GFA merger, we will require additional funds in order to pursue an alternate business combination. If we are not able to complete an alternate business combination within the required time period, we must liquidate.

If the GFA merger is not approved by our stockholders, or if the holders of 20% or more of our common stock issued in our initial public offering vote against the merger and elect to convert their shares to cash, we will not acquire GFA. Our liabilities incurred in connection with the merger and our other operating activities exceed the funds available to us by approximately $4.4 million at December 31, 2006. The funds in our trust account from our initial public offering consist of the net offering proceeds, plus interest (other than $750,000 we were permitted to use as working capital). None of these trust funds are available to us to pursue alternate business combinations. Therefore, we will need to obtain addition working capital from our founding directors and initial stockholders or from private investors. There is no assurance that additional capital will be available on terms acceptable to us.

Even if we are able to raise enough working capital to identify and evaluate prospective businesses for an alternate business combination, we will be limited by time constraints imposed by our certificate of incorporation. If the GFA merger is not completed for any reason and we are not able to complete an alternative business acquisition by June 16, 2007 or enter into a letter of intent, agreement in principle or definitive agreement for an alternate business combination by June 16, 2007 and complete that alternate business combination by December 16, 2007, we will be required to liquidate.

 

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Under Delaware law, our dissolution and liquidation requires the approval of the holders of a majority of our outstanding stock, without which we will not be able to dissolve and liquidate and distribute the trust account proceeds to our public stockholders.

Pursuant to Delaware law, our dissolution and liquidation requires the affirmative vote of stockholders owning a majority of our then outstanding voting stock. Soliciting the vote of our stockholders will require the preparation of preliminary and definitive proxy statements, which will need to be filed with the Securities and Exchange Commission and could be subject to its review. This process could take a substantial amount of time ranging from 40 days to several months. As a result, the distribution of our trust account proceeds to our stockholders could be subject to considerable delay. Furthermore, we may need to postpone the stockholders meeting, resolicit our stockholders or amend our plan of dissolution and distribution to obtain stockholder approval, all of which would further delay the distribution of the funds in the trust account and result in increased costs.

If we are not able to obtain approval from a majority of our stockholders, we will not be able to dissolve and liquidate and we will not be able to distribute funds from our trust account to our public stockholders, and these funds will not be available for any other corporate purpose. In the event that we are unable to obtain approval for our dissolution and liquidation, we will nonetheless continue to pursue stockholder approval for our dissolution. However, we cannot predict whether our stockholders will approve our dissolution in a timely manner or at all. As a result, we cannot provide our public stockholders with assurances of a specific timeframe for the dissolution and liquidation. If our stockholders do not approve our dissolution and liquidation and the funds remain in the trust account for an indeterminable amount of time, we may be considered an investment company and in that event, we would be subject to the regulatory burden and additional expense of complying with the Investment Company Act of 1940.

If we liquidate, our stockholders will receive less than the amount at which we sold units in our initial public offering.

If stockholders approve our liquidation, we will distribute amounts held in our trust account pro rata to the holders of the shares of common stock issued in our initial public offering, subject to the costs of liquidation and to valid claims of creditors who have not waived claims against the trust account. Two of our founding directors have agreed to indemnify us for claims of these creditors. If they cannot or do not indemnify us for these claims, we anticipate that liquidating distributions would be reduced by approximately $0.35 per share, based on amounts owed to creditors as of December 31, 2006 who have not waived claims against the trust account. We anticipate that if these creditors are not paid out of the trust account, total liquidating distributions would be approximately $7.88 per share if the distributions were made on December 31, 2006. However, we cannot estimate the actual amount that would be distributed, which will be less than the $8.00 price paid by investors in our initial public offering. There will be no distribution from the trust account with respect to our public warrants or funding director warrants, which will expire worthless.

In connection with our liquidation, we will pay, or reserve for payment, from funds not held in trust, our liabilities and obligations, although we cannot assure you that there will be sufficient funds for such purpose. Unless we are able to obtain additional financing, we will not have sufficient funds outside the trust account to satisfy our liabilities and obligations. Accordingly, the trust account proceeds could be subject to claims that could take priority over the claims of our public stockholders. In addition, stockholders who received a return of funds could be liable for claims made by creditors to the extent of distributions received by them in a dissolution, and any such liability of our stockholders would likely extend beyond the third anniversary of the dissolution.

If we liquidate and our two founding directors contest their liability under their indemnity agreements, our board of directors will assess the costs and benefits of litigation against the founders before deciding whether to enforce the agreements. Depending on the assessment, our board of directors may choose not to enforce the agreements, which would result in a reduction in the amount of liquidating distributions to stockholders.

If we do not complete the GFA merger or other business combination and are forced to liquidate, the trust account proceeds may be subject to claims that could take priority over the claims of our public stockholders.

 

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Messrs. Hughes and Lewis, our two founding directors, have entered into separate indemnity agreements under which they will be personally liable to ensure that the proceeds of the trust account are not reduced by the claims of creditors. The exercise of our rights under these agreements in the event that Messrs. Hughes or Lewis contest their liability or default under these agreements will be determined by our board of directors, with Messrs. Hughes and Lewis abstaining. As of this date, our directors have not made a determination regarding the actions they would cause Boulder to take against Messrs. Hughes and Lewis. Such a determination will be made at the time of the dispute or default, in light of the directors’ duties as fiduciaries and the facts and circumstances at the time, including the amount of the aggregate claims against Messrs. Hughes and Lewis, the anticipated costs of litigation and whether litigation could be expensive and delay dissolution.

In the event that our board of directors decides not to enforce the indemnification agreements against Messrs. Hughes and Lewis, we anticipate that liquidating distributions would be reduced by approximately $0.35 per share, based on amounts owed to creditors as of December 31, 2006 who have not waived claims against the trust accounts.

Failure to complete the merger could negatively impact the market price of our common stock, which would ultimately result in the disbursement of the trust proceeds, causing investors to experience a loss on their investment.

If the merger is not completed for any reason, we may be subject to a number of material risks, including:

 

   

the market price of our common stock may decline to the extent that the current market price of our common stock reflects a market assumption that the merger will be completed;

 

   

certain costs related to the merger, such as legal and accounting fees and the costs of the fairness opinion, must be paid even if the merger is not completed; and

 

   

charges will be made against earnings for transaction-related expenses, which are higher than expected.

A decreased market price and added costs and charges of the failed merger could make it more difficult to attract another acquisition candidate, especially for a combination involving stock as well as cash, and may ultimately result in the disbursement of the trust proceeds, causing investors to experience a loss on their investment.

The financial interests of our officers and directors, which may be different than the best interests of our stockholders, may have influenced their motivation in causing us to enter into and close the GFA merger agreement.

Our officers and directors will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not in the trust account unless the GFA merger is completed. If we do not complete the GFA merger or other business combination and are forced to liquidate, the trust account proceeds may be subject to claims that could take priority over the claims of our public stockholders. Messrs. Hughes and Lewis, our two founding directors, have entered into separate indemnity agreements under which they will be personally liable under certain circumstances to ensure that the proceeds of the trust account are not reduced by the claims of various vendors that are owed money by us for services rendered or contracted for, or claims of other parties with which we have contracted. Additionally, Messrs. Hughes, Lewis, Gillespie, McCarthy, Hooper and O’Brien purchased a combined total of 1,000,000 founding director warrants concurrently with the closing of our initial public offering. The shares of common stock and warrants owned by our officers and directors and their affiliates will be worthless if we do not consummate a business combination, and the $1.7 million purchase price of the founding director warrants will be included in the working capital that is distributed to our public stockholders in the event of our liquidation. These financial interests of our officers and directors may have influenced their motivation in causing us to enter into and close the GFA merger agreement.

 

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If third parties bring claims against us or if GFA has breached any of its representations, warranties or covenants set forth in the merger agreement, we will not be indemnified for any losses arising therefrom.

The merger agreement provides that the GFA stockholders have no obligation to indemnify us for losses arising from a breach of the representations or warranties by GFA set forth in the merger agreement other than claims for fraud, and all representations and warranties of GFA will expire at closing.

Because our directors may not be considered “independent” under the policies of the North American Securities Administrators Association, Inc., actions taken and expenses incurred on our behalf by our officers and directors will generally not be subject to “independent” review. If actions taken by our officers and directors are contrary to our best interests, the market price of our securities could be adversely affected.

Each of our directors owns shares of our common stock and may receive reimbursement for out-of-pocket expenses incurred in identifying and performing due diligence on potential target businesses and attending meetings of the board of directors. However, our directors receive no salary or other compensation for services rendered by them on our behalf prior to or in connection with the GFA merger. We have agreed to pay Hughes Consulting, Inc. and Jeltex Holdings, LLC, affiliates of Messrs. Hughes and Lewis, respectively, a combined total of $10,000 per month for office space, administrative services and secretarial support which may be required by us. This arrangement was agreed to by Hughes Consulting, Inc. and Jeltex Holdings, LLC for our benefit and is not intended to provide Messrs. Hughes and Lewis with compensation in lieu of a salary or other remuneration. We believe that the monthly expense is at least as favorable as we could have obtained from an unaffiliated person. Upon completion of a business combination or our liquidation, this monthly fee will cease. Accordingly, we believe our non-executive directors would be considered “independent” as that term is commonly used. However, under the policies of the North American Securities Administrators Association, Inc., an international organization devoted to investor protection, and because each of our directors own shares of our securities and may receive reimbursement for out-of-pocket expenses incurred in connection with activities on our behalf, state securities administrators may take the position that all of such individuals are not “independent” and, as such, we would not have the benefit of any independent directors examining the propriety of expenses incurred on our behalf and subject to reimbursement. Subject to availability of proceeds not placed in the trust account and interest income, net of income taxes, available to us, there is no limit on the amount of out-of-pocket expenses that could be incurred.

We have agreed with the representatives of the underwriters of our initial public offering that our audit committee will review and approve all expense reimbursements made to our officers, directors or senior advisors and that any expense reimbursements payable to members of our audit committee will be reviewed and approved by our board of directors, with the interested director or directors abstaining from such review and approval. To the extent such out-of-pocket expenses exceed the available proceeds not deposited in the trust account and interest income, net of income taxes, available to us, such out-of-pocket expenses would not be reimbursed by us unless we consummate a business combination. Messrs. Hughes and Lewis, our two founding directors, have entered into separate indemnity agreements under which they will be personally liable under certain circumstances to ensure that the proceeds of the trust account are not reduced by the claims of various vendors that are owed money by us for services rendered or contracted for, or claims of other parties with which we have contracted. We cannot assure you that all actions taken on our behalf by our directors will be in our best interests and in accordance with statutory duties owed to us. If actions are taken or expenses incurred that are not in our best interests, it could have a material adverse effect on our business, operations and the price of our securities held by public stockholders.

Our results of operations and our stock price may fluctuate due to changes in the fair value of our outstanding public warrants from time to time.

Our public warrants are classified as derivative liabilities on our balance sheet. Changes in the fair value of these warrants will result in changes in the recorded amount of these derivative liabilities, and the corresponding gain or loss also will be included in our results of operations. The value of the public warrants will be affected

 

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by, among other things, changes in the market price of our common stock and could fluctuate significantly from quarter to quarter, and the resulting impact on our results of operations could cause the market price of our common stock to fluctuate in turn. Even if the GFA merger is not completed, these fluctuations will continue to affect our results of operations as long as the public warrants remain outstanding.

If the merger’s benefits do not meet the expectations of financial or industry analysts, the market price of our common stock may decline.

The market price of our common stock may decline as a result of the GFA merger if:

 

   

Boulder does not achieve the perceived benefits of the merger as rapidly as, or to the extent anticipated by, financial or industry analysts; or

 

   

the effect of the merger on our financial results is not consistent with the expectations of financial or industry analysts.

Accordingly, investors may experience a loss as a result of a decreasing stock price and we may not be able to raise future capital, if necessary, in the equity markets.

Risks Relating to the Simultaneous Private Placement

The investors in the private placement have the right to approve material amendments or waivers under the GFA merger agreement. We could disagree with the investors regarding a proposed amendment or waiver and not be able to complete the private placement and the merger.

Investors who have committed to pay a majority of the subscription amounts in the private placement have the right to approve any material amendment to or waiver under the GFA merger agreement. This approval must at all times include the approval of the two investors making the largest investments: affiliated investment funds of OZ Management, L.L.C. and Glenview Capital Management, LLC.

There could be situations in which we would be willing to approve a material amendment or waive a requirement under the GFA merger agreement but the investors would not. In that event, the investors would control our ability to complete the merger, because our failure to obtain their approval would allow them to terminate the securities purchase agreement for the private placement.

Stockholders’ interests in Boulder will be diluted and could be further diluted in the future.

We will initially issue 14,410,188 shares of common stock and 15,388,889 shares of Series A convertible preferred stock and 15,388,889 related investor warrants in the private placement. Our issuance of additional shares of common stock and common stock equivalents will significantly reduce your percentage equity interest in us.

Further dilution could occur as a result of provisions in the legal documents for the private placement:

 

   

increasing the amount of the liquidation preference of the Series A convertible preferred stock by the amount of unpaid dividends (which our lenders will not permit us to pay in cash) that accrue quarterly at the initial rate of 8% per annum (which rate may increase to as much as 15% per annum), because increases in the liquidation preference will result in turn in the issuance of more shares of common stock upon any conversion of the Series A convertible preferred stock (or the exercise of the related investor warrants, which become exercisable upon the redemption of the Series A convertible preferred stock);

 

   

requiring reductions in the conversion price of the Series A convertible preferred stock, up to an aggregate of 9%, if we default on our obligation to: (1) designate the Series A convertible preferred stock as Portal Trading Securities with the PORTAL Market of the NASDAQ Stock Market, Inc., (2) list our common stock on the NASDAQ Global Market or the NASDAQ Capital Market or the

 

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American Stock Exchange, (3) register the resale, under the Securities Act of 1933, as amended, of the shares of common stock issued or issuable in connection with the private placement, or (4) not suspend the availability of the registration statement for use by investors for (a) more than 45 consecutive days or (b) for more than 90 calendar days during any 12-month period;

 

   

requiring reductions in the conversion price of the Series A convertible preferred stock based on anti-dilution protection for issuances of our common stock at a price below the conversion price or below the then-market price, with the adjustments being made on a weighted average basis, which means that the number of shares sold at such price will be taken into account in adjusting the conversion price; and

 

   

requiring the issuance of additional shares of common stock to investors who buy common stock in the private placement, comparable to and at the same time as the reductions in the conversion price of the Series A convertible preferred stock if we default in our obligation to list our common stock on NASDAQ or to register the resale, under the Securities Act, of the shares of common stock issued or issuable in connection with the private placement.

We intend to reserve a total of 60 million shares of common stock for issuance in order to cover the circumstances described above.

The private placement investors will control our voting securities as a result of the private placement, which could allow them to control the outcome of matters submitted for stockholder approval and, thus, significantly influence our corporate direction.

The shares of Series A convertible preferred stock that we issue in the private placement will vote on an as-converted basis together with the common stock on all matters on which the holders of common stock are entitled to vote, except as otherwise required by law. The 14,410,188 shares of common stock and 15,388,889 shares of Series A convertible preferred stock that we issue in the private placement will constitute 65.13% of our outstanding voting stock immediately after the private placement, excluding warrants exercisable for common stock. As a result, the private placement investors, acting together, will have the ability to control all matters requiring approval of a majority of our stockholders, including mergers, and will have significant influence over matters requiring a super-majority vote under our certificate of incorporation, including the election of directors and amendments to our certificate. As explained in the preceding risk factor, the percentage ownership of the private placement investors may increase due to adjustments to the conversion ratio for the Series A preferred stock. Accordingly, the private placement investors could eventually have absolute control over all matters requiring a super-majority vote. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company. It could also deprive stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and it may affect the market price of our stock. The private placement investors’ control of our voting securities may limit the ability of our other stockholders to approve transactions that they deem to be in their best interests.

Holders of our Series A convertible preferred stock have substantial rights that could allow them to significantly influence our management and corporate direction and may also limit the ability of our other stockholders to approve transactions that they deem to be in their best interests.

The terms of our Series A convertible preferred stock provide the holders with certain preferential rights. So long as the number of outstanding shares of our Series A convertible preferred stock represents at least 12.5% of the total number of shares of Series A convertible preferred stock issued at the closing of the private placement, we may not engage in various corporate actions without the consent of the holders of a majority of the Series A convertible preferred stock then outstanding, including:

 

   

incurring or refinancing any debt, except for:

 

   

any additional debt (up to $30 million) issued pursuant to our senior credit facility in effect on the date of issuance of the Series A convertible preferred stock,

 

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any debt issued to redeem the Series A convertible preferred stock, or

 

   

any refinancing of the indebtedness outstanding under the senior credit facility;

 

   

issuing any equity securities, except for securities issued to a Boulder employee, director or consultant pursuant to a board-approved option or incentive plan or any shares of authorized but unissued preferred stock; or

 

   

making acquisitions (other than the GFA merger) or dispositions in excess of an aggregate amount equal to or greater than 110% of the amount allowed under our credit facility in effect on the date of issuance of the Series A convertible preferred stock.

The specific rights granted to the holders of Series A convertible preferred stock could have the effect of delaying, deterring or preventing us from making acquisitions, raising additional capital, or effecting other strategic corporate transactions. The preferential rights could also be used to deter unsolicited takeovers or delay or prevent changes in our control or management, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. These rights may also limit the ability of our other stockholders to approve transactions that they deem to be in their best interests.

Holders of our Series A convertible preferred stock have preferential rights with respect to dividends and distributions upon our liquidation, which may cause our other stockholders to not receive dividends or payment upon liquidation.

Holders of our Series A convertible preferred stock will have preferential rights with respect to dividends and distributions upon our liquidation, including certain business combinations. Accordingly, no distributions upon liquidation may be made to the holders of our common stock unless the holders of our Series A convertible preferred stock have received distributions equal to their liquidation preference of $9.00 per share, plus accrued but unpaid dividends. As a result, it is possible that, upon liquidation, all of the amounts available for distribution to our equity holders would be paid to the holders of the Series A convertible preferred stock and our other stockholders would not receive any payment.

The issuance of additional shares of common stock pursuant to the proposed private placement may have an adverse effect on the market price of our common stock.

The shares of common stock we issue in connection with the proposed private placement, including the issuance of substantial numbers of additional shares upon the conversion of the Series A convertible preferred stock or the exercise of warrants that will become exercisable upon any redemption of the Series A convertible preferred stock, will increase the number of issued and outstanding shares of our common stock and could have an adverse effect on the market price for our securities or on our ability to obtain capital in the future.

Risks Relating to the Simultaneous Secured Debt Financing

The secured debt financing will result in substantial leverage. Our ability to service and refinance the debt may be limited, which could force us to reduce or delay capital expenditures, restructure our indebtedness or seek additional equity capital.

As part of the GFA merger, we will obtain secured loans in the amount of $180 million, including a $20 million revolving credit facility.

The level of our indebtedness could have important consequences to our stockholders, including: (i) a substantial portion of our cash flow from operations must be dedicated to debt service and will not be available for other purposes, including the declaration and payment of cash dividends; (ii) our ability to obtain additional debt financing in the future for working capital, capital expenditures or acquisitions may be limited; and (iii) our level of indebtedness could limit our flexibility in planning for and reacting to changes in the industry and economic conditions generally.

 

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Our ability to pay interest and principal on the secured debt financing will depend upon our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, most of which are beyond our control. We anticipate that our operating cash flow will be sufficient to meet our operating expenses and capital expenditures, to sustain operations and to service our interest and principal requirements as they become due. If we are unable to generate sufficient cash flow to service our indebtedness and fund our capital expenditures, we will be forced to adopt an alternative strategy that may include reducing or delaying capital expenditures, restructuring or refinancing our indebtedness or seeking additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. Our ability to meet our debt service obligations will be dependent upon our future performance which, in turn, is subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

If we are obligated for any reason to repay our secured debt financing before the scheduled installment dates, we could deplete our working capital, if available, or make raising additional funds necessary. Our failure to repay the secured debt financing, if required, could result in legal action against us which could materially harm our business.

Assuming we consummate the GFA merger, we will have outstanding at least $160 million of secured debt. Any event of default could require the early repayment of the secured debt financing in whole or in part at a redemption premium together with accrued interest on the outstanding principal balance of the secured debt financing and any other applicable penalties, including a default interest rate. If, prior to the maturity date, we are required to repay the secured debt financing in full, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the secured debt financing, together with the applicable redemption premium and other applicable penalties, when required, our lenders could commence legal action against us to recover the amounts due. Any such action would be materially harmful to us and could require us to curtail or cease operations.

The loan agreement for the secured debt financing will contain covenants that will significantly restrict our operations, which may negatively affect our ability to operate our business and limit our ability to take advantage of potential business opportunities.

The loan agreement with respect to the secured debt financing will contain numerous covenants imposing financial and operating restrictions on our business. Any other future debt agreements may contain similar covenants. These restrictions may affect our ability to operate our business, limit our ability to take advantage of potential business opportunities as they arise and adversely affect the conduct of our current business. These covenants may place restrictions on our ability and the ability of our subsidiaries to, among other things:

 

   

incur more debt or issue certain equity interests;

 

   

pay dividends, redeem or purchase our equity interests or make other distributions;

 

   

make certain acquisitions or investments;

 

   

use assets as security in other transactions or otherwise create liens;

 

   

enter into transactions with affiliates;

 

   

merge or consolidate with others; and

 

   

transfer or sell assets, including the equity interests of our subsidiaries, or use asset sale proceeds.

Additionally, our failure to comply with our debt-related obligations with respect to the secured debt financing could result in an event of default under the secured debt financing.

 

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FORWARD-LOOKING STATEMENTS

We believe that some of the information in this proxy statement constitutes forward-looking statements. 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 that communicating our expectations to our stockholders is important. However, there may be events in the future that we and GFA are not able to accurately predict or over which we have no control. The risk factors and cautionary language discussed in this proxy statement provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations we describe in our forward-looking statements, including among other things:

 

   

our ability to:

 

  (1) maintain, promote, support and extend the brand equity in the Smart Balance® and Earth Balance® trade names;

 

  (2) maintain the exclusive license of the intellectual property utilized in many of GFA’s products and protect its proprietary formulations;

 

  (3) maintain and grow margarine distribution and sales;

 

  (4) anticipate and respond to new consumer trends;

 

  (5) develop, introduce, market and distribute new products and sizes;

 

  (6) create additional channels of distribution;

 

  (7) achieve sales and earnings forecasts, which are based on assumptions regarding sales volume, product mix and other items;

 

  (8) maintain profit margin in the face of a consolidating retail environment and large global customers;

 

  (9) recruit and retain officers, key employees or directors, following the business combination with GFA; and

 

  (10) remain in compliance with the terms and conditions of the secured debt facility.

 

   

recalls of our products if they become adulterated or misbranded;

 

   

any significant change in GFA’s business with any of its major customers;

 

   

impact of unforeseen economic and political changes in markets where GFA competes, such as export and import restrictions, currency exchange rates and restrictions, inflation rates, recession, foreign ownership restrictions, nationalization and other external factors over which we have no control;

 

   

performance of our business in hyperinflationary environments;

 

   

changes in accounting treatments and estimates in critical accounting judgments;

 

   

effectiveness of advertising, marketing and promotional programs;

 

   

increases in raw material costs and interruptions in supply of raw materials;

 

   

impact of global industry conditions, including the effect of an economic downturn in the food industry;

 

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currency movements, fluctuations in levels of customer inventories and credit and other business risks related to GFA’s customers operating in a challenging economic and competitive environment;

 

   

ability to satisfy covenants and operating ratios relating to borrowings; and

 

   

competitive responses from large competitors which require increased trade promotion.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.

All forward-looking statements included herein attributable to us 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, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement 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 approval of the merger and the related proposals you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement could have a material adverse effect on our operations following completion of the merger.

 

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PROPOSAL 1: THE MERGER PROPOSAL

Pursuant to article XII of our certificate of incorporation, our proposed acquisition of GFA by merger is a business combination that we are required to submit for stockholder approval.

General Description of the Merger

Pursuant to the merger agreement, we will acquire 100% of the issued and outstanding securities of GFA Holdings, Inc. through the merger of a newly created Boulder subsidiary into GFA. See “The Merger Agreement” for a more detailed description of the structure and terms of the merger.

Background of the Merger

The terms of the merger agreement are the result of arm’s-length negotiations between representatives of Boulder and GFA. The following is a brief discussion of the background of these negotiations, the merger and related transactions.

Boulder Specialty Brands, Inc. was incorporated in Delaware on May 31, 2005, as a blank check company formed to serve as a vehicle for the acquisition, through a merger, capital stock exchange, asset acquisition or other similar business combination with a then currently unidentified operating business and/or brand in the consumer food and beverage industry whose net assets are at least 80% of the net assets of Boulder.

A registration statement for our initial public offering was declared effective on December 16, 2005 and we consummated our initial public offering of 12,760,840 units on that date, each consisting of one share of common stock and one redeemable common stock purchase warrant.

The net proceeds from the sale of the units and the sale of $1.7 million of founding director warrants were approximately $99.5 million. Of this amount, $98.4 million (including deferred underwriter fees of approximately $3.6 million) was deposited in trust and, in accordance with our certificate of incorporation, will be released either upon the consummation of a business combination or upon the liquidation of Boulder. The remaining $1.1 million was held outside of the trust for use to provide for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. In addition, under the terms of our initial public offering, up to $750,000 of interest income from the trust account, net of income tax, was available to us for use for general expenses. In June 2006, we transferred $750,000 out of the trust account. As of December 31, 2006, approximately $101.1 million was held in deposit in the trust account.

During the period from our initial public offering in December, 2005 through June, 2006 we were involved in identifying and evaluating prospective businesses regarding potential business combinations and worked from a list of over 165 potential acquisition candidates in the food and beverage industry that was preliminarily prepared prior to our initial public offering. The preliminary candidate list was not disclosed in the prospectus for our initial public offering because it was only a work in process at the time and subject to change. The 165 candidate list was ultimately finalized after our initial public offering during the first week of 2006. Of the 165 potential candidates, 68 were estimated to meet our transaction size criteria of greater than $77 million, and these candidates in turn, were categorized by product category type, and then ranked in each category on the basis of perceived top line growth potential, perceived margin improvement potential and perceived receptivity to acquisition. During the first several months of the process, we made contacts with the resulting top 25 candidates, either directly or through intermediaries. Some of the discussions continued to remain ongoing for a period of time, but all of them ultimately broke off. Neither GFA nor the candidate we were actively negotiating with when GFA first approached us about a transaction was on our initial 165 candidate list. We had no knowledge of GFA until GFA contacted us on May 3, 2006, as described below.

Our officers and directors, led by Robert Gluck, vice chairman of Boulder, attempted to source opportunities both proactively and reactively, and given the mandate to find a suitable business combination partner, we did

 

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not limit ourselves to any one transaction structure (such as percentage of cash versus percentage of stock issued to seller, straight merger, corporate spin-out or management buy-out). Proactive sourcing involved our management, among other things:

 

   

initiating conversations with third-party companies, whether by phone, e-mail or other means and whether directly or via their major stockholders, that management believed might make attractive combination partners;

 

   

attending conferences, trade shows or other events to meet prospective business combination partners;

 

   

contacting professional service providers (lawyers, accountants, consultants and bankers);

 

   

utilizing their own network of business associates and friends for leads;

 

   

working with third-party intermediaries, including investment bankers; and

 

   

inquiring of business owners, including private equity firms, of their interest in selling their business.

Reactive sourcing involved fielding inquiries or responding to solicitations by either (1) companies looking for capital or investment alternatives, or (2) investment bankers or other similar professionals who represented a company engaged in a sale or fund-raising process.

Prior to signing the merger agreement with GFA, we considered numerous companies in the food and beverage sector and signed ten separate non-disclosure agreements, two of which resulted in our extending a non-binding expression of interest as part of an auction process for two unrelated privately held companies.

Based on their experience in sourcing investment opportunities, our management team believes that the competition for quality companies is intense and that a company which we may have believed to be a suitable business combination partner had several alternatives to choose from, including remaining independent or selling itself to a third party, as well as sourcing capital either privately or publicly. Additionally, in many cases, our management had to spend time educating a prospective business combination partner about “special purpose acquisition companies” and explain, from Boulder management’s perspective, the benefits we could offer compared to other alternatives these companies might be considering. Prior to the negotiations that led to the execution of the merger agreement, none of these discussions concerning potential business combination partners led to a final binding offer by Boulder.

Highlighted below is a detailed chronology of the events leading to the execution of the merger agreement:

On May 3, 2006, Charles Esserman, director of GFA, phoned Stephen Hughes, our chairman and CEO, to introduce GFA and its Smart Balance® brand and its Earth Balance® brand as a potential acquisition opportunity for Boulder. There were no pre-existing relationships between any of our initial shareholders and any insiders of GFA. Mr. Hughes explained to Mr. Esserman that we were actively engaged in an auction process for another company in the food and beverage industry and were in the final stages of completing our due diligence in support of preparing a binding bid, but were agreeable to receiving additional information on GFA to review with the Boulder team.

On May 7, 2006, Mr. Hughes executed a confidentiality agreement on behalf of Boulder with regard to background information on GFA and Smart Balance® presented verbally to Mr. Hughes by Alex Panos, a director of GFA. Mr. Panos and Mr. Esserman are also managing directors of TSG Consumer Partners, which manages an investment fund that is GFA’s controlling stockholder.

On May 8, 2006, Mr. Panos also provided Robert Gluck, vice chairman of Boulder, with verbal background information on the GFA and Smart Balance® opportunity.

On May 12, 2006, Mr. Hughes and Mr. Gluck had a teleconference with Mr. Panos after which time both were provided with additional detailed information on GFA’s patent portfolio.

 

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On May 15, 2006, GFA provided Mr. Gluck, with additional written overview information on the Smart Balance® brand, including a presentation on Smart Balance® from AC Nielsen and information regarding a new product that GFA plans to launch later in the year.

On May 16, 2006, Mr. Hughes met with Mr. Panos to discuss the GFA business in greater detail and to determine our interest in proceeding with further discussions. At that meeting, Mr. Hughes indicated that he would like to have GFA make a presentation to our board of directors at an off-site meeting in Maryland on May 18, 2006. The May 18th meeting of our board of directors had originally been scheduled to discuss business matters relating to making a final bid on one of the acquisition opportunities that we were considering at that time. The presentation on GFA represented a last minute addition to the original agenda for the May 18th meeting. We engaged Citigroup to serve as our financial advisor beginning at the May 18 meeting.

On May 18, 2006, Mr. Panos, along with members of GFA’s financial advisors, Banc of America Securities and UBS, made a presentation to our board of directors and advisors, including our financial advisor, Citigroup, on the background, recent business performance, and future direction of GFA, highlighting the merits of a potential combination with Boulder. The presentation highlighted the uniqueness and attractiveness of the Smart Balance® brand and its business fit with Boulder and its management team; outlined the historic growth of GFA’s business, its fit with current and future consumer health and wellness trends and GFA’s outsourcing business model; highlighted historical financial performance; and suggested public company comparables in the consumer products area.

On May 19, 2006, at a subsequent meeting of our board of directors, a decision was made to pursue the potential GFA acquisition on a parallel track to the other acquisition opportunity that we were pursuing. The goal set by our board of directors was to negotiate a letter of intent to purchase GFA at an acceptable, but yet to be determined, price (subject to board approval), several days prior to the June 9, 2006 final bid date for the other business we were considering acquiring. Our board determined that if an acceptable letter of intent could not be negotiated with GFA by June 5th, then all negotiations with GFA would cease. During this period, it was decided that work should continue unabated on preparing the final bid for the other acquisition opportunity, which was due on June 9, 2006.

On May 25, 2006, Mr. Hughes and Mr. Gluck met with members of Citigroup to discuss their perspective on the GFA opportunity. After the meeting, members of our board of directors held a teleconference to discuss a potential term sheet to send to GFA. After much discussion, our board agreed that based on the valuation summary of the GFA opportunity developed by Citigroup and a review of the long-term business results that could be expected of GFA under Boulder management, a valuation range of up to $525 million was appropriate, with a significant portion of the merger compensation ($25 million to $100 million) to be in the form of Boulder common stock. The long-term business results expected for GFA by Boulder management included the continued growth of GFA through the expanded distribution of existing products and the development of new products. The continued growth included expansion of existing products into new sales channels such as club stores and foodservice and the introduction of other heart healthy dairy related products under GFA’s brands. Management believed it was reasonable and appropriate for Boulder to value the business based on the results that could be expected of GFA under Boulder management, and not just on the basis of the current and historical performance of GFA. Management also believed that its valuation of the business was based on standards generally accepted within the financial community.

On May 26, 2006, Mr. Hughes and Mr. Gluck met with Mr. Esserman and Mr. Panos of GFA in New York to discuss the financial terms of our proposal for an acquisition of GFA. Mr. Gluck suggested a valuation of $450 million to $475 million, with GFA shareholders retaining an equity interest of between $100 million to $125 million. The suggested valuation of $450 million to $475 million presented by Mr. Gluck was separate from Citigroup’s valuation and was proposed by us as part of our negotiating strategy to obtain the best possible price for our shareholders. Mr. Esserman indicated that our proposal was inadequate and that GFA believed it could secure a better price by selling to a strategic buyer in an auction sale process. At the end of the meeting, it was

 

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agreed that a meeting of the respective advisors for Boulder and GFA should be held early the following week to discuss the source(s) of disagreement.

On May 30, 2006, Mr. Gluck, along with members from Citigroup and Banc of America Securities, met at the New York City offices of Banc of America Securities to discuss our proposal. Citigroup and Banc of America Securities each reviewed materials they had prepared highlighting their own views regarding the potential public company valuation of the GFA business opportunity. The financial advisors were unable to resolve their respective valuation disagreements and the meeting ended with no agreement on next steps.

On May 31, 2006, after receiving approval from our board of directors, Mr. Hughes and Mr. Gluck met with Mr. Esserman and Mr. Panos along with two of their colleagues, to discuss our proposal and try to reach agreement on a mutually agreeable purchase price and transaction structure. Mr. Gluck explained that the most we could justify for GFA in non-contingent consideration payable at closing was $500 million provided that GFA stockholders would have to take a significant amount of Boulder common stock (up to $100 million) as part of the merger consideration. Mr. Esserman indicated that GFA needed a minimum of $550 million, but would be willing to take up to $75 million in Boulder common stock if we could meet its number. Mr. Hughes then suggested that we might be able to submit a higher bid if GFA, subject to approval by our board of directors, was willing to accept a contingent deferred payment of $25 million. Mr. Esserman indicated that he wanted to consider that structure, and that it might be acceptable if GFA’s minimum price was reached. Mr. Hughes indicated that he would go back to our board to try to develop a final board-approved offer for GFA to consider, consisting of up-front cash, Boulder common stock and a contingent deferred payment.

On June 3, 2006, after reviewing the situation with our board and gaining their approval for a transaction that was below GFA’s minimum but slightly higher than our previous offer, Mr. Gluck presented Mr. Panos with a revised acquisition proposal and draft form of a letter of intent reflecting an upfront purchase price of $500 million and a contingent deferred payment of $38.3 million if our future stock price reached $11.50 per share. The upfront purchase price included $425 million in cash (with $170 million coming from a bank credit facility, $229 million from a private offering of our common stock and the balance from available cash) and $75 million in Boulder common stock. Mr. Gluck indicated that GFA only had until June 5th to approve the acquisition proposal and execute the letter of intent or else we were going to suspend our discussions regarding GFA and move forward with a final bid on another opportunity we were considering. GFA indicated that it was in general agreement with our acquisition proposal, subject to a satisfactory review of the letter of intent by its legal counsel.

On June 4th and 5th, a number of teleconferences to discuss legal and business points of the letter of intent were held between Mr. Gluck and our counsel and Mr. Panos, James O’Hara of TSG Consumer Partners and GFA’s counsel, with revised versions of the proposed letter of intent being distributed after each teleconference.

On June 5, 2006, Mr. Esserman executed the final version of the letter of intent on behalf of both TSG4, L.P. and GFA and Mr. Hughes executed the letter of intent on behalf of Boulder. Because the letter of intent contained an exclusivity provision, in order to sign it we were required to stop pursuing the bid that was due on June 9, 2006. We believed that GFA presented a more attractive opportunity because of its greater historic growth and growth potential and its better fit with management’s background compared to the other opportunity. Furthermore, on June 3, 2006, our board of directors had determined that GFA had a sufficient fair market value to meet our investment criterion that the target business have a fair market value equal to at least 80% of our net assets. Although GFA was larger than the potential candidates we had initially targeted, the growth opportunity in our targeted industry, coupled with indications from Citigroup and Banc of America Securities that they could assist in raising equity and debt financing to make the acquisition possible, led us to focus on GFA exclusively. In connection with this decision, we retained Citigroup and Banc of America Securities as co-placement agents for the private placement.

On June 9, 2006, Mr. Hughes and Mr. Gluck met in Tenafly, New Jersey with Mr. Panos and with Robert Harris, president of GFA and James Harris, executive vice president of sales of GFA, to discuss the next

 

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steps and to make final arrangements for a management presentation and due diligence session for the specific advisors at Citigroup and Banc of America Securities charged with assisting us in raising the equity financing and obtaining the bank credit facility associated with the financing of the proposed transaction.

On June 14, 2006, Mr. Gluck provided an initial draft of the merger agreement between Boulder and GFA to Mr. Panos. Negotiations on the merger agreement were extensive and continued for more than three months until the final version was executed on September 25, 2006.

Between mid-June 2006 and the end of July 2006, we worked with our financial advisors to arrange for the private placement of common stock and bank credit facility associated with the financing of the proposed transaction. Together with our financial advisors, we began seeking debt financing during the week of June 13, 2006 and equity financing during the week of July 9, 2006. Nevertheless, we were unable to obtain commitments for such financing on terms compatible with the June 5, 2006 letter of intent with TSG4, L.P. and GFA.

Between July 30, 2006 and August 8, 2006, Mr. Gluck and Mr. Panos and their respective advisers held several discussions to reach agreement on a revised set of terms and structure for the transaction that would be compatible with the terms of the financing options available to Boulder. On August 8th, after extensive negotiations between the parties, GFA accepted a proposal for an all cash purchase price of $465 million with no contingent deferred payment. Under the terms of the new structure, Banc of America Securities agreed to increase the size of the bank credit facility by $10 million (up to a total of $180 million, including a $20 million revolver), and the equity financing was changed to a private placement of common and preferred stock of approximately $246 million.

As soon as agreement was reached on price, we proceeded over the next seven weeks to finalize the remaining open issues relating to the merger agreement and the exhibits to be attached to the merger agreement. In addition, we continued to conduct our business, legal and financial due diligence investigation of GFA and its business. During this seven-week period, we also obtained final subscriptions and allocations for the private placement and negotiated the final terms and conditions of the documentation relating to the private placement, including the securities purchase agreement and the exhibits to be attached thereto, including the proposed restated certificate of incorporation, a registration rights agreement and a warrant agreement. We also finalized the debt commitment letter, incorporating the new purchase price and terms of the merger and the private placement of our equity securities. Finally, during this period, Duff & Phelps continued their work on the fairness opinion, and we provided assistance to Duff & Phelps in this regard by regularly providing them with the most recent terms and conditions of the proposed merger as embodied in the merger agreement, the private placement of our equity securities as contained in the securities purchase agreement and the debt financing as included in the debt commitment letter.

On September 4, 2006, we held a board meeting and at that meeting each aspect of the proposed transaction was thoroughly reviewed and discussed. In addition, an updated presentation reflecting the new terms and conditions of all aspects of the transaction prepared by Duff & Phelps was distributed and discussed by the board. At this meeting, our board of directors unanimously approved the merger, the private placement of our equity securities and the debt commitment.

   

On September 25, 2006:

 

   

we and 27 investors executed a securities purchase agreement providing for the private placement;

 

   

we executed the commitment letter for bank financing with Bank of America, N.A. and Banc of America Securities, LLC; and

 

   

we executed the definitive merger agreement with TSG4, L.P. and GFA.

See “Proposal 2: The Private Placement, “Description of Securities” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for information concerning the terms of the securities to be issued in the private placement and the terms of the debt financing.

 

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On April 12, 2007, we held another board meeting and after review and discussion of the proxy statement, our board unanimously approved the proxy statement including the recommendations contained therein.

Interest of Boulder Directors and Officers in the Merger

In considering the recommendation of our board of directors to vote for the proposal to approve the GFA merger, you should be aware that certain members of our management have agreements or arrangements that provide them with interests in the merger that differ from, or are in addition to, those of Boulder stockholders generally. In particular:

 

   

if the GFA merger is not approved and we fail to complete an alternative transaction within the time allotted pursuant to our certificate of incorporation and we are therefore required to liquidate, the shares of common stock and warrants held by our executive officers, directors and senior advisors will be worthless because our executive officers, directors and senior advisors are not entitled to receive any of the net proceeds of our initial public offering that may be distributed upon liquidation of Boulder. In addition, the $1.7 million purchase price of the founding director warrants will become part of the liquidating distribution to our public stockholders. Our executive officers, directors and senior advisors own a total of 2,564,864 shares of Boulder common stock that have a market value of approximately $25.4 million, based on our market price of $9.90 per share, as of April 20, 2007. Our executive officers, directors and senior advisors also own a total of 1 million warrants to purchase 1 million shares of Boulder common stock at $6.00 per share. However, because our executive officers, directors and senior advisors are contractually prohibited from selling their shares of common stock prior to the third anniversary of the effective date of the SEC registration statement for our initial public offering, during which time the value of the shares may increase or decrease, determining what the financial impact of the merger will be on our executive officers, directors and senior advisors is impossible. Our executive officers, directors and senior advisors will realize some profit regardless of any drop in market price because these initial stockholders acquired our securities at the nominal price of $.0078 per share. If we do not complete the GFA merger or other business combination, the founding director warrants owned by our executive officers, directors and senior advisors will have no value.

 

   

If we do not complete the GFA merger or other business combination and are forced to liquidate, the trust account proceeds may be subject to claims that could take priority over the claims of our public stockholders. Messrs. Hughes and Lewis, our two founding directors, have entered into separate indemnity agreements under which they will be personally liable under certain circumstances to ensure that the proceeds of the trust account are not reduced by the claims of various vendors that are owed money by us for services rendered or contracted for, or claims of other parties with which we have contracted. Messrs. Hughes and Lewis are each liable for the full amount of these claims, which means that we could seek to recover the full amount of these claims from either or both of them in such proportions as we see fit. The exercise of our rights under these agreements in the event that Messrs. Hughes or Lewis contest their liability or default under these agreements will be determined by our board of directors. If Messrs. Hughes and Lewis are directors at they time, they would have a conflict of interest with respect to the enforcement of these agreements and, if they are allowed to vote on the matter, they have indicated that they would abstain from voting as directors on this matter. As of this date, our directors other than Messrs. Hughes and Lewis have not made a determination regarding the actions they would cause Boulder to take against Messrs. Hughes and Lewis. Such a determination will be made at the time of the dispute or default, in light of the directors’ duties as fiduciaries and the facts and circumstances at the time, including the amount of the aggregate claims against Messrs. Hughes and Lewis, the anticipated costs of litigation and whether litigation could be expensive and delay dissolution.

 

   

The following persons are currently expected to manage Boulder upon completion of the GFA merger: Stephen B. Hughes, Robert S. Gluck and James E. Lewis, who are currently and will remain (with the

 

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exception of Mr. Lewis who may relinquish his position as principal accounting officer after the merger) our chairman and chief executive officer, vice chairman, and vice chairman and principal accounting officer, respectively, after the merger. Christopher W. Wolf, who currently serves as a consultant to us, is expected to become our chief financial officer after the merger. The board of directors of the combined company is expected to consist of up to ten board members. The board of directors will initially consist of Stephen B. Hughes (chairman), Robert S. Gluck (vice chairman), James E. Lewis (vice chairman), Robert J. Gillespie, William E. Hooper, Gerald J. Laber and Robert F. McCarthy, all of whom are existing directors, as well as additional members, including additional independent directors, that will be appointed after the merger.

 

   

Our board of directors has not yet finalized management compensation arrangements that will be implemented after the merger. However, we anticipate that we will provide salaries at levels that are competitive in our industry, with a bias towards performance based compensation. Pursuant to our emphasis on performance based compensation, management will be eligible to participate in our stock plan (if the plan is approved by stockholders at the special meeting), which provides for the granting of stock options and restricted stock. During 2007, our banks will require that the total cash compensation of Stephen B. Hughes and Robert S. Gluck be limited to $400,000 and $300,000, respectively. We have agreed to enter into an employment arrangement with Mr. Wolf upon completion of the merger. We intend to enter into severance and change in control agreements with senior executives upon completion of the merger. The terms of these agreements have not yet been finalized. We anticipate that compensation arrangements will be finalized shortly before the merger.

 

Interest of Citigroup in the Merger; Fees

Citigroup served as our financial advisor in connection with negotiating the GFA merger and also assisted us in obtaining commitments for the private placement that is necessary to help fund the merger consideration. Citigroup served as an underwriter in our initial public offering and agreed to defer $3.6 million of its underwriting discounts and commissions. This deferred amount will be paid out of the trust account established for the proceeds of the offering only if we complete a business combination. Citigroup therefore has an interest in our completing a business combination that will result in the payment of its deferred compensation.

In addition to receiving its deferred compensation, Citigroup will receive fees of $5.6 million upon completion of the GFA merger in exchange for its advisory services in connection with the merger. Citigroup also will receive fees of $9.0 million for its placement services in connection with the private placement.

Our Reasons for the Merger

Prior to our initial public offering in December, 2005, our management created a specific, but not exclusive, set of investment criteria to evaluate prospective acquisition candidates we would consider acquiring. These criteria included the candidates’ fit with our management’s background in the food and beverage industry, growth potential, brand recognition and potential, expandable specialty market presence and higher margins for specialty products, diversification opportunities among customers and distribution channels, and capital requirements. This approach, which we disclosed in various sections of the prospectus for our initial public offering, provided a discipline and focus as to how we would evaluate, compare and rank all prospective business opportunities. GFA satisfies a large number of these criteria. GFA is an existing business with an established growth record. GFA offers barriers to entry and a strong competitive position through the patented heart-healthy technology underpinning many of its Smart Balance® products and its increasing level of brand strength and awareness in the growing health and wellness segment of mainstream food categories. Relative to other potential acquisition targets management evaluated, GFA has no unusual detriments with respect to regulatory burdens or seasonal sales fluctuations. Our management therefore believes that GFA and the Smart Balance® and Earth

 

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Balance® brands represent an excellent strategic fit with our investment criteria. More specific elements of GFA’s strategic fit are highlighted below.

Strategic Fit

Categories where our management has a proven track record of success.

The GFA acquisition opportunity falls in the general “heart healthy/better for you” product segment of mainstream product categories where our management has had significant prior experience and success. Examples include the experience of Mr. Hughes (our chief executive officer) with Tropicana® Orange Juice, Healthy Choice® frozen and shelf stable foods, Celestial Seasonings® specialty teas, and Silk® soy milk. The Boulder management team also has significant prior company experience in a number of key product categories (margarine and spreads, peanut butter, cooking oils and mayonnaise) where GFA currently competes, including the experience of Mr. Gluck with Bestfoods, Inc. and Unilever NV/Plc.

Strong demographic or channel-specific brands.

GFA has a loyal and strong following among consumers who are concerned about their health and wellness and want to improve their cholesterol profile by increasing the ratio of HDL cholesterol (so-called “good” cholesterol) to LDL cholesterol (so-called “bad” cholesterol). Moreover, the segment of the population to which GFA appeals is growing and is expected to continue to increase as “baby boomers” continue to age and become more concerned with unhealthy cholesterol profiles and younger, more health conscious consumers become aware of the benefits that a healthy HDL to LDL cholesterol ratio provides.

Brands with clear, relatively low-risk, highly accretive expansion opportunities.

 

   

Distribution build-out within current channel

Our management believes significant opportunities exist to improve the breadth and depth of supermarket distribution across GFA’s current portfolio of Smart Balance® margarine, peanut butter, popcorn, cooking oil and mayonnaise products. Our management intends to utilize its experience in marketing products for supermarket distribution to introduce GFA’s products to additional supermarket operators, as well as increase penetration of GFA’s full product line to existing supermarket customers that do not currently carry the entire line.

 

   

Expansion into new sales channels

Our management believes the current GFA business is relatively underdeveloped in sales channels outside of the supermarket channel, including but not limited to club stores, mass merchandise outlets and drug discount chains. Our management will focus on improving the penetration of the Smart Balance® and/or Earth Balance® product line(s) into these non-supermarket sales channels. GFA also currently has little presence in the foodservice “food away from home” marketplace. Our management believes that substantial opportunities exist to leverage the Smart Balance® brand into this sales channel.

 

   

Product line extension into flanker categories

Our management has plans to leverage Smart Balance’s strong dairy/refrigerated cabinet presence and loyal heart healthy consumer following into other high volume dairy/refrigerated product categories via the introduction of additional heart healthy, dairy related new products under the Smart Balance® and/or Earth Balance® brand(s).

 

   

Expand brand geographic distribution

The current GFA business has limited presence outside of the United States. Our management believes significant additional opportunities for incremental sales and income exist outside the United States, and will attempt to expand the business into Canada and selected major international markets in Latin America, Western

 

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Europe and Asia/Middle East via a combination of export activities, joint venture partnerships and/or company owned/operated international operations.

High margins

The GFA business currently produces high gross profit margins, in excess of 50%, thus enabling high direct to consumer spending levels for advertising and coupons.

Low to moderate capital requirements

The GFA business requires a low level of fixed asset investment and working capital requirements to support a sales base in excess of $100 million. At December 31, 2006, net property and equipment was only $165,774 and the working capital level (excluding investments and current portions of long-term debt) was a negative $1,580,995. GFA’s business model outsources the production of all products, thereby eliminating the need for manufacturing assets. Favorable arbitrage between payment terms to margarine co-packers (30 days) and customer payments (10 days) help produce a negative working capital level because GFA is able to pay its suppliers with money that it has already received from its customers. However, if GFA’s favorable payment terms are adjusted, either by reducing the number of days it has to pay its suppliers or by increasing the number of days its customers have to pay GFA, then we would have to fund the additional working capital requirement. In order to continue to maximize cash flow from operations, except in unusual circumstances such as to maintain an adequate source of supply for our products, our management plans to maintain GFA’s current business model for product sourcing of existing GFA products as well as any new products that may be introduced under our ownership.

Opportunity to grow “no-slotting” customer base

The GFA business is currently relatively underdeveloped in sales channels outside of the supermarket channel, including but not limited to club stores, supercenters, mass merchandise outlets and drug discount chains. These non-supermarket sales channels can be important avenues for additional distribution since they generally do not require the customary, up-front “slotting fees” required in the supermarket channels in order to gain shelf placement. These accounts tend to focus more on shelf velocity as a determinant of future success, which our management believes should present opportunities for a highly advertised/consumer promoted brand such as Smart Balance®. A key focus of our management will be to improve the penetration of the Smart Balance® and/or Earth Balance® product line into non-supermarket sales channels.

Due Diligence

Our management, together with our professional advisors, conducted due diligence regarding GFA and its business, and reported their findings to our board of directors. Due to the size of the potential transaction and its complexity, management retained Citigroup, which had served as one of the underwriters of our initial public offering, to provide assistance in connection with valuation analyses as well as structuring and negotiation. Based on the information it received from Citigroup, our board of directors determined that the value of GFA was at least $550 million. In determining the value of GFA, our board of directors relied primarily on Citigroup’s analysis of GFA. In performing the analysis of GFA, Citigroup relied on GFA’s management’s analysis of GFA’s future earnings, our proposals for expanding GFA’s business, and GFA’s historical performance to arrive at a valuation of $550 million, which it then compared with similar companies for validation purposes. The board of directors also retained Duff & Phelps, LLC to provide an opinion regarding the fairness to us of the merger consideration, which is described below.

Citigroup and our board used the following two sets of projections in arriving at the $550 million valuation. The projections for the base case include Boulder management’s proposals for expanding GFA’s sales through

 

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the introduction of new product categories. The downside case assumes limited success by Boulder’s management in expanding new categories.

 

     Base Case    Downside Case
     2006E    2007E    2011E    2006E    2007E    2011E

Revenues

   $ 155    $ 245    $ 500    $ 155    $ 205    $ 364

($ in millions)

                 

EBITDA

   $ 31    $ 44    $ 100    $ 31    $ 43    $ 91

($ in millions)

                 

Fairness Opinion

Opinion of Duff & Phelps, LLC

Duff & Phelps, LLC served as independent financial advisor to our board of directors. We selected Duff & Phelps because Duff & Phelps is a leading independent financial advisory firm, offering a broad range of valuation, investment banking services and consulting services, including fairness and solvency opinions, mergers and acquisitions advisory services, mergers and acquisitions due diligence services, financial reporting and tax valuation, fixed asset and real estate consulting, ESOP and ERISA advisory services, legal business solutions and dispute consulting. Duff & Phelps is regularly engaged in the valuation of businesses and securities and the preparation of fairness opinions in connection with mergers, acquisitions and other strategic transactions. On July 27, 2006, Duff & Phelps rendered its oral opinion to our board of directors that the proposed merger consideration to be paid by us pursuant to the merger agreement was fair to us from a financial point of view. From July 27, 2006 through September 25, 2006, Duff & Phelps updated our board on several occasions as to Duff & Phelps’ financial analysis. On September 25, 2006, Duff & Phelps delivered its written opinion dated September 25, 2006, that, subject to the limitations, exceptions, assumptions and qualifications set forth therein, as of September 25, 2006, the proposed merger consideration to be paid by us pursuant to the merger agreement was fair to us, from a financial point of view.

The full text of the written opinion of Duff & Phelps, which sets forth, among other things, assumptions made, procedures followed, matters considered and qualifications and limitations of the review undertaken in rendering the opinion, is attached as Annex “B” to this proxy statement. Stockholders are urged to read the opinion carefully and in its entirety. The Duff & Phelps opinion is directed to our board of directors and addresses only the fairness to us, from a financial point of view, of the consideration to be paid by us in the GFA merger. The Duff & Phelps opinion is not a recommendation as to how any stockholder should vote or act with respect to any matters relating to the merger (including, without limitation, with respect to the exercise of rights to convert our shares of stock into cash). Further, the Duff & Phelps opinion does not in any manner address our underlying business decision to engage in the merger or the relative merits of the merger as compared to any alternative business transaction or strategy (including, without limitation, our liquidation after not completing a business combination transaction within the allotted time). The decision as to whether to approve the merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the Duff & Phelps opinion is based.

The following is a summary of the material analyses performed by Duff & Phelps in connection with rendering its opinion. Duff & Phelps noted that the basis and methodology for the opinion have been designed specifically for this purpose and may not translate to any other purposes. While this summary describes the analysis and factors that Duff & Phelps deemed material in its presentation and opinion to our board of directors, it does not purport to be a comprehensive description of all analyses and factors considered by Duff & Phelps. The opinion is based on the comprehensive consideration of the various analyses performed. This summary is qualified in its entirety by reference to the full text of the opinion.

In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any particular analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each

 

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analysis and factor. Several analytical methodologies were employed by Duff & Phelps in its analyses, and no one single method of analysis should be regarded as critical to the overall conclusion reached by Duff & Phelps. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors in their entirety, could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Duff & Phelps, therefore, is based on the application of Duff & Phelps’ own experience and judgment to all analyses and factors considered by Duff & Phelps, taken as a whole.

In connection with preparing the opinion, Duff & Phelps made such reviews, analyses and inquiries as Duff & Phelps deemed necessary and appropriate under the circumstances, including, but not limited to, meetings with Robert Harris, chief executive officer of GFA, and James Harris, executive vice president of GFA; meetings with Stephen Hughes, our chief executive officer, Robert Gluck, our vice chairman, and Christopher Wolf, our consultant; and review of the following items:

 

   

An executed copy of the merger agreement;

 

   

The executive summary dated July 2006, prepared by us and Citigroup Global Markets Inc. in its capacity as lead placement agent for a private placement of our common stock;

 

   

GFA’s audited financial statements for the year ended December 31, 2005 and the partial year ended December 31, 2004; unaudited internally prepared financial statements of GFA for the years ended December 31, 2003 to 2005; unaudited internally prepared financial statements of GFA for the five months ended May 31, 2006; and unaudited internally prepared estimated financial statements of GFA for the six months ended June 30, 2006 (latest available as of the date of the opinion);

 

   

The following Boulder SEC filings: our prospectus dated December 16, 2005; our annual report on Form 10-K for the year ended December 31, 2005; and our quarterly reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006;

 

   

GFA’s financial projections dated July 2006, prepared by GFA for the fiscal years ending December 31, 2006 through 2011;

 

   

Financial projections dated July 2006 for the GFA business prepared by us for the fiscal years ending December 31, 2006 through 2011;

 

   

Other operating and financial information provided to Duff & Phelps by GFA and Boulder;

 

   

The Banc of America Securities LLC and Bank of America, N.A. commitment and fee letters dated September 25, 2006;

 

   

The following documents related to the private placement of our convertible preferred stock and common stock: the perpetual convertible preferred term sheet prepared by Citigroup Global Markets Inc., the securities purchase agreement, the stock subscription warrant, the registration rights agreement and the restated certificate of incorporation of Smart Balance, Inc. (formerly known as Boulder Specialty Brands, Inc.); and

 

   

Other publicly available information, including economic, industry, and investment information, considered relevant by Duff & Phelps.

In its review and analysis, and in arriving at its opinion, Duff & Phelps:

 

   

Relied upon the accuracy, completeness and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it by private sources, including GFA and Boulder, and did not attempt to independently verify such information;

 

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Assumed that any estimates, evaluations and projections (financial or otherwise) furnished to Duff & Phelps were reasonably prepared and based upon the last currently available information and good faith judgment of the person furnishing the same;

 

   

Assumed that information supplied, and representations made by, GFA and Boulder management were substantially accurate regarding GFA, Boulder and the merger;

 

   

Assumed without verification the accuracy and adequacy of the legal advice given by counsel to us on all legal matters with respect to the merger and assumed that all procedures required by law to be taken in connection with the merger had been, or would be, duly, validly and timely taken and that the merger will be consummated in a manner that complies in all respects with the applicable provisions of the Securities Act, the Exchange Act and all other applicable statutes, rules and regulations;

 

   

Assumed that all of the conditions required to implement the merger would be satisfied and that the merger would be completed in accordance with the merger agreement, without any amendments thereto or any waivers of any terms or conditions thereof; and

 

   

Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger would be obtained without any adverse effect on Boulder, GFA or the expected benefits of the merger.

In its analysis and in connection with the preparation of its opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the merger. To the extent that any of the foregoing assumptions or any of the facts on which the Duff & Phelps opinion is based proves to be untrue in any material respect, Duff & Phelps has advised our board of directors that the Duff & Phelps opinion cannot and should not be relied upon. Duff & Phelps noted that neither our board of directors nor our management placed any limitation upon Duff & Phelps with respect to the procedures followed or factors considered by Duff & Phelps in rendering its opinion.

Duff & Phelps did not make any independent evaluation, appraisal or physical inspection of our solvency or of any specific assets or liabilities (contingent or otherwise). Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter. The Duff & Phelps opinion should not be construed as a valuation opinion, credit rating, solvency opinion, an analysis of our or GFA’s credit worthiness or otherwise as tax advice or as accounting advice.

Duff & Phelps prepared its opinion as of September 25, 2006. The opinion was necessarily based upon market, economic, financial and other conditions as they existed and could be evaluated as of such date, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion coming or brought to the attention of Duff & Phelps after the date of the Duff & Phelps opinion or otherwise to update, revise or reaffirm its opinion. Notwithstanding and without limiting the foregoing, in the event that there is any change in any fact or matter affecting the Duff & Phelps opinion after the date of the opinion and prior to the completion of the merger, Duff & Phelps reserves the right to change, modify or withdraw the opinion.

Summary of Financial Analyses by Duff & Phelps

As part of its analysis to determine whether the merger consideration to be paid by us pursuant to the merger agreement was fair, from a financial point of view, to us, Duff & Phelps took into consideration whether the merger consideration to be paid by us was not greater than the fair market value of all of GFA’s common stock by estimating the fair market value of the GFA business.

Duff & Phelps used generally accepted valuation techniques, including a discounted cash flow analysis, comparable public company analysis and comparable transaction analysis, as described below, to calculate a range of enterprise values for the GFA business.

 

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Discounted Cash Flow Analysis

A discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset by calculating the “present value” of estimated future cash flows of the asset. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.

Duff & Phelps performed a discounted cash flow analysis by adding (1) the present value of projected “free cash flows” for the GFA business for the fiscal years 2006 through 2016 to (2) the present value of the “terminal value” for the GFA business as of 2016. “Free cash flow” is defined as cash that is available to either reinvest or to distribute to security holders and “terminal value” refers to the value of all future cash flows from an asset at a particular point in time. The projected free cash flows that Duff & Phelps used in its analysis were based on financial forecasts and estimates provided by our management and GFA’s management, as well as Duff & Phelps’s independent assessments. Duff & Phelps noted that the projected free cash flows that it ultimately used for the discounted cash flow analysis were more conservative than those provided by either our management or GFA’s management. Duff & Phelps calculated a terminal value for the GFA business by utilizing a commonly accepted perpetuity formula, the result of which Duff & Phelps believes was supported by trading multiples of comparable, publicly traded companies that Duff & Phelps deemed similar to the GFA business for purposes of its analysis. Duff and Phelps discounted the projected free cash flows and the terminal value for the GFA business by rates ranging from 12% to 14%.

Duff & Phelps used the following projections for GFA’s revenues and earnings before interest, taxes and amortization (“EBITA”) for the fiscal years ending December 31, 2006 to 2010 in its discounted cash flow analysis. EBITA is not a presentation made in accordance with generally accepted accounting principles in the United States of America. Duff & Phelps used EBITA because Duff & Phelps believes EBITA is a measure that is generally accepted by the financial community in the valuation of securities. These projections provided by GFA are set forth below for the limited purpose of giving stockholders access to key projections reviewed by Duff & Phelps in connection with its fairness opinion.

 

     2006    2007    2008    2009    2010

Revenue

($ in millions)

   $ 164.0    $ 242.2    $ 338.8    $ 370.8    $ 404.4

EBITA

($ in millions)

   $ 32.4    $ 44.5    $ 64.2    $ 70.2    $ 76.9

The foregoing analyses indicated a range of enterprise values for the GFA business of $482 million to $549 million.

The table below contains historical financial data of GFA to assist stockholders in reviewing the GFA projections used by Duff & Phelps.

 

    

GFA Holdings, Inc.

   Pro Forma
Combined
     Year ended
December 31,
   Year ended
December 31,
   Year Ended
December 31,
     2006    2005    2004(1)

Revenue

($ in thousands)

   $ 158,468    $ 114,710    $ 83,999

EBITA

($ in thousands)

   $ 28,607    $ 15,904    $ 11,166

(1)

Refer  to footnote (1) to Selected Historical Financial Information of GFA in this proxy statement regarding this historical financial information.

 

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Our debt financing approval is predicated on GFA achieving a pro forma EBITDA amount of $26,500,000 for the trailing four quarters ended March 31, 2007. Pro forma EBITDA is operating income subject to additions for amounts paid to the current shareholders in the form of management fees and subtractions for anticipated costs of operating as a public company. If the $26,500,000 amount is not achieved, we may not be able to secure our bank financing and therefore will not be able to complete the merger.

Comparable Public Company Analysis

Comparable public company analysis is based upon a comparison of the subject company to similar publicly held companies whose stocks are actively traded. Duff & Phelps noted that, while it is very rare to find a public company that is identical to the subject company, valuation practitioners typically select a group of public companies that share similar business risks and opportunities. In the selection of the comparable companies, Duff & Phelps used multiple databases to identify domestic companies that Duff & Phelps deemed comparable in terms of business model, markets served, size, financial performance, or a combination thereof, to the GFA business for purposes of its analysis. Duff & Phelps identified nine such companies:

 

    

LTM Revenue

($ in millions)

  

LTM Revenue

Growth%

   

LTM EBITA

Margin%

 

Herbalife Ltd

   $ 1,732    22.1 %   15.2 %

Nbty Inc

     1,848    6.8     9.2  

Hansen Natural Corp

     479    92.9     30.1  

Usana Health Sciences Inc

     353    16.6     17.0  

United Natural Foods Inc.  

     2,434    18.2     3.5  

Martek Biosciences Corp

     260    17.2     14.7  

Hain Celestial Group Inc

     739    19.1     8.9  

Medifast Inc

     60    88.4     14.7  

Sunopta Inc.  

     526    49.5     4.6  

GFA

   $ 135    35.9 %   15.3 %

Using market price quotations to estimate the market value of the comparable companies, Duff & Phelps developed multiples of enterprise value (market capitalization plus debt, net of cash and cash equivalents) relative to selected financial metrics, including EBITA and revenue, for each of the comparable companies. Duff & Phelps obtained projected financial metrics for the public company group from regularly published information sources, including I/B/E/S and Bloomberg. Duff & Phelps adjusted the valuation multiples derived from comparable public companies for differences in the prospects and risks of the GFA business versus each of the comparable companies. Duff & Phelps then applied these adjusted valuation multiples to the appropriate financial metrics of the GFA business to produce a range of enterprise values for the GFA business.

The following table presents a summary of Duff & Phelps’ calculations of the trading multiples for the group of nine publicly traded companies.

 

     Enterprise Value as a Multiple of
     LTM EBITA    2006 EBITA*    2007 EBITA*    Run Rate
EBITA
   LTM Revenue

Low

   9.7x    9.3x    8.0x    9.8x    0.57x

Median

   16.2x    13.5x    11.2x    13.7x    1.63x

High

   28.0x    20.4x    22.7x    21.8x    5.95x

* Projected.

Note: “LTM” refers to the “Latest Twelve Months” for which data was available and “Run Rate” refers to the latest quarter’s results multiplied by four.

 

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In selecting valuation multiples for the GFA business, Duff & Phelps considered a number of factors that compared the historical and projected financial performance of the GFA business versus that of the nine public companies in the comparable company group. In particular, Duff & Phelps noted that the GFA business’ historical revenue growth was above the median of the public company group, the GFA business’ EBITA margin is above the median of the public company group, and the GFA business’ projected growth in profits is higher than the growth in profits for the public companies as forecasted by securities analysts. Although GFA’s LTM revenues are lower than all but one of the companies listed in the public company group, GFA’s historical revenue growth is above the median of the public company group, GFA’s EBITA margin is above the median of the public company group, and GFA’s projected growth in profits is higher than the growth in profits for the public companies as forecasted by securities analysts. Accordingly, management agrees with Duff & Phelps’s assessment of the multiple ranges when estimating the value of GFA. The following table presents a summary of certain multiples that Duff & Phelps selected for the GFA business and the resulting ranges of enterprise values.

 

GFA EBITA Measures

     Selected Multiple Range      Indicated Enterprise Value Range

LTM ended June 30, 2006

   $20.7mm      20.0x    to    24.0x      $ 455mm    to    $ 497mm

2006 *

   $32.4mm      15.0x    to    17.0x      $ 486mm    to    $ 550mm

GFA Revenue

                                 

LTM ended June 30, 2006

   $135.1mm      3.5x    to    4.0x      $ 473mm    to    $ 540mm

* Projected.

Duff & Phelps assessment of the ranges of enterprise values implied by its selection of the foregoing valuation multiples, as well as valuation multiples with respect to certain 2007 financial measures, indicated a range of enterprise values for the GFA business of $476 million to $530 million.

Comparable Transactions Analysis

Comparable transactions analysis is based upon a comparison of the subject company to similar companies involved in actual merger and acquisition transactions. Duff & Phelps used multiple databases and conducted key word searches to identify transactions involving companies in the nutritional supplement and health food industries, and conducted searches for transactions involving the selected group of comparable public companies that Duff & Phelps used for its comparable public company analysis described above. Duff & Phelps identified six transactions involving targets that were comparable to the GFA business in terms of business model, markets served, size, financial performance, or a combination thereof. Duff & Phelps noted, however, that only one of the targets in the selected group of transactions – Horizon Organic Holdings Corp., which was acquired by Dean Foods Co. in October 2003 – had a revenue growth profile that was similar to that of the GFA business.

 

Target Company

  

LTM Revenue

($ in millions)

  

LTM Revenue

Growth%

   

LTM EBITA

Margin%

 

Horizon Organic Holding Corp.  

   $ 197.1    20.6 %   4.3 %

Spectrum Organic Products Inc.  

     52.0    5.1     2.3  

Silhouette Brands, Inc.  

     75.4    3.1     NA  

International Multifoods Corp.  

     908.0    -3.3     NA  

Quest Food Ingredients

     255.0    NA     NA  

Burt’s Bees Inc.  

     45.0    NA     NA  

Using the transaction price to estimate the enterprise value of the target companies, Duff & Phelps calculated multiples of enterprise value relative to selected financial metrics (EBITA and revenue) for each of the targets.

 

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The following table presents a summary of the valuation multiples for the targets in the identified merger and acquisition transactions.

 

Date

  

Target

  

Acquirer

  

Target EV/

LTM Rev.

  

Target EV/

LTM EBITA

Jun-03

   Horizon Organic Holding Corp.    Dean Foods Co.    1.46x    34.3x

Aug-05

   Spectrum Organic Products Inc.    The Hain Celestial Group Inc.    0.85x    36.6x

July-04

   Silhouette Brands, Inc.    Dreyer’s Grand Ice Cream Holdings Inc.    0.89x    NA

Mar-04

   International Multifoods Corp.    JM Smucker Co.    0.96x    NA

Mar-04

   Quest Food Ingredients    Kerry Group plc    1.73x    NA

Sep-03

   Burt’s Bees Inc.    AEA Investors LLC    5.00x    NA

Note: EV = Enterprise Value; NA = Not Available

Duff & Phelps noted that the LTM revenue growth rate for the GFA business was 35.9%, which was higher than that of any of the target companies for which there was data available. Duff & Phelps calculated an implied enterprise value for the GFA business of $710 million by applying the EV / LTM EBITA multiple of 34.3x for Horizon Organic Holding Corp – the target with the highest revenue growth among those targets with data available – to the LTM EBITA of $20.7 million for the GFA business. Duff & Phelps noted that due to the fact that the GFA business has substantially higher profit margins than the target companies for which data was available, it was not appropriate to apply a revenue multiple derived from the valuations of the target companies to obtain a value estimate for the GFA business. Management agrees with Duff & Phelps’s assessment, based on management’s judgment and standards generally accepted in the financial community. Duff & Phelps also noted that due to the lack of adequate financial detail pertaining to the identified comparable transactions, the enterprise value for the GFA business indicated by this analysis was much less precise than the ranges implied by the discounted cash flow analysis or the comparable public company analysis. Therefore, Duff & Phelps used the comparable transaction analysis as an additional data point and check on the other valuation methodologies. Duff & Phelps concluded, however, that the enterprise value for the GFA business implied by the comparable transactions analysis exceeded the $465 million enterprise value for the GFA business implied by the consideration to be paid by us pursuant to the merger agreement.

Summary of Analyses

The range of enterprise values for the GFA business that Duff & Phelps derived from its discounted cash flow analysis was $482 million to $549 million, and the range of enterprise values for the GFA business that Duff & Phelps derived from its comparable public company analysis was $476 million to $530 million. Duff & Phelps noted that the enterprise value indications from both the discounted cash flow analysis and the comparable public company analysis exceeded the $465 million enterprise value for the GFA business implied by the consideration to be paid by us pursuant to the merger agreement. Further, it was Duff & Phelps’ opinion that the comparable transactions analysis supported such a conclusion.

Duff & Phelps’ opinion and financial analyses were only one of the many factors considered by our board of directors in its evaluation of the merger and should not be viewed as determinative of the views of its board of directors.

Fees and Expenses.

The Duff & Phelps engagement letter with us, dated July 11, 2006, provides that, for its services, Duff & Phelps is entitled to receive a fee of $550,000 from us, which was due and payable as follows: $275,000 upon

 

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execution of the engagement letter and $275,000 upon notice that Duff & Phelps was prepared to deliver its opinion as to whether the proposed merger consideration to be paid by us pursuant to the merger agreement was fair to us from a financial point of view. We have paid $275,000 of the $550,000 fee. No portion of the fee is contingent on the success of the merger. In addition, no waiver has been obtained from Duff & Phelps for claims against our trust account. The engagement letter also provides that Duff & Phelps be reimbursed for its reasonable out-of-pocket expenses and that we indemnify Duff & Phelps and certain related persons against liabilities arising out of Duff & Phelps’ service as a financial advisor to our board of directors. Duff & Phelps’ out-of-pocket costs at September 30 were approximately $16,000.

Duff & Phelps is currently providing valuation services to us in connection with financial reporting requirements, for which services Duff & Phelps expects to receive compensation. In addition, Duff & Phelps may provide valuation and financial advisory services to us or our board of directors in the future. Duff & Phelps has not provided financial advisory services to either GFA or TSG Consumer Partners during the past two years. Duff & Phelps has not provided financial advisory services to our initial shareholders, GFA or TSG Consumer Partners during the past two years.

Merger Financing

The GFA merger is being financed in part by the proceeds raised by Boulder in connection with a private placement that is expected to result in gross proceeds to Boulder of approximately $246 million and net proceeds of approximately $234 million, after the payment of placement fees to Citigroup Global Markets, Inc. and Banc of America Securities LLC. For more information, see “Proposal 2—The Private Placement Proposal.” The merger, together with all costs associated with the merger and related financing transactions, is also being financed in part by a secured debt financing in the aggregate amount of $180 million ($160 million of which is anticipated to be funded upon the consummation of the transaction) and by funds in the trust account from our initial public offering, which together with interest were approximately $101.1 million, including deferred underwriting discounts and commissions of $3.6 million, as of December 31, 2006. For more information about the secured debt financing, see “MDA – Liquidity and Capital Resources.”

Appraisal or Dissenters Rights

No appraisal rights are available under the Delaware General Corporation Law for the stockholders of Boulder in connection with the merger proposal.

United States Federal Income Tax Consequences of the Merger

As our stockholders are not receiving any consideration or exchanging any of their outstanding securities in connection with the GFA merger and the related private placement, and are simply being asked to vote on the matters, it is not expected that the stockholders will have any tax related issues as a consequence of either the merger or the private placement. However, if you vote against the merger proposal and elect a cash conversion of your Boulder shares into your pro-rata portion of the trust account and as a result receive cash in exchange for your Boulder shares, any gain or loss recognized by you in connection with the cash conversion generally will be capital gain or loss and would be long-term capital gain or loss if the shares have been held for more than one year and short-term gains or loss if the shares have been held for less than one year. The deductibility of capital losses is subject to various limitations. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING YOUR PARTICULAR TAX CONSEQUENCES.

Regulatory Matters

The merger and the transactions contemplated by the merger agreement are not subject to any federal or state regulatory requirements or approvals, except the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which we refer to as the “HSR Act,” and except for filings necessary to effectuate the transactions contemplated

 

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by the merger agreement and the related amendments to and restatement of our certificate of incorporation with the Secretary of State of Delaware.

Consequences if Merger Proposal is Not Approved

Need to Obtain Additional Capital

If the merger proposal is not approved by our stockholders, or if the holders of 20% or more of our common stock issued in our initial public offering vote against the merger and elect to convert their shares to cash, we will not acquire GFA. Although we intend to continue the process of identifying and evaluating prospective businesses for an alternate business combination if we do not acquire GFA, we would need to raise additional working capital from our founding directors, initial stockholders or from private investors and there can be no assurance that we will be able to do so in amounts sufficient to enable us to pursue and complete an alternate business transaction. Currently, Stephen B. Hughes, our chairman of the board of directors, has agreed to provide us with a working capital loan of up to $500,000. The liabilities incurred in connection with the merger and our other operating activities exceed the funds available to us by approximately $4.4 million as of December 31, 2006. The funds in our trust account from our initial public offering consist of the net offering proceeds, plus interest (other than $750,000 we were permitted to use as working capital). None of these trust funds are available to us to pursue alternate business combinations. Even if we are able to raise enough working capital to identify and evaluate prospective businesses for an alternate business combination, we will be limited by time constraints imposed by our certificate of incorporation.

Requirement to Liquidate if an Alternate Business Combination is not Completed within Required Time Period

If the GFA merger is not approved by stockholders or, if approved, is not completed for any reason, and we are not able to complete a business acquisition by June 16, 2007 or enter into a letter of intent, agreement in principle or definitive agreement for an alternate business combination by June 16, 2007 and complete that alternate business combination by December 16, 2007, we must obtain the approval of the holders of a majority of our stock in order to dissolve and distribute the trust account proceeds to our public stockholders. We view this requirement to dissolve and liquidate as an obligation to our public stockholders and neither we nor our board of directors will take any action to amend or waive any provision of our certificate of incorporation to allow us to survive for a longer period of time if it does not appear we will be able to complete a business combination within the foregoing time periods.

Procedure for Liquidation

We believe that any plan of dissolution and distribution would proceed in the following manner:

 

   

our board of directors will, consistent with its obligations described in our certificate of incorporation to dissolve and Section 275 of the Delaware General Corporation Law, convene and adopt a specific plan of dissolution and distribution, which it will then vote to recommend to our stockholders, and cause to be prepared a preliminary proxy statement setting out such plan of dissolution and distribution and the board’s recommendation of each plan;

 

   

we would file the preliminary proxy statement with the Securities and Exchange Commission;

 

   

if the Securities and Exchange Commission does not review the preliminary proxy statement, then 10 days after we initially file the proxy statement with the SEC, we will mail the proxy statement to our stockholders, and 30 days after we file the definitive proxy statement with the SEC we will convene a meeting of our stockholders at which they will either approve or reject our plan of dissolution and distribution;

 

   

if the Securities and Exchange Commission does review the preliminary proxy statement, we currently estimate that we will receive their comments 30 days after we initially file the proxy statement with the

 

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SEC. We will mail the proxy statements to our stockholders following the conclusion of the comment and review process (the length of which we cannot predict with any certainty), and we will convene a meeting of our stockholders at which they will either approve or reject our plan of dissolution and distribution.

If approved, the dissolution would be effected by the filing of a certificate of dissolution with the State of Delaware. Once we are dissolved, our existence is automatically continued for a term of three years, but solely for the purpose of winding up our business, including:

 

   

paying or providing for the payment of our liabilities in accordance with Section 281(b) of the Delaware General Corporation Law, as will be provided in our plan of dissolution, based on facts known to us at such time, of (i) all existing claims, (ii) all pending claims and (iii) all claims that maybe potentially brought against us within the subsequent 10 years;

 

   

establishing a contingency reserve for the satisfaction of unknown or additional liabilities;

 

   

winding up our remaining business activities;

 

   

complying with the Securities and Exchange Commission filing requirements, for so long as we are required to do so; and

 

   

making tax and other regulatory filings.

In the event that we seek stockholder approval for a plan of dissolution and distribution and do not obtain such approval, we will nonetheless continue to take all reasonable actions to obtain stockholder approval for our dissolution. Following the expiration of the permitted time periods for completing a business acquisition, the funds held in our trust account may not be distributed except upon our dissolution and, unless and until such approval is obtained from our stockholders, the funds held in our trust account will not be released. Consequently, holders of a majority of our outstanding stock must approve our dissolution in order to receive the funds held in our trust account, and the funds will not be available for any other corporate purpose. We cannot assure you that our stockholders will approve our dissolution in a timely manner or will ever approve our dissolution. As a result, we cannot provide investors with assurances of a specific time frame for our dissolution and distribution. If our stockholders do not approve our dissolution and liquidation and the funds remain in the trust account for an indeterminable amount of time, we may be considered an investment company and in that event, we would be subject to the regulatory burden and additional expense of complying with the Investment Company Act of 1940.

Distributions on Liquidation

Upon liquidation, we will distribute amounts held in our trust account pro rata to the holders of the shares of common stock issued in our initial public offering, subject to the costs of liquidation and to valid claims by creditors who have not waived claims against the trust account. We have not received a waiver of any of the liabilities on our balance sheet as of December 31, 2006. However, of those liabilities, the $3.6 million deferred underwriting fees and commissions owed to Citigroup in connection with our initial public offering is contingent on the closing of our initial business combination. We have received waivers from GFA and its principal stockholders under the merger agreement, from the private placement investors under the securities purchase agreement, and from Bank of America and Banc of America Securities under their debt financing commitment. However, because we are not in breach under those agreements, there currently are no liabilities on our balance sheet covered by these waivers and we are not able to quantify these potential liabilities.

No other creditors have waived claims against the trust account. Two of our founding directors have agreed to indemnify us for claims of these creditors. If they cannot or do not indemnify us for these claims, we anticipate that liquidating distributions would be reduced by approximately $0.35 per share, based on amounts owed to creditors as of December 31, 2006 who have not waived claims against the trust account. We anticipate that if these creditors are not paid out of the trust account, total liquidating distributions would be approximately $7.88 per share if the distributions were made on December 31, 2006. However, we cannot estimate the actual amount

 

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that would be distributed, which will be less than the $8.00 price paid by investors in our initial public offering. The actual amount distributed on any liquidation will depend on when liquidation occurs, the expenses we incur prior to liquidation and interest rates on funds held in the trust account. There will be no distribution from the trust account with respect to our public warrants or funding director warrants, which will expire worthless.

Right to Convert Shares to Cash

Each stockholder that holds shares of common stock issued in our initial public offering has the right to vote against the merger proposal and, at the same time as such vote, demand that Boulder convert such stockholder’s shares into cash equal to a pro rata portion of the trust account in which a substantial portion of the net proceeds of our initial public offering is deposited. This demand may be made by making an affirmative election on the proxy card accompanying this proxy statement to convert the shares into cash. These shares will be converted into cash only if the merger is completed and the stockholder requesting conversion holds such shares until the date the merger is consummated. However, if the holders of 2,552,168 or more shares of common stock issued in our initial public offering, an amount equal to 20% or more of the total number of shares issued in our initial public offering, vote against the merger and demand conversion of their shares into a pro rata portion of the trust account, then we will not be able to consummate the merger.

If you exercise your conversion rights, then you will be exchanging and tendering your shares of Boulder common stock for cash and will no longer own these shares. You will only be entitled to receive cash for these shares if you continue to hold these shares through the closing date of the merger and then tender your stock certificate to us. The closing price of our common stock on April 20, 2007, the most recent trading day practicable before the printing of this proxy statement, was $9.90. We estimate that the amount of cash held in the trust account will be approximately $7.88, as of December 31, 2006. If a Boulder stockholder elected to exercise his conversion rights on such date, then he would have been entitled to receive approximately $7.88 per share, plus interest accrued thereon subsequent to such date. Prior to exercising conversion rights, you should verify the market price of our common stock as you may receive higher proceeds from the sale of your common stock in the public market than from exercising your conversion rights.

Required Vote

Approval of the merger proposal will require: (1) that a majority of the shares of our common stock issued in our initial public offering that vote on this proposal at the special meeting vote in favor of the proposal; and (2) that holders of 20% or more of the shares issued in our initial public offering do not vote against the merger and demand to convert their shares into cash. Assuming the presence of a quorum of more than 50% of the shares of our common stock issued in our initial public offering, the failure to vote, broker non-votes or abstentions will have no effect on the outcome of the vote. The GFA merger is also conditioned upon the approval of Proposals 2 and 3, which means that our stockholders must approve Proposals 2 and 3 in order for us to approve the GFA merger.

Recommendation

The foregoing discussion of the information and factors considered by our board of directors is not meant to be exhaustive, but includes the material information and factors considered by our board of directors.

Our board of directors believes that the merger proposal is fair to, and in the best interests of, all of our stockholders, including those who acquired shares in our initial public offering.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE MERGER.

 

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THE MERGER AGREEMENT

The following is a summary of the material provisions of the agreement and plan of merger dated September 25, 2006, between Boulder, BSB Acquisition Co., Inc., GFA and TSG4, L.P., in its capacity as the GFA shareholders’ representative (as defined in the merger agreement), and is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex “A” to this proxy statement. All stockholders are encouraged to read the merger agreement for a complete description of the terms and conditions of the merger.

We have included the description of the merger agreement in this proxy statement to provide you with information about its terms. The merger agreement contains representations and warranties we and BSB Acquisition Co., Inc., our wholly owned subsidiary, made to GFA as well as representations GFA made to us, as of specific dates. The statements embodied in those representations and warranties were made for purposes of the merger agreement between us, BSB Acquisition Co., Inc., and GFA and are subject to various qualifications and limitations. In addition, some representations and warranties were made as of a specified date and may be subject to contractual standards of materiality different from those generally applicable to stockholders or may have been made for the purpose of allocating risk between us and BSB Acquisition Co., Inc., on the one hand, and GFA, on the other hand, rather than establishing matters as facts.

Structure of the Merger

At the effective time of the merger, BSB Acquisition Co., Inc., a wholly-owned subsidiary of Boulder, will be merged with and into GFA Holdings, Inc. GFA Holdings, Inc. will be the surviving corporation and will become a wholly-owned subsidiary of Boulder. BSB Acquisition Co., Inc. will cease to exist.

Merger Price

At the closing and subject to certain adjustments described below, the 17 stockholders of GFA will be paid an aggregate of $465 million in cash (which includes the assumption of post-closing bonus payments net of tax benefits) as merger consideration. The amount to be paid at closing is subject to certain adjustments and holdbacks, including those described below.

In the event the amount of GFA’s cash on a day selected by GFA and us that is approximately seven to ten days before the anticipated closing of the merger exceeds GFA’s indebtedness, which will include GFA’s obligations for borrowed money, letters of credit issued for GFA’s account, capitalized leases or interest rate swap agreements and any accrued interest or prepayment premiums related to the foregoing as of such date, the purchase price payable to the stockholders will be increased by an amount equal to such excess cash. However, if GFA’s indebtedness exceeds its cash, the purchase price will be reduced by the amount of the excess indebtedness. GFA has the right to make distributions to its stockholders before the merger so long as GFA has no indebtedness at the time of the distribution. As of January 31, 2007, GFA had total cash of $9.7 million and total indebtedness of $1.7 million. The additional cash purchase price required based on GFA’s cash for purposes of computing the price adjustment will not increase the net cash required to complete the merger, because GFA’s cash that resulted in the purchase price increase will be available for use by Boulder, dollar-for-dollar, simultaneously with closing.

We agreed to be financially responsible for certain bonus payments payable to some of the employees and consultants of GFA, specifically including amounts payable to New Industries Corporation (which is owned by several stockholders of GFA). These bonuses consist of two sale bonuses related to the closing of the merger and an EBITDA bonus. The EBITDA bonus will be calculated on the basis of the EBITDA of GFA’s business for the 2006 calendar year, which cannot be accurately determined until after the close of the calendar year. If the EBITDA bonus has been finally determined at closing, it will be paid at closing. If not, the estimated amount of the EBITDA bonus will be paid into escrow at closing. One of the sale bonuses is payable in full at or shortly after closing while ninety percent of the other sale bonus is payable at closing with the remaining ten percent

 

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payable into escrow at the closing. In the event the bonus recipients provide management services to GFA after the closing and otherwise comply with the terms of the agreements giving rise to the bonuses, the bonus amounts deposited in escrow will be paid out no later than June 30, 2007. The total liability for the bonuses is currently estimated to approximate $23.3 million. The total amount payable is an estimate since the exact amount cannot be calculated until the closing of the merger. However, we do not believe the bonus amount will vary materially from our estimate.

The cash consideration payable to the GFA stockholders will be reduced by 60% of the bonuses described in the preceding paragraph. In addition, to the extent that any of the bonus payments have not been approved by at least 75% of the voting power of GFA in a stockholder vote that is separate from the approval of the merger, the cash consideration will be reduced by 40% of the amount of any bonuses that would constitute “excess parachute payments.”

Because the actual amount of the bonuses may not be established until after the closing of the merger, the amount paid into escrow may exceed the amount of the actual bonus payments. In the event less than all of the bonus payments placed in escrow are paid to the intended recipients of the bonuses, the stockholders of GFA will be entitled to 60% of such excess as additional purchase price with the remaining 40% being returned to us.

The cash consideration payable at the closing will also be reduced by the amount of any third-party fees and expenses incurred by GFA in connection with the merger and the transactions contemplated thereby, including, without limitation, legal, accounting, financial advisory, consulting and other fees and expenses of third parties, that have not been paid prior to the closing of the merger. We are not able to quantify the third party expenses that will reduce the merger consideration because the amount will depend on the amounts ultimately invoiced and the extent to which GFA has used cash before closing to pay these expenses.

In connection with the calculation of the cash consideration payable to the stockholders of GFA, on a date that is seven to ten days prior to the closing, the GFA shareholders’ representative is required to provide us with a consolidated balance sheet for GFA as of such date, its calculation of the difference between GFA’s cash position and the amount of its indebtedness, its calculation of the reasonably highest expected amount of the bonus payments and other financial information regarding GFA as we may reasonably request, as well as its calculation of the aggregate amount to be paid to the GFA stockholders at closing. If a dispute regarding these matters arises and exceeds $10 million, neither GFA nor we are required to proceed with the closing. However, in the event the dispute involves less than $10 million and the parties are unable to resolve the dispute, the purchase price to be paid at closing will be equal to the lesser of the two parties’ calculation of the amount payable at closing, with the difference to be paid into an escrow account. The amount in escrow will be disbursed upon the joint instructions of the GFA shareholders’ representative and us or, if the parties cannot agree within ten days after the merger, the dispute is to be submitted to arbitration, with the escrowed funds being distributed upon the arbitrator’s instruction.

The cash consideration payable pursuant to the merger agreement will be funded with cash currently being held in the trust account established in connection with our initial public offering, the proceeds of the private placement and the secured debt financing. We do not believe that any of the potential adjustments to the merger consideration or the amount of the sale bonuses and the EBITDA bonus paid at closing will result in a shortfall in funds to complete the business combination. In estimating the cash requirements for closing the merger, we included estimates for the sale bonuses and EBITDA bonus. In the unlikely event of a cash shortfall because these bonuses are more than we estimated or another adjustment increases the amount of cash due at closing, we could request a draw under the revolving credit facility we will obtain at closing and use the proceeds to pay the shortfall. We also could defer the payment of a portion of other closing costs in order to pay the adjusted merger consideration and bonuses at closing.

In the event any of our stockholders vote against the merger and exercise their right to convert their stock into cash pursuant to the provisions of our certificate of incorporation, TSG4 L.P., a stockholder of GFA, will be

 

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obligated, at our option, to accept up to $10 million of the common stock of Boulder at $7.46 per share in lieu of cash otherwise payable to TSG4 L.P. at the closing of the merger. TSG4 L.P. will be entitled to registration rights similar to those of the investors purchasing Boulder securities in connection with the private placement. We have structured the GFA merger and our debt financing to take into account the conversion of the maximum number of shares of our stock, and we will be able to complete the GFA merger in the event of a maximum conversion.

Closing of the Merger

Subject to the provisions of the merger agreement, the closing of the merger will take place no later than May 31, 2007, subject to certain extensions, or, on the fifth business day after all conditions described below have been satisfied or waived. We and the GFA shareholders’ representative may agree to close at another time.

Conditions to the Completion of the Merger

GFA’s stockholders have approved the merger. The obligation of GFA to consummate the merger is subject to the satisfaction of the following conditions:

 

   

Our representations and warranties must be true and correct in all respects as of the date of the merger agreement and as of the consummation of the merger except where the failure of any representation or warranty to be true and correct has not had, individually or in the aggregate, a material adverse effect on our ability to consummate the merger;

 

   

We must have performed in all material respects all obligations that are to be performed by us under the terms of the merger agreement;

 

   

We must have delivered the cash consideration and all other documents required to be delivered at closing, including the required legal opinion of our counsel, certified authorizing resolutions and officer’s certificates.

 

   

All specified waiting periods under the HSR Act must have expired or been terminated; and

 

   

There is no action, suit or proceeding by any governmental agency challenging or preventing the merger.

Any of the GFA conditions to close may be waived by GFA in its discretion.

The obligation of Boulder to consummate the merger is subject to the satisfaction of the following conditions:

 

   

The representations and warranties of GFA must be true and correct in all respects as of the date of the merger agreement and as of the consummation of the merger except where the failure of any such representations and warranties to be true and correct has not had, individually or in the aggregate, a material adverse effect;

 

   

GFA and the GFA shareholders’ representative must have performed in all material respects all obligations that are to be performed by them under the terms of the merger agreement;

 

   

GFA must have delivered all documents required to be delivered at closing, including the required legal opinion of its counsel, certified authorizing resolutions, officer’s certificates, resignations and releases from officers and directors of GFA and releases from TSG4, L.P. and its affiliates and Fitness Foods, Inc.

 

   

All specified waiting periods under the HSR Act must have expired or been terminated;

 

   

There is no action, suit or proceeding by any governmental agency challenging or preventing the merger;

 

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Our stockholders must have approved the transactions contemplated by the merger agreement;

 

   

Holders of less than 20% of the shares of Boulder common stock issued in connection with our initial public offering have voted against the merger and exercised their right to convert the shares into a pro rata share of the trust account;

 

   

All third party consents and approvals must have been obtained;

 

   

There must not have occurred since the date of the merger agreement any material adverse effect on GFA;

 

   

We must have obtained debt financing pursuant to the terms of a commitment letter with Bank of America, N.A. and Banc of America Securities LLC in an amount of $180 million, which will include a revolving credit facility of $20 million, or commitments for substitute debt financing;

 

   

We must have sold common stock and preferred stock in the private placement sufficient to raise at least $246 million;

 

   

Our stockholders must have approved the amendment and restatement of our certificate of incorporation to authorize additional shares of stock; and

 

   

Holders of no more than 2% of the shares of the common stock of GFA outstanding and entitled to vote on the approval of the merger have exercised and not withdrawn, abandoned or forfeited their appraisal rights pursuant the Delaware General Corporation Law.

The Boulder conditions to close may be waived by us in our discretion, subject to the approval of certain of the private placement investors pursuant to the securities purchase agreement.

Interim Covenants Relating to the Conduct of Business

Under the merger agreement, GFA has agreed to conduct its business in the ordinary course consistent with past practice, subject to various limitations and restrictions contained in the merger agreement.

GFA has agreed that it will not do certain things between the signing of the merger agreement and closing, including, without limitation, the following:

 

   

Selling, leasing, assigning, licensing or transferring material assets;

 

   

Increasing the compensation or benefits of employees, officers or directors other than routine changes in the ordinary course of business consistent with past practice;

 

   

Creating, incurring or assuming material liabilities, with certain exceptions;

 

   

Modifying, amending, renewing, replacing or terminating material contracts or agreements; and

 

   

Selling, transferring or licensing to any third party any intellectual property used by GFA or amending any existing license of any intellectual property used by GFA.

Access to Information

Prior to closing, GFA has agreed to give us reasonable access to its properties, books and records, as well as its employees and intellectual property attorneys for purposes of obtaining information regarding GFA and its business. In addition, GFA has agreed to allow us to meet with Brandeis University, its intellectual property attorneys and certain key customers, suppliers, manufacturers and distributors for a limited period of time.

GFA has also agreed to provide us with certain financial information regarding its operations for periods prior to the execution of the merger agreement as well as for periods prior to the consummation of the merger.

 

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No Solicitation by Boulder or GFA

Until the closing of the merger or the termination of the merger agreement, GFA and the GFA shareholders’ representative have each agreed that it will not solicit, negotiate, act upon or entertain in any way an offer from any other person to purchase all or any part of the securities of GFA Holdings or GFA Brands or furnish any information to any other person with respect to such a transaction.

Until the closing of the merger or the termination of the merger agreement, we have agreed that we will not negotiate, investigate, act upon or entertain in any way the purchase of any business other than as contemplated by the merger agreement.

We have agreed that we will, through our board of directors, recommend to our stockholders that we approve the merger proposal.

Fees and Expenses

All fees and expenses incurred in connection with the merger, including, without limitation, all legal, accounting, financial advisory, consulting and other fees and expenses of third parties incurred by a party in connection with the negotiation of the merger agreement and the consummation of the transactions contemplated thereby will be the obligation of the respective party incurring such fees and expenses. To the extent that the stockholders of GFA have not paid any such fees and expenses incurred by GFA prior to the closing, the cash consideration to be paid to the stockholders will be reduced by such fees and expenses.

Representations and Warranties of GFA

The merger agreement contains a number of representations and warranties that GFA has made to us, including, without limitation, the following:

 

   

Organization and qualification;

 

   

Subsidiaries;

 

   

Authorization, execution, delivery and enforceability of the merger agreement and related agreements;

 

   

Capitalization;

 

   

Absence of conflicts, breaches or violations under organizational documents, certain agreements and applicable laws, orders or decrees as a result of the contemplated transaction and the receipt of all required consents and approvals;

 

   

Financial statements and the accuracy of the information contained in the financial statements;

 

   

Absence of certain changes or events since December 31, 2005;

 

   

Real property and leasehold interests;

 

   

Title to its properties and the absence of liens and encumbrances (with certain exceptions);

 

   

Matters relating to material contracts and agreements;

 

   

Intellectual property;

 

   

Licenses and permits;

 

   

Absence of litigation, audits and investigations;

 

   

Compliance with applicable laws;

 

   

Environmental matters;

 

   

Employees and employee benefit plans;

 

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Insurance;

 

   

Tax matters;

 

   

Liability for brokerage or finders fees in connection with the contemplated transaction;

 

   

Absence of undisclosed liabilities;

 

   

Books and records;

 

   

Related party transactions;

 

   

Adequacy and condition of its assets;

 

   

Product warranty matters;

 

   

Accounts receivable;

 

   

Inventory;

 

   

Accuracy of information relating to GFA contained in this proxy statement; and

 

   

Advertising and promotional expenses.

Representations and Warranties of Boulder

The merger agreement contains a number of representations and warranties that we have made to GFA, including, without limitation, the following:

 

   

Organization and qualification;

 

   

Authorization, execution, delivery and enforceability of the merger agreement and related agreements;

 

   

Absence of conflicts, breaches or violations under organizational documents, certain agreements and applicable laws, orders or decrees as a result of the contemplated transaction and the receipt of all required consents and approvals;

 

   

Accuracy of our SEC filings;

 

   

The principal balance of the amount we are holding in the trust account established in connection with our initial public offering;

 

   

Absence of litigation, audits and investigations;

 

   

Liability for brokerage or finders fees in connection with the contemplated transaction; and

 

   

No deemed representations and warranties other than those expressly included in the merger agreement.

Qualification of Representations and Warranties

Certain of the representations and warranties contained in the merger agreement are qualified by materiality, material adverse effect and knowledge qualifiers.

For purposes of the merger agreement, a material adverse effect on GFA means any event, circumstance, change, occurrence or effect, individually or when aggregated with other events, circumstances, changes, occurrences or effects, that is materially adverse to the business, assets, liabilities, financial condition or operating results of GFA, it being understood that none of the following, alone or in combination, will be deemed, in and of itself, to constitute a material adverse effect:

 

  (1) a general deterioration in the United States economy or in the industries in which GFA operates, including any deterioration in the business of any of GFA’s significant customers, suppliers or business partners;

 

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  (2) the outbreak or escalation of hostilities involving the United States, the declaration by the United States of a national emergency or war, whether or not declared, or the occurrence of any other calamity or crisis, including an act of terrorism;

 

  (3) a natural disaster or any other natural occurrence beyond the control of GFA;

 

  (4) the disclosure of the fact that Boulder is the prospective acquirer of GFA;

 

  (5) the announcement or pendency of the transactions contemplated by the merger agreement;

 

  (6) any change in accounting requirements or principles imposed upon GFA or any change in applicable laws, rules or regulations or the interpretation of those laws, rules or regulations;

 

  (7) any action required by the merger agreement; or

 

  (8) any action of GFA between the date of the merger agreement and the closing which requires our consent pursuant to the terms of the merger agreement if we do not consent to the taking of the action.

Termination

The merger agreement may be terminated for a number of reasons prior to closing, including upon the following circumstances:

 

   

Upon the mutual consent of Boulder and the GFA shareholders’ representative;

 

   

By Boulder if there is any material breach of any representation, warranty, covenant or agreement in the merger agreement that has not been cured within the time frames set forth in the merger agreement;

 

   

By Boulder if there are material and adverse changes, discrepancies or differences in certain financial statements to be delivered by GFA;

 

   

By Boulder or the GFA shareholders’ representative if the merger has not been completed by May 31, 2007, subject to certain exceptions;

 

   

By GFA if Bank of America, N.A. and Banc of America Securities LLC indicate that they are unwilling to fund the debt financing in accordance with the terms of the commitment letter or any of the investors in the private placement indicates that it is unwilling to fund or otherwise breaches its commitment to fund, but only if we are unable to obtain substitute financing within 15 days; or

 

   

By GFA if, starting five days after this proxy statement is filed with the SEC, the average combined closing price of the Boulder common stock and warrants is below $7.80 over any 10 consecutive trading days.

Effect of Termination

In the event the merger agreement is terminated, the merger agreement will become void and neither we nor GFA will have any liability or obligation under the merger agreement except that in the event of an intentional or willful breach of the merger agreement, the non-breaching party is entitled to specific performance of the covenants contained in the merger agreement.

No Indemnification

All of the representations and warranties contained in the merger agreement will expire at the closing of the merger. Except for fraud, no party to the merger agreement has any remedy with respect to breaches of the representations and warranties contained in the merger agreement or with respect to breaches of pre-closing covenants.

 

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Shareholders’ Representative

TSG4, L.P., acting in its capacity as the GFA shareholders’ representative, has been designated to serve as a representative of all of the stockholders of GFA with respect to matters relating to the merger agreement and will act as agent, proxy and attorney-in-fact for each of the stockholders. We are entitled to rely on the delegation of authority to the GFA shareholders’ representative.

GFA Employees

Following the closing of the merger, we are required to cause GFA to provide employees of GFA with base compensation and bonuses or commission opportunity that is the same or greater than that in existence prior to the closing, provided that they do not voluntarily reduce their hours or duties and maintain benefit plans that are no less favorable than those provided to similarly situated employees of Boulder.

In the event the merger is completed, two of GFA’s senior officers are contractually obligated to provide management services to GFA for a transition period of no less than 60 days after closing, and we expect the remainder of the current GFA management team to remain in place following the closing of the merger.

 

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PROPOSAL 2:

THE PRIVATE PLACEMENT

Background

We are seeking your approval for the issuance of our common stock, Series A convertible preferred stock and related investor warrants (including the issuance of common stock upon conversion of the Series A convertible preferred stock or exercise of the warrants) in connection with a contemplated private placement, which is a condition to the consummation of the GFA merger described in Proposal 1. The principal purpose of the private placement is to obtain a portion of the funds necessary to pay the purchase price and complete the GFA merger, as described in the merger proposal.

On September 25, 2006, we entered into a securities purchase agreement with prospective investors that provides for the investors, simultaneously with the closing of the GFA merger, to purchase (1) 14,410,188 shares of our common stock at a price of $7.46 per share and (2) 15,388,889 shares of Series A convertible preferred stock and related warrants at a combined price of $9.00 per share/warrant, resulting in aggregate gross proceeds to us of approximately $246 million and net proceeds of approximately $234 million, after the payment of placement fees to Citigroup Global Markets, Inc. and Banc of America Securities LLC. The net proceeds will be used to fund a portion of the GFA merger consideration. In the event that the GFA merger is not approved or completed or the amendment and restatement of our certificate of incorporation is not approved, the contemplated private placement will not be completed.

Necessity of Stockholder Approval

The private placement described in this proposal involves the issuance by us of shares of our common stock that would represent more than 20% of our currently outstanding common stock. Although the OTC Bulletin Board does not require stockholder approval in connection with the issuance of shares of common stock, we have elected nonetheless to seek such approval because we are applying to list our common stock on the NASDAQ Capital Market contemporaneously with the closing of the GFA merger, and NASDAQ would require such approval if we were a NASDAQ-listed company.

In addition, the securities purchase agreement requires, as a condition to closing, that our stockholders approve the GFA merger, the issuance of our securities pursuant to the securities purchase agreement and the related restated certificate of incorporation.

Accordingly, if the GFA merger proposal or the private placement proposal or the proposed restated certificate of incorporation is not approved, then neither the GFA merger nor the private placement will be completed.

We are therefore asking that our stockholders approve our issuance of securities as contemplated by the private placement.

Description of the Private Placement

The private placement will consist of (1) 14,410,188 shares of our common stock, (2) 15,388,889 shares of our Series A convertible preferred stock (which will be authorized upon adoption of the proposed restated certificate of incorporation) that will bear cumulative preferential dividends payable quarterly at an initial compounded rate of 8% per annum, have an initial liquidation preference of $9.00 per share and be convertible into common stock, at an initial conversion price of $9.00 per share, and (3) 15,388,889 warrants that will be exercisable upon any redemption of the related shares of Series A convertible preferred stock, at an exercise price equal to the conversion price of the Series A convertible preferred stock in effect on the redemption date. See

 

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“Description of Securities” for a description of the terms of the securities we will issue in the private placement. We sometimes refer to the warrants that we propose to issue in the private placement as “investor warrants” to differentiate them from existing warrants held by our public stockholders, which we refer to as “public warrants,” and existing warrants purchased from us at the time of out initial public offering by some of our directors and a senior advisor, which we refer to as the “founding director warrants.”

The $7.46 price per share being paid by investors for the common stock was the closing price of our common stock on the OTC Bulletin Board on September 22, 2006, the last trading day before we entered into the securities purchase agreement, and the combined $9.00 price being paid by investors for a share of Series A convertible preferred stock and the related investor warrant represents approximately a 20.6% premium to the trading price of the underlying common stock on that date.

Because the $7.46 per share price of the common stock being issued in the private placement is fixed, and not subject to adjustment at or prior to closing, the price per share price of our common stock that will be issued to the investors may be at a significant discount or premium to the closing price of our common stock as quoted on the OTC Bulletin Board, depending on the closing price of the common stock on the date of the closing of the private placement.

The issuance of securities to investors in the private placement will be made in reliance upon an available exemption from registration under the Securities Act, by reason of section 4(2) thereof, to persons who are “accredited investors” or “qualified institutional buyers,” as defined in Regulation D or Rule 144A, respectively, promulgated under the Securities Act. The investors have represented in the securities purchase agreement that each is an “accredited investor” or “qualified institutional buyer” and have acknowledged that transfers of the securities they acquire in the private placement must be made in compliance with applicable securities laws. We have relied upon these representations to support our reliance upon these exemptions.

The purchasers in the private placement consist of 26 institutional investors, plus Robert J. Gillespie, a director of Boulder. None of the investors is a stockholder, officer or director of GFA. The institutional investors in the private placement are as follows:

 

   

Adage Capital Partners GP, L.P.

 

   

Aragon Trading Company, L.P.

 

   

Canyon Capital Advisors LLC

 

   

Citigroup Global Markets, Inc.

 

   

Fort Mason Master, LP and its affiliate Fort Mason Partners, LP

 

   

The following affiliates of Glenhill Advisors, L.L.C.: Glenhill Capital, L.P. and Glenhill Capital Overseas Master Fund LP

 

   

The following affiliates of Glenview Capital Management, LLC: Glenview Capital Partners, L.P., Glenview Institutional Partners, L.P., GCM Little Arbor Partners, L.P., GCM Little Arbor Institutional Partners, L.P., GCM Little Arbor Master Fund, Ltd. and Glenview Capital Master Fund, Ltd.

 

   

Highbridge International LLC

 

   

Investcorp Interlachen Multi-Strategy Master Fund Limited

 

   

Kings Road Investments LTD.

 

   

The following affiliates of Old Lane, L.P.: Old Lane US Master Fund, L.P., Old Lane HMA Master Fund, L.P. and Old Lane Cayman Master Fund, L.P.

 

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The following affiliates of OZ Management, L.L.C.: OZ Master Fund, Ltd., OZ Global Special Investments Master Fund, L.P., GPC LVII, LLC and Fleet Maritime, Inc.

 

   

SF Capital Partners Ltd.

 

   

UBS AG

Securities Purchase Agreement

The securities purchase agreement contains a number of representations and warranties, closing conditions, and provisions for the termination of the agreement which are summarized below. For the complete form of the securities purchase agreement, refer to Annex “C,” which is incorporated herein by reference.

Representations and Warranties

Our representations and warranties include: requisite corporate power and authority to enter into the transaction; capitalization; the accuracy of the reports we have filed with the SEC and financial statements; litigation; the absence of undisclosed liabilities or material adverse change; and compliance with laws and agreements. In addition, all representations and warranties made by Boulder or by GFA or its stockholders in the merger agreement with GFA are deemed made by us to each investor.

Each investor’s representations and warranties include: requisite power and authority; investment purpose; and status as an accredited investor or qualified institutional buyer.

Conditions to Closing

The conditions that must be satisfied before we and the investors become obligated to close the private placement include the following:

 

  (1) trading in our common stock has not been suspended, trading in securities generally as reported by Bloomberg Financial Markets has not been suspended or limited, and no banking moratorium has been declared;

 

  (2) our stockholders have approved the issuance of our securities in the private placement and the related amendment and restatement of our certificate of incorporation;

 

  (3) the stockholders of both Boulder and GFA have approved the GFA merger and the merger has been completed in accordance with its terms; and

 

  (4) there is no order restraining the closing of the private placement, and there are no pending legal proceedings seeking to prohibit or materially delay the closing.

The obligation of each investor to buy securities in the private placement is subject to the fulfillment, or waiver by such investor, of additional closing conditions, including:

 

  (1) all of our representations and warranties in the securities purchase agreement are true and correct in all material respects as of the closing date;

 

  (2) we have performed, in all material respects, all of our covenants in the securities purchase agreement;

 

  (3) there is no material adverse change with respect to either GFA or Boulder;

 

  (4) there is no material outbreak or escalation of hostilities or other national or international calamity or any other material adverse change affecting any financial market that, in the reasonable judgment of the investor, makes it impractical or inadvisable to purchase the securities at closing;

 

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  (5) investors have, in the aggregate, purchased our securities at closing for a total investment amount equal to the greater of (i) $240 million, and (ii) the amount, together with the net proceeds of the debt financing described below and other available cash, that is sufficient to complete the GFA merger, including the payment of all fees and expenses; and

 

  (6) we have closed a debt financing in the aggregate amount of $180 million ($160 million of which must be funded for the purpose of completing the GFA merger).

Our obligation to sell our securities in the private placement is subject to the fulfillment, or waiver by us, of additional closing conditions; including:

 

  (1) all of the representations and warranties of the investors in the securities purchase agreement are true and correct in all material respects as of the closing date;

 

  (2) the investors have performed, in all material respects, all of their covenants in the securities purchase agreement;

 

  (3) all waiting periods under the HSR Act and any other law relating to competition matters have expired;

 

  (4) all necessary consents, approvals and filings have been obtained or made; and

 

  (5) we have received each investor’s subscription funds, unless we close the GFA merger without the subscription funds of all investors.

Covenants

Pending the closing of the private placement, we have agreed to conduct our business in the ordinary course. In addition, we have agreed not to make any material amendment to or waiver under the merger agreement with GFA without the consent of investors who have committed to purchase a majority of the aggregate subscription amounts. We have also committed, pending the closing, not to solicit, initiate or facilitate any proposals for (1) any purchase or sale of assets outside the ordinary course of business, (2) the issuance of our securities other than in the private placement, (3) a business combination other than the GFA merger or (4) any other alternative transaction with a third party that could reasonably be expected to impede or materially delay the private placement and the merger, unless, in each case, our board of directors has concluded in good faith, after consultation with outside counsel, that such action is required to prevent the board from breaching its fiduciary duties to our stockholders.

We also have agreed to (1) designate shares of the Series A convertible preferred stock as Portal Trading Securities with the PORTAL Market of the NASDAQ Stock Market, Inc., to the extent they are eligible for such designation, within 14 days after the closing, (2) to file to list our common stock on the NASDAQ Global Market or the NASDAQ Capital Market or the American Stock Exchange within 14 days after the closing and (3) to so list our common stock within 90 days after the closing.

Amendments

Any amendment to the securities purchase agreement or any material amendment to or any waiver under the GFA merger agreement requires the consent of investors who have committed to purchase a majority of the subscription amounts and, if made before closing, must at all times include the investors who are affiliated investment funds of OZ Management, L.L.C. and Glenview Capital Management, LLC.

Termination, Breach

The securities purchase agreement may be terminated by an investor, as to such investor, upon any of the following:

 

  (1) on May 31, 2007 if the closing has not occurred prior to that date;

 

  (2) if our stockholders fail to approve the GFA merger and the private placement at the special meeting;

 

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  (3) on the date that any permanent injunction or other order preventing the closing becomes effective; or

 

  (4) on the date of termination of the GFA merger agreement.

Termination will not affect the right of any party to initiate legal action for any breach. If an investor chooses not to waive a closing condition or defaults on its obligation to fund its full subscription amount at closing, the other investors may elect, but are not required, to fund the subscription amount of the non-participating investor, pro rata, and if a deficiency remains, the securities purchase agreement provides a mechanism for the investors to substitute one or more new investors, with our consent.

Expenses

We have agreed to pay some of the investors’ expenses in connection with the transaction, including up to $45,000 for each investor for any filings required by the HSR Act or any other law relating to competition matters, and up to $700,000 of legal fees and expenses to counsel to certain of the investors. We have also agreed to pay the co-placement agents’ attorneys’ fees, up to $50,000.

Registration Rights

The securities purchase agreement requires us to enter into a registration rights agreement with the investors at the closing of the private placement, pursuant to which we will be obligated to register the resale, under the Securities Act, of the shares of common stock that are issued or issuable to the investors in connection with the private placement, including the shares of common stock issuable upon conversion of the Series A convertible preferred stock or upon exercise of the investor warrants. If GFA’s controlling stockholder receives a portion of its consideration in the GFA merger in our common stock rather than cash, it also will be a party to the registration rights agreement. The complete form of the registration rights agreement is attached as Annex “D” and is incorporated herein by reference. Until such time as a resale registration statement covering the shares is filed and declared effective by the SEC or the shares are eligible for resale under Rule 144 promulgated under the Securities Act, the shares of common stock issued at closing and the shares of common stock issued upon conversion of the Series A convertible preferred stock or the exercise of the related investor warrants will be restricted and not eligible for sale on the open market by the holders of the shares.

We are obligated to file the registration statement no later than 14 days after the closing, to use reasonable best efforts to cause the registration statement to be declared effective by the SEC as promptly as possible and to make the registration statement available for resales until all the shares covered by the registration statement have either been sold under the registration statement or are eligible for resale without restriction in a single transaction under Rule 144(k). See “Description of Securities – Series A Convertible Preferred Stock – Adjustments to Conversion Rate” for information about penalties that will apply if we fail to file the registration statement or have it declared effective by the specified deadlines or if investors are not permitted to use the registration statement for a specified period of time.

We are required to pay expenses incurred in registering and disposing of the shares entitled to the benefit of the registration rights agreement, including up to $500,000, in the aggregate, of expenses separately incurred by the investors but excluding underwriting discounts and commissions. The registration rights agreement contains other standard provisions for agreements of this type, including the right of investors to piggyback on a registration statement we file for an underwritten public offering by us or by stockholders other than the investors, indemnification provisions, and a requirement that we comply with all of the reporting requirements applicable to us under the Exchange Act.

Interest of Our Officers, Directors and Principal Stockholders in the Private Placement

Affiliates of existing 5% or more stockholders, an affiliate of one of our directors, Robert J. Gillespie, and an affiliate of one of our senior advisors and former directors, Michael O’Brien, have agreed to buy shares in the

 

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private placement at the same price as other investors. The following table shows the number and type of shares that each has committed to purchase:

 

Investor

   Number of Shares of
Series A convertible
preferred Stock to
be Purchased
   Number of Shares
of Common Stock
to be Purchased
   Total
Subscription
Amount

Adage Capital Partners, G.P., LLC, Phillip Gross and Robert Atchinson

   1,111,111    2,010,724    $ 25,000,000

Glenhill Advisors, L.L.C. and Glenn J. Krevlin

   555,556    670,241    $ 10,000,000

Westmount Investments, L.L.C. (affiliate of Robert J. Gillespie)

   13,889    16,756    $ 250,000

Aragon Trading Company, L.P. (affiliate of Michael O’Brien)(1)

   13,889    16,756    $ 250,000

(1)

Michael O’Brien is a senior advisor of Boulder and was a member of its board of directors from June 2005 to November 2005.

See “Beneficial Ownership of Securities” for information on the stock ownership of these persons before and after the private placement. The ownership of our voting stock by affiliates of Adage Capital Partners, G.P. will increase from 6.27% to 9.01% as a result of the private placement.

Effect of the Private Placement on Existing Stockholders

Advantages

Prior to voting, each stockholder should consider the fact that the private placement will provide additional financing, substantially all of which will be used to complete the GFA merger. Each stockholder should consider the fact that if we do not complete the merger and the private placement and if we do not complete an alternate business combination within the deadline required by our certificate of incorporation, we will be required to obtain the approval of the holders of a majority of our stock in order to dissolve and liquidate and distribute the trust account proceeds to our public stockholders.

Disadvantages

The private placement will have a substantial dilutive effect on our current stockholders. Our current stockholders’ aggregate percentage ownership will decline significantly as a result of the private placement. The number of shares issued pursuant to the private placement will increase substantially the number of shares of common stock currently outstanding and potentially outstanding in the future if the Series A convertible preferred stock is converted, or, if after any redemption of shares of Series A convertible preferred stock, the related investor warrants are exercised. This means that our current stockholders will own a smaller interest in us as a result of the private placement. Stockholders immediately before the closing will be reduced from owning 100% of the outstanding common stock to owning approximately 52.5% of the outstanding common stock and approximately 34.9% assuming conversion of the Series A convertible preferred stock into common stock at a conversion price of $9.00 per share immediately after the closing. The percentage of ownership numbers do not give effect to the additional dilutive effect that will occur from the exercise of the public warrants or founding director warrants or the issuance of shares under the stock plan described in Proposal 4. See “Beneficial Ownership of Securities” for additional information on the ownership of our common stock before and after the private placement.

We will be required to issue a substantial number of additional shares of our common stock in the future as a result of:

 

   

any conversion of the Series A convertible preferred stock into (or the exercise of the related investor warrants for) common stock;

 

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our failure to pay quarterly dividends on the Series A convertible preferred stock in cash, whether due to covenants under our secured debt financing (or any future financing) prohibiting the payment of cash dividends, lack of sufficient cash flow or the desire of our board of directors to retain earnings for use in our business, which failure will cause the liquidation preference of the Series A convertible preferred stock to increase by the amount of accrued but unpaid dividends (which compound at the initial rate of 8% per annum, increasing to as much as 15% per annum) and will therefore increase the number of shares of common stock issuable upon conversion of the Series A convertible preferred stock (or the exercise of the related investor warrants);

 

   

adjustments to the conversion price of the Series A convertible preferred stock, up to an aggregate of 9%, upon any default by us in our obligations with respect to the designation of the Series A convertible preferred stock as Portal Trading Securities, the listing of our common stock on the NASDAQ Capital Market, or the registration under the Securities Act of resales of the common stock issued or issuable upon conversion of the Series A convertible preferred stock (or the exercise of the related investor warrants); or

 

   

reductions in the conversion price of the Series A preferred stock based on anti-dilution protection for issuances of our common stock at below the conversion price or below the then-market price of our common stock.

We also must issue additional shares of common stock to investors who buy common stock in the private placement if we default on our obligations to list our common stock on either the NASDAQ Global Market, the NASDAQ Capital Market or the American Stock Exchange within 90 days after the closing or to register the resale, under the Securities Act, of the shares of common stock issued or issuable in connection with the private placement within a specified number of days up to 74 days after closing, depending on the type of SEC review of the registration statement. If a default occurs that results in an adjustment to the conversion price of the Series A convertible preferred stock (see “Description of Securities –Series A Convertible Preferred Stock—Adjustments to Conversion Rate”), then, on the date of the adjustment, we must also make a similar adjustment for investors who purchased common stock in the private placement, by issuing, as an adjustment to their subscription amounts, that number of additional shares arrived at by dividing the dollar amount of the reduction in the Series A conversion price by the $7.46 per share purchase price of the shares of common stock issued at the closing of the private placement. See “Risk Factors – Risks Relating to Simultaneous Private Placement” and the description of adjustments to the conversion price of the Series A convertible preferred stock in “Description of Securities – Series A Convertible Preferred Stock – Adjustments to Conversion Rate.”

We intend to reserve a total of 60 million shares of common stock for issuance in connection with the private placement, including a cushion to cover the circumstances described above.

All shares of common stock and common stock underlying the Series A convertible preferred stock and related warrants issued in the private placement will be entitled to registration rights. Consequently, if these shares are registered, the shares may be freely transferable without restriction under the Securities Act, absent other securities law restrictions. Such free transferability could materially and adversely affect the market price of our common stock if a sufficient number of these shares are sold in the open market.

For additional information about the disadvantages of the private placement, see “Risk Factors – Risks Relating to the Simultaneous Private Placement.”

Required Vote

Approval of the private placement requires the affirmative vote of holders of a majority of the shares of our common stock represented, in person or by proxy, and entitled to vote at the special meeting. Abstentions will therefore have the same effect as a vote against the private placement. Broker non-votes will have no effect on the outcome of the vote. Assuming the presence of a quorum of more than 50% of the shares of our common

 

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stock, the failure to vote will also have no effect on the outcome of the vote. Approval of the private placement is also conditioned upon the approval of Proposals 1 and 3, and approval of Proposals 1 and 3 is also conditioned on approval of Proposal 2. This means that our stockholders must approve all three proposals in order for any of them to be adopted.

Recommendation

The board of directors believes it is in the best interests of Boulder that the stockholders authorize the issuance of the common stock, Series A convertible preferred stock and related investor warrants (including the issuance of common stock upon conversion of the Series A convertible preferred stock or exercise of the warrants) in connection with the private placement described above.

IF OUR STOCKHOLDERS DO NOT APPROVE THIS PROPOSAL, WE WILL NOT BE ABLE TO COMPLETE THE GFA MERGER DESCRIBED IN PROPOSAL 1.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE PRIVATE PLACEMENT.

 

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PROPOSAL 3:

AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION

General

The GFA merger agreement and the securities purchase agreement for the private placement provide, as a condition to the merger and other transactions described in Proposals 1 and 2, that our certificate of incorporation be amended as summarized below. If approved, these amendments will be incorporated in a restated certificate of incorporation in the form attached as Annex “F.”

The following are summaries of the proposed amendments to our current certificate of incorporation.

Change in Capital Structure

The total number of shares that we will have authority to issue will be increased from 76 million, of which 1 million currently are preferred shares, to 300 million, of which 50 million will be preferred shares. Of the 50 million shares of preferred stock to be authorized, 15,388,889 shares will be designated as Series A convertible preferred stock. The rights of holders of Series A convertible preferred stock are summarized under “Description of Securities—Series A Convertible Preferred Stock.” The remaining 34,611,111 authorized shares of undesignated preferred stock may be divided into series and designated from time to time by the board of directors as described in “Description of Securities – Preferred Stock.”

The increase in the number of authorized shares of common stock and preferred stock is being undertaken in conjunction with the merger described in Proposal 1 and the related private placement. As a result of the issuance of shares, as contemplated in Proposal 2, and adoption of the stock plan, as described in Proposal 4, we will require additional shares of common stock and preferred stock to be authorized in our certificate of incorporation.

Of the 75 million shares of common stock currently authorized, as of April 20, 2007, 15,951,050 shares were issued and outstanding, 12,760,840 shares were reserved for issuance upon exercise of our currently outstanding public warrants and 1,000,000 shares were reserved for issuance for the shares underlying founding director warrants. As a result, only 45,288,110 shares of common stock currently remain available for future issuance.

Pursuant to the private placement described in Proposal 2, we anticipate that we will initially issue 14,410,188 shares of our common stock, and an additional 15,388,889 shares of common stock will initially be

issuable upon the conversion of Series A convertible preferred stock (or upon the exercise of investor warrants to purchase common stock that become exercisable if the Series A convertible preferred stock is redeemed). Because we may be required to issue a significant number of additional shares of common stock as a result of, among other things, adjustments to the conversion price of the Series A convertible preferred stock and to the exercise price of the investor warrants, we intend to reserve a total of 60 million shares of common stock for issuance in connection with the private placement. For information on these possible future issuances, see “Risk Factors – Risks Relating to Simultaneous Private Placement” and “Description of Securities – Series A Convertible Preferred Stock.” Under the stock plan described in Proposal 4, we will reserve 9,650,000 shares of common stock for issuance. Accordingly, an increase in the number of authorized shares of common stock is necessary in order to insure a sufficient number of shares are available for issuance in connection with the transactions described in Proposals 2 and 4 and in future transactions.

We currently have no shares of preferred stock outstanding. The designation of the Series A convertible preferred stock is required in connection with the private placement described in Proposal 2.

The proposed changes to our capital structure will provide a sufficient number of available shares to enable us to close the transactions discussed in Proposals 1, 2 and 4 and will provide the board of directors with the ability to issue additional shares of common stock and/or designate and issue one or more additional series of preferred stock without requiring stockholder approval except as otherwise may be required by our restated certificate of incorporation (which will require the approval of the holders of a majority of the Series A

 

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convertible preferred stock for us to issue additional equity so long as the outstanding Series A convertible preferred stock represent at least 12.5% of the Series A convertible preferred stock issued at the closing of the private placement, subject to certain exceptions), contract, applicable law or the rules of any stock exchange or trading system on which the securities may be listed or traded. Our board of directors does not intend to issue any stock except on terms that the board of directors deems to be in the best interest of Boulder and our stockholders. The availability of additional authorized shares of stock will enable the board of directors to act expeditiously when favorable opportunities arise to enhance our capital structure. Additional shares may be issued in connection with acquisitions, public or private offerings for cash, employee benefit plans and stock dividends. The issuance of additional shares of stock will likely result in dilution of the interests of existing stockholders. We have no present plans, agreements, commitments, undertakings or proposals for the issuance of additional shares of stock other than the shares that we would issue upon exercise of the public warrants and the founding director warrants and except as described in Proposals 1, 2 and 4 of this proxy statement.

Change of Name of the Company

The name of our company will be changed from “Boulder Specialty Brands, Inc.” to “Smart Balance, Inc.” We believe the new name incorporating GFA’s well-known brand better reflects our operating business following the GFA merger.

Other Changes Generally

Other proposed changes reflected in the restated certificate of incorporation delete matters of historical interest only, such as the provisions of article XII of the current certificate of incorporation regarding the rights of our stockholders with respect to any initial business combination, as defined in article XII. If the GFA merger is completed, article XII will no longer be effective, because the GFA merger will constitute such a business combination. See “Proposal 1: The Merger Proposal” for a description of current rights of our stockholders under article XII in connection with the GFA merger.

The investors in the private placement have required additional changes, some of which are clarifying or conforming changes, such as expressly stating that holders of Series A convertible preferred stock have the right to vote together with the holders of common stock, on an as-converted basis, on matters such as the election of directors, or clarifying the powers of our board of directors in article VI of the restated certificate of incorporation. The following summarizes other changes that we agreed to make in negotiating the private placement, and, with respect to some of the changes, in negotiating the secured debt financing.

Deletion of Provisions Governing Compromises and Arrangements

The restated certificate of incorporation deletes article XI of the current certificate of incorporation, which provides that an appropriate court may direct that a compromise or arrangement between the company and its creditors (or any class thereof) or between the company and its stockholders (or any class thereof), proposed by the company, any creditor or stockholder or a receiver or trustee in dissolution for the company be submitted to a meeting of the creditors or stockholders (or class thereof). If a majority in number representing 75% in value of the creditors or class of creditors or the stockholders or class of stockholders, as the case may be, agree to a compromise or arrangement and to any reorganization of the company resulting from such compromise or arrangement, the compromise or arrangement and such reorganization will, if sanctioned by the court, be binding on all creditors or class of creditors and/or on all stockholders and class of stockholders, and also on the company.

The investors and our board of directors believe that the rights of stockholders and creditors of the company are adequately protected by the Federal Bankruptcy Code and state insolvency laws and, therefore, that current article XI is unnecessary.

Election to Opt Out of Statutory Restrictions on Business Combinations with Interested Stockholders

The restated certificate of incorporation contains an election by the company not to be governed by the provisions of section 203 of the Delaware General Corporation Law. In general, section 203 prohibits the company from engaging in a “business combination” with an “interested stockholder” for a three-year period

 

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following the time that such stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes, among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the company’s voting stock.

Under section 203, a business combination between the company and an interested stockholder is prohibited unless it satisfies one of the following conditions:

 

  (1) before the stockholder became interested, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; or

 

  (2) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the company outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by (i) persons who are directors and also officers, and (ii) employee stock plans, in some instances; or

 

  (3) at or after the time the stockholder became interested, the business combination was approved by the board of directors of the company and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

Section 203 of the Delaware General Corporation Law is generally viewed as an anti-takeover statute that can be used to protect management of a Delaware corporation from a business combination that might be in the best interests of the corporation’s stockholders. The board of directors therefore believes that opting out of section 203 is in the best interests of our stockholders.

Action by Written Consent

The current certificate of incorporation does not permit actions that are required or permitted to be taken at any annual or special meeting of the stockholders to be taken without such a meeting by written consent, as would otherwise be permitted by the Delaware General Corporation Law. The restated certificate of incorporation provides that the holders of Series A convertible preferred stock, acting as a class, may take action without a meeting by written consent in the manner provided by law. Actions required or permitted to be taken by vote of the holders of other classes or series of stock of the company would still be required to be taken at an annual or special meeting and not by written consent.

The change gives the holders of Series A convertible preferred stock the flexibility to take action without having to call a meeting because there will be a relatively small number of holders.

Required Vote

Approval of the restated certificate of incorporation requires the affirmative vote of holders of at a least 75% of the outstanding shares of our common stock. Abstentions, the failure to vote and broker non-votes will therefore have the same effect as a vote against adoption of the restated certificate of incorporation. Approval of the restated certificate of incorporation is also conditioned upon the approval of Proposals 1 and 2, and approval of Proposals 1 and 2 is also conditioned on approval of Proposal 3. This means that our stockholders must approve all three proposals in order for any of them to be adopted.

Recommendation

Our board of directors believes that it is in the best interests of Boulder to approve the proposed restated certificate of incorporation and the amendments contained in it.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION.

 

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PROPOSAL 4: THE STOCK PLAN

Background

We are seeking your approval on the adoption of the Smart Balance, Inc. Stock and Awards Plan, which we refer to as the stock plan, providing for the issuance of a maximum of 9,650,000 shares of common stock in connection with the grant of options and/or other stock-based awards to our officers, directors, employees and consultants.

On October 19, 2006, our board of directors unanimously approved the stock plan, and directed that it be submitted to the stockholders for approval at the special meeting. If approved by the stockholders at the special meeting, the stock plan will become effective as of the closing of the merger. A copy of the stock plan is attached as Annex “G.”

The stock plan being submitted under this proposal does not have any securities issued pursuant to it and no future issuances which may be awarded have been determined, approved or granted. The terms of the securities purchase agreement entered into in connection with the private placement described in Proposal 2 limits the number of options, shares of restricted stock or restricted stock units that may be granted to persons who are Boulder employees, directors or consultants at the time of closing the private placement.

The stock plan includes the following features that protect the interests of our stockholders:

 

   

The stock plan will be administered by a compensation committee composed entirely of independent directors;

 

   

Exercise prices for stock options and stock-based awards under the stock plan must be at least 100% of fair market value on the grant date of the award;

 

   

Exercise prices for awards may not be decreased after the grant date and participants are prohibited for surrendering awards in exchange for an award with a lower exercise price;

 

   

No amendments may be made to the stock plan to materially increase the number of shares reserved for issuance under the stock plan without the approval of Boulder stockholders;

 

   

No awards may be issued retroactively; and

 

   

No more than 1,930,000 of the shares may be awarded as restricted stock or restricted stock units.

So long as the number of outstanding shares of our Series A convertible preferred stock represents at least 12.5% of the total number of shares of Series A convertible preferred stock issued at the closing of the private placement, our restated certificate of incorporation contains a negative covenant that restricts the number of stock options, restricted stock or convertible securities that may be issued to employees, directors or consultants to 4,825,000 during the first three years after the issuance of Series A convertible preferred stock and 2,412,500 during the fourth and fifth years after the issuance of Series A convertible preferred stock.

Description of the Stock Plan

The following is a brief description of certain important features of the stock plan, the full text of which is attached as Annex “G.” This summary does not purport to be complete and is qualified in its entirety by reference to Annex “G.” If the proposal to adopt the stock plan is approved, we intend to promptly file a registration statement on Form S-8 under the Securities Act, registering the shares available for issuance under the stock plan. If Proposals 1, 2 and 3 are not approved, then we will not adopt the stock plan.

General

The stock plan is intended to promote the long-term growth and financial success of Boulder and to increase stockholder value by attracting and retaining officers, employees, consultants and advisors of Boulder and its

 

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Affiliates (as defined in the stock plan). The stock plan provides for the granting of stock options, restricted stock, restricted stock units and stock awards to officers, employees, consultants, advisors or other individuals who provide personal services to us and our affiliates.

Administration

The stock plan will be administered by the compensation committee of the board of directors of Boulder, except to the extent the board of directors delegates its authority to another committee of the board, which we refer to as the administrator. All members of the compensation committee must satisfy the requirements for independence of SEC Rule 16b-3 and remain qualified as “outside directors” within the meaning of section 162(m) of the United States Internal Revenue Code of 1986, as amended.

The administrator has the authority to administer and interpret the stock plan, to determine the participants to whom awards will be granted under the stock plan and, subject to the terms of the stock plan, the type and size of each award, the terms and conditions of performance conditions, cancellation and forfeiture of awards and the other features applicable to each award or type of award. The administrator may modify outstanding awards, waive any conditions or restrictions imposed with respect to awards or the stock issued pursuant to awards and make any and all other determinations that it deems appropriate, subject to the limitations contained in the stock plan, including prohibitions against re-pricing and provisions designed to maintain compliance with the requirements of sections 162(m) and 409A of the Code, as well as other applicable laws and stock exchange rules.

Eligibility

All “participants” in the stock plan, defined by the stock plan as an officer, employee, consultant, advisor or other individual who provides personal services to us or our affiliates, are eligible to receive awards under the stock plan. Participation is discretionary, and awards are subject to approval by the administrator. Upon the closing of the GFA merger, approximately 15 people will be eligible to participate in the stock plan.

Shares Subject to the Stock Plan

The maximum number of shares of our common stock that may be subject to awards during the term of the stock plan is 9,650,000 shares. No more than 1,930,000 shares may be issued as restricted stock or restricted stock units. The OTC Bulletin Board closing price of a share of our common stock on April 20, 2007, was $9.90.

The administrator may adjust the maximum number of shares of common stock that may be issued under the stock plan in order to prevent dilution or enlargement of benefits available under the stock plan in connection with a recapitalization, stock split, merger, consolidation or similar corporate transaction. Additionally, shares used by a participant to exercise an option, and shares withheld by Boulder to cover the withholding tax liability associated with the exercise of an option, are not counted toward the maximum number of shares that may be issued under the stock plan and, accordingly, will not reduce the number of shares that will be available for future awards.

Shares of common stock issued in connection with awards under the stock plan may be shares that are authorized but unissued, or previously issued shares that have been reacquired, or both. If an award under the stock plan is forfeited, canceled, terminated or expires prior to the issuance of shares, the shares subject to the award will be available for future grants under the stock plan.

Types of Awards

The following types of awards may be granted under the stock plan:

 

   

Restricted Stock. A restricted stock grant is an award of outstanding shares of our common stock that does not vest until after a specified period of time, or upon the satisfaction of other performance as

 

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determined by the administrator, and which may be forfeited if the performance goals are not met. Restricted stock must have a restriction period of at least one year. Participants generally receive dividend payments on the shares subject to a restricted stock grant award during the vesting period, and are also generally entitled to vote the shares underlying their awards.

 

   

Restricted Stock Units. An award of a restricted stock unit grants a participant the right to receive shares of our common stock or restricted stock at a future time upon the completion of performance goals set by the administrator or upon the passage of time. Restricted stock units must have a restriction period of at least one year. Participants have no rights with respect to the restricted stock except as set forth in the underlying award agreement.

 

   

Stock Options. An award of a stock option under the stock plan grants a participant the right to purchase a certain number of shares of our common stock during a specified term in the future, after a vesting period, at an exercise price equal to at least 100% of the fair market value of the common stock on the grant date. The term of a stock option may not exceed 10 years from the date of grant. The exercise price may be paid by any of the means described below under “Payment of Exercise Price.”

The types of awards that may be granted under the stock plan described above are subject to the conditions, limitations, restrictions, vesting, forfeiture and provisions determined by the administrator, in its sole discretion, subject to such limitations as are provided in the stock plan. The number of shares subject to any award is also determined by the administrator, in its discretion. At the discretion of the administrator, awards may be made subject to or may vest on an accelerated basis upon the achievement of performance criteria set forth in the participant’s award agreement.

Payment of Exercise Price

The administrator may determine the method or methods for payment of the exercise price. The administrator may also provide that stock options can be net exercised—that is exercised by issuing shares having a value approximately equal to the difference between the aggregate value of the shares as to which the option is being exercised and the aggregate exercise price for such number of shares.

Prohibition Against Re-pricing

The stock plan prohibits the issuance of awards in substitution for outstanding awards or any other adjustment that would constitute a re-pricing (within the meaning of U.S. generally accepted accounting principles or any applicable stock exchange rule) of awards.

Additional Forfeiture Provisions

Awards granted under the stock plan are subject to forfeiture upon a participant’s death or if a participant ceases to be an officer or employee due to fraud or misconduct.

Deferrals

The grant of an award under the stock plan may contain provisions enabling a participant to defer delivery of common stock or recognition of taxable income relating to an award as the administrator determines appropriate; provided that the deferral may not result in an increase in the number of shares of common stock issuable under the stock plan.

Change of Control

Each holder of an award will have 60 days after a change of control to receive, in exchange for the surrender of the award, cash or stock, depending on the type of award.

 

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Non-Transferability

By its terms, an award granted under the stock plan is not transferable other than (i) by will or the laws of descent and distribution, (ii) until the option has been exercised or the limitations under a restricted stock or restricted stock unit have lapsed or (iii) to an immediate family of the participant or to a partnership where all of the partners are immediate family members. During a participant’s lifetime, all rights with respect to an award maybe exercised only by the participant or a permitted transferee (or by his or her legal representative) and cannot be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and cannot be subject to execution, attachment or similar process.

Amendment and Termination

The stock plan will terminate ten years after the date of its approval by the stockholders of Boulder. The stock plan may be amended or terminated by the board at an earlier date, provided that no amendment that would require stockholder approval under any applicable law or regulation (including the rules of any exchange on which our shares are then listed for trading), may become effective without stockholder approval. In addition, stockholder approval is required for any amendment to the re-pricing provisions and any decrease in the one-year restriction period for restricted stock and restricted stock units. Finally, the authorized number of shares of common stock reserved for issuance under the stock plan may not be increased without stockholder approval.

Certain United States Federal Income Tax Consequences

The following is a brief summary of the principal United States federal income tax consequences of transactions under the stock plan, based on current United States federal income tax laws. This summary is not intended to be exhaustive, does not constitute tax advice and, among other things, does not describe state, local or foreign tax consequences, which may be substantially different.

Restricted Stock Grants

A participant generally will not be taxed at the time a restricted stock grant is awarded, but will recognize taxable income when the award vests or otherwise is no longer subject to a substantial risk of forfeiture. The amount of taxable income recognized will equal the fair market value of the shares subject to the award that are then vesting. Participants may elect to be taxed based on the fair market value of the shares at the time of grant by making an election under section 83(b) of the Code within 30 days of the award date. If an award with respect to which a participant has made such an election under section 83(b) is subsequently canceled, no deduction or tax refund will be allowed for the amount previously recognized as income.

Unless a participant makes a section 83(b) election, dividends paid to a participant on shares of an unvested restricted stock grant will be taxable to the participant as ordinary income. If the participant made a section 83(b) election, the dividends will be taxable to the participant as dividend income.

Except as provided under “Certain Limitations on Deductibility of Executive Compensation” below, we will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant with respect to a stock grant award. Unless a participant has made a section 83(b) election, we will also be entitled to a deduction, for federal income tax purposes, for dividends paid on awards of unvested restricted stock grants.

Non-Qualified Stock Options

Generally, a participant will not recognize taxable income on the grant of a non-qualified stock option provided the exercise price of the option is equal to the fair market value of the underlying stock at the time of grant. Upon the exercise of a non-qualified stock option, a participant will recognize ordinary income in an

 

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amount equal to the difference between the fair market value of the common stock received on the date of exercise and the option cost (number of shares purchased multiplied by the exercise price per share). The participant will recognize ordinary income upon the exercise of the option even though the shares acquired may be subject to further restrictions on sale or transferability. Except as provided under “Certain Limitations on Deductibility of Executive Compensation” below, we will ordinarily be entitled to a deduction on the exercise date equal to the ordinary income recognized by the participant upon exercise.

Generally, upon a subsequent sale of shares acquired in an option exercise, the difference between the sale proceeds and the cost basis of the shares sold will be taxable as a capital gain or loss.

Stock-Based Awards

A participant will recognize taxable income on the grant of unrestricted stock, in an amount equal to the fair market value of the shares on the grant date. Except as provided under “Certain Limitations on Deductibility of Executive Compensation” below, we will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant with respect to such a stock award. Other rules apply with regard to other forms of stock-based awards.

Withholding

Boulder retains the right to deduct or withhold, or require the participant to remit to his or her employer, an amount sufficient to satisfy federal, state and local and foreign taxes required by law or regulation to be withheld with respect to any taxable event as a result of the stock plan.

Certain Limitations on Deductibility of Executive Compensation

With certain exceptions, section 162(m) of the Code limits the deduction to Boulder for compensation paid to certain executive officers to $1 million per executive per taxable year unless such compensation is considered “qualified performance—based compensation” within the meaning of section 162(m) or is otherwise exempt from section 162(m). The stock plan is designed so that options qualify for this exemption, and it permits the administrator to grant other awards designed to qualify for this exemption.

Treatment of “Excess Parachute Payments”

The accelerated vesting of awards under the stock plan upon a change of control of Boulder could result in a participant being considered to receive “excess parachute payments” (as defined in section 280G of the Code), which payments are subject to a 20% excise tax imposed on the participant. Boulder would not be able to deduct the excess parachute payments made to a participant.

Additional Taxes to Participants

Under proposed regulations issued under section 409A of the Code, if awards under the stock plan are neither exempt from section 409A nor compliant with section 409A, the participant will be required to include the value of the award in income at the time the award vests and will be required to pay an additional 20% income tax, plus interest. It is intended that all awards under the plan either be exempt or compliant with section 409A of the Code.

Management of Boulder

In connection with our seeking stockholder approval for adoption of the stock plan, the SEC requires that we provide you with certain information relating to executive compensation and compensation committee interlocks.

 

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Executive Compensation

None of our executive officers or directors has received any cash compensation for services rendered. Since December 16, 2005, we have accrued, but have not paid, Hughes Consulting, Inc. and Jeltex Holdings, LLC, entities owned and controlled by each of Messrs. Hughes and Lewis, respectively, a combined total of $10,000 per month for office space and administrative services, including secretarial support, which may be required by us. During 2005 and 2006, approximately $5,200 and $120,000, respectively, was incurred, but not paid, under this arrangement. This arrangement was agreed to by Hughes Consulting, Inc. and Jeltex Holdings, LLC for our benefit and is not intended to provide Messrs. Hughes and Lewis with compensation in lieu of a salary or other remuneration. We believe that the monthly expense is at least as favorable as we could have obtained from an unaffiliated third party. No other executive officer or director has a relationship with or interest in Hughes Consulting, Inc. or Jeltex Holdings, LLC. Other than this $10,000 per-month fee, no compensation of any kind, including finder’s and consulting fees, will be paid to any of our initial stockholders, including our officers and directors, or any of their respective affiliates, for services rendered, including attendance at board of directors meetings, prior to or in connection with our initial business combination. However, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses, performing due diligence on suitable business combinations and attending meetings of the board of directors including those related to the GFA merger. There is no limit on the amount of these out-of-pocket expenses, and there will be no review of reasonableness of the expenses by anyone other than our board of directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. If all of our directors are deemed not to be “independent,” it will not have the benefit of independent directors examining the propriety of expenses incurred on our behalf and subject to reimbursement.

We have agreed to enter into an employment agreement with Christopher J. Wolf, who is expected to become our chief financial officer upon the closing of the GFA merger. We also intend to enter into severance and change of control agreements with other senior executives at that time. We have not finalized the terms of these agreements.

Compensation Committee Interlocks and Insider Participation

The members of our compensation committee are Messrs. Lewis, McCarthy and Laber, and this committee is chaired by Mr. Lewis. Mr. Lewis serves as our principal accounting officer, but will relinquish that role to Mr. Wolf upon the closing of the GFA merger. None of the other members of our compensation committee have ever been employed by us.

Required Vote

Approval of the adoption of the stock plan requires the affirmative vote of holders of a majority of the shares of our common stock represented, in person or by proxy, and entitled to vote at the special meeting. Abstentions will therefore have the same effect as a vote against the stock plan. Broker non-votes will have no effect on the outcome of the vote. Assuming the presence of a quorum of more than 50% of the shares of our common stock, the failure to vote will also have no effect on the outcome of the vote. Furthermore, if Proposals 1, 2 and 3 are not approved, we will not adopt the stock plan.

Recommendation

If the stock plan is not approved by stockholders, it may be more difficult for us to attract and retain qualified officers, employees, consultants and advisors. Our inability to attract and retain such persons would make it more difficult for us to follow our business plan and meet our expectations. Therefore, our board of directors believes that it is in the best interests of, and fair to, Boulder and its stockholders that the stockholders approve the stock plan.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE ADOPTION OF THE STOCK PLAN.

 

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PROPOSAL 5:

ADJOURNMENT

Purpose

In the event there are not sufficient votes present, in person or by proxy, at the special meeting to approve Proposals 1, 2, 3 or 4, our chief executive officer, acting in his capacity as chairperson of the meeting, may propose an adjournment of the meeting to a later date or dates to permit further solicitation of proxies.

Required Stockholder Vote to Approve the Adjournment Proposal

Approval of the adjournment proposal requires the affirmative vote of holders of a majority of the shares of our common stock present, in person or by proxy, and entitled to vote at the special meeting. Abstentions will therefore have the same effect as a vote against the adjournment proposal. Broker non-votes will have no effect on the outcome of the vote. Assuming the presence of a quorum of more than 50% of the shares of our common stock, the failure to vote will also have no effect on the outcome of the vote.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” APPROVAL TO ADJOURN THE MEETING IN THE EVENT THAT STOCKHOLDERS FAIL TO APPROVE ANY OF THE OTHER PROPOSALS.

 

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INFORMATION ABOUT GFA

Background of GFA

GFA Holdings, through GFA Brands, its wholly-owned subsidiary, is a fast growing marketer of functional food products in the U.S. (under the trade names Smart Balance® and Earth Balance®). Functional food is defined as a food or a food ingredient that has been shown to affect specific functions or systems in the body and may play an important role in disease prevention. GFA’s signature margarine products utilize a proprietary licensed, patented technology that is free of trans fats and enhances good-to-bad cholesterol ratios. Recently, GFA has expanded its product offering beyond margarine by utilizing its heart healthy positioning and brand leverage in other product categories including peanut butter, popcorn, mayonnaise and cooking oils. GFA sells its products in mass merchandise, grocery, natural foods and convenience stores. In the natural food channel, GFA sells similar organic products under the trade name Earth Balance®. GFA continues to pursue new growth opportunities and has several products targeted for introduction in the near future. Additional products are being considered for future launches, particularly in the refrigerated foods/dairy segment.

GFA has achieved growth in sales and cash flow every year since its inception in 1996. Except for nominal sales in the international market, sales are currently limited to the North American market. Since January 2004, GFA has increased its market share in the margarine category from 5.4% to 12.9%. In fiscal 2006, margarine represented approximately 75% of GFA’s sales. Smart Balance® is a high gross margin business with limited capital expenditure and working capital requirements due to the outsourcing of its manufacturing operations. In 2006, GFA achieved sales and net income of $158.5 million and $13.4 million, respectively.

GFA’s largest customers, Wal-Mart and C&S Wholesale Grocers, Inc., accounted for approximately 13% and 10%, respectively, of consolidated sales for fiscal 2006. In 2006, GFA’s ten largest customers accounted for approximately 63% of its sales. GFA continues to experience growth across all of its customers.

Overview of GFA’s Products

Smart Balance® currently markets products primarily in five food categories, with one more expected in 2007:

Smart Balance® Buttery Spread

This spread is used for cooking, baking and table use. It contains no hydrogenated oil, no trans fatty acids and a precisely balanced oil blend to help balance fats in the consumer’s diet. It also provides a favorable ratio of Omega-6 to Omega-3 fatty acids GFA calls Omega Balance.

Smart Balance® Light Buttery Spread

This light spread contains similar health benefits as the regular spread but, being lower in fat and calories, can only be used for light frying, sautéing and table use.

Smart Balance® Light Buttery Spread with Flax Oil

This product provides 300 mg of Omega-3 per serving to achieve a 4 to 1 ratio of Omega-6 to Omega-3. It is non hydrogenated and has no trans fatty acids. It is a patented balance of natural oils to help improve the good-to-bad cholesterol ratio.

Smart Balance® Omega PLUS™ Buttery Spread

This product contains the addition of natural plant sterols and Omega-3’s from the Sea™ with the same base product as the 67% vegetable oil Smart Balance® formula. Free plant sterols used in this spread have not been chemically modified. They are added to foods to help lower cholesterol as part of a low saturated fat, low cholesterol diet. Long chain Omega-3’s from the Sea™ help to maintain normal triglycerides. Omega-3 from the Sea™ is the licensed trademark of Omega Protein Corporation for Omega-3 oil from marine sources.

 

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Smart Balance® Popcorn

This product is the first microwave popcorn with no hydrogenated oil or trans fatty acids with a patented oil blend to help improve the good-to-bad cholesterol ratio. Smart Balance® Popcorn is available in Smart Movie Style, Light Butter and Low Fat/Low Sodium.

Smart Balance® Bottled Oil

This product may be used in place of single oils, including olive and canola, for cooking and salads. This blend of polyunsaturates and monounsaturates helps to balance the saturated fats consumed in meat, fish and dairy foods.

Smart Balance® Buttery Burst™Cooking Spray with Organic Soy

This product has zero calories, zero carbohydrates and zero fat per serving. It adds butter flavor to any food without the cholesterol or saturated fat of regular butter. It can also be used as a pan spray or as a topping.

Smart Balance® Shortening & Aerosol Cooking Spray

These cooking and baking aids avoid trans fatty acids and hydrogenated oils. They are available in the grocery bottled oil section of food stores. They are good for healthier food preparation with the right balance of fats.

Smart Balance® Omega Peanut Butter

This product contains 1000 mg Omega-3’s per serving. It has no hydrogenated oil, no trans fatty acid and no refined sugar. It is made from premium, deep-roasted peanuts. It is all natural but does not need refrigeration. Smart Balance® Omega Peanut Butter is available in chunky and creamy peanut butter.

Smart Balance® Light Mayonnaise

This mayonnaise is non-hydrogenated and has no trans fats.

Smart Balance® Omega™ Oatmeal

This product contains whole grain oats, whole grain barley, and golden flax-seed, which provide more cholesterol-cutting fiber and Omega-3 than regular oatmeal. It is available in five varieties: Old Fashioned & Quick; Instant Packets of Regular, Real Maple & Brown Sugar and Variety Packs.

Earth Balance® Products

GFA’s organic line of products in the natural organic channel include the following:

Earth Balance® Whipped Spread

This product is 100% vegan, non-hydrogenated, has no trans fatty acids and has a patented blend to help improve HDL/LDL cholesterol ratio. It has zero carbohydrates and is non-dairy, gluten free, organic certified, expeller-pressed, and is made with non-genetically modified oils. It is whipped for easier spreading and good for cooking and baking.

Earth Balance® Margarine Natural Buttery Spread

Awarded the 2004 American Tasting Institute award for best tasting, natural buttery spread, this product has no hydrogenated oil and is made with non-GMO ingredients. GMOs are genetically modified organisms. This product contains no trans-fatty acids, is all natural (no preservatives), contains no artificial flavors and is lactose free, gluten free and 100% vegan. The balanced blend of natural oils is U.S. patented to help improve the good-to-bad cholesterol ratio.

 

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Soy Garden™ Natural Buttery Spread

Awarded the 2004 American Tasting Institute award for best tasting, natural buttery spread, this product is made with crushed whole soybeans. It has no hydrogenated oil, trans-fatty acids and is made with non-GMO ingredients. It is all natural (no preservatives), is lactose free, gluten free and 100% vegan. It is good for baking and frying and helps to improve HDL/LDL cholesterol ratios.

Other Smart Balance® and Earth Balance® Products

In addition to the above-referenced Smart Balance® products, GFA also offers other Smart Balance® products, including Smart Balance® Cheese Shreds and Smart Balance® Creamy Cheddar-Flavor Slices. Other Earth Balance® Products include Earth Balance® Natural Buttery Sticks and Earth Balance® Shortening Sticks.

Industry Overview and Trends

We believe consumers have become more aware of the nutritional content of the foods they consume. Several factors are believed to be driving consumer demand for functional foods, including:

 

   

consumer interest in the relationship between diet and health;

 

   

increasing health care costs;

 

   

changes in laws affecting labels and product claims; and

 

   

aging population.

We believe this consumer demand has resulted in significant changes in the food industry and is the cause of the substantial growth of the healthy food market generally. We also believe that as members of the baby boomer generation age, increased interest in prolonging life and improving quality of life is resulting in growth in consumer knowledge of nutrition and interest in healthy foods and beverages.

Based upon information from Auri AG Innovation News and BCC Research, the functional food segment is an increasingly large and fast growing segment. In 2006, sales in the functional food segment are expected to total $28 billion. The estimated compound annual sales growth rate from 2003 to 2007 in the functional food segment is 13.3%. Functional foods penetration is still relatively low at approximately 9% of the $302 billion U.S. packaged food industry, which we believe represents a significant opportunity for expansion. However, many competing food and beverage companies are also introducing new functional food products. Based on a survey conducted by Georgetown Economic Services in July 2005, since 2002, over 4,500 stock-keeping units, or SKUs, have been introduced or reformulated to promote nutrition and health, with nearly 3,000 of these products having reduced or eliminated saturated fat and trans-fat content.

Functional food is defined as a food or a food ingredient that has been shown to affect specific functions or systems in the body and may play an important role in disease prevention. As Americans have increasingly sought out new ways to maintain and improve their personal health, functional food has played an increasing role in diets. The medical community and food and drink manufacturers are responding to these demands. Goods and services that make claims of contributing to personal health through natural and non-interventionist means are increasingly available. Functional food promotion focuses on enhancing consumer health, including slowing the aging process and preventing disease.

Margarine Industry Statistics

Margarine is a sub sector of the spreadable oils and fats category. Within the overall global spreadable industry, functional spreadable oils and fats experienced the most rapid rate of growth during 2004, with sales increasing by 28%.

GFA’s main Smart Balance® product offering, Smart Balance® margarine products, competes within the sub sector of the overall oils and fats category, representing approximately 70% of GFA’s 2006 sales. Within this segment, major competitors of Smart Balance® products include Shedd’s Spread Country Crock®, I Can’t

 

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Believe Its Not Butter!® and Blue Bonnet® with U.S. market shares of 22%, 19% and 7%, respectively, based on data from AC Nielson.

Growth Strategy

GFA is continuously looking for opportunities to expand its product line into additional product categories. We believe significant opportunities exist to accelerate the growth of Smart Balance® with continued expansion in new product categories. We further believe Smart Balance® has the potential to become a broad functional foods platform across multiple food categories. We plan to leverage the heart health benefits and other functional attributes of the Smart Balance® franchise, combined with the rapidly increasing brand awareness supported by media spending, to accelerate such expansion.

GFA’s goal is to become a recognized leader in providing nutritious and good tasting products for a wide variety of consumer needs. We believe GFA’s products are already known among many consumers for healthy, balanced nutrition and good taste. We intend to further increase consumer awareness of and demand for GFA’s products by increasing its advertising and promotional activities in conjunction with further penetration of new distribution channels. GFA’s 2006 advertising and marketing expenditures increased approximately 9% over 2005 expenditures, primarily due to GFA’s increased emphasis on television and radio advertising. In addition, we believe that one of GFA’s most effective marketing tools is product sampling combined with the dissemination of educational information explaining the nutritional qualities of its products.

GFA’s goal is to increase the volume of its products in each store and further penetrate each distribution channel. To make its products available wherever consumers shop, we expect to also expand into new channels of distribution, such as food service. Although we intend to continue to focus primarily on the domestic market in the near-term, we also intend to continue to test products in foreign markets by establishing relationships with leading overseas distributors.

GFA, through its brokers and internal sales force, works with each distributor and retailer to ensure that GFA’s products are effectively promoted. GFA employs periodic in-store promotions that can include informational materials about its products, sale pricing, product sampling, store advertising and special product displays to generate consumer interest in its products. GFA also works to ensure that enough product is available on each retailer’s shelf and that the presentation is attractive to customers.

We believe the nutritional qualities of Smart Balance® products are important to significant consumer segments including the fitness, weight management and diabetic markets. We intend to continue GFA’s aggressive advertising strategy on television, radio and in print. A more detailed description of this strategy is set forth in the “Marketing” section below.

Sales And Distribution

GFA’s products are sold in all 50 states. A majority of its products are sold through supermarket chains and food wholesalers. GFA utilizes regional sales managers who are full-time employees and work with food brokers in each major market. Additionally, a small portion of the products marketed by GFA are sold through independent food distributors.

GFA uses third party distributors and a network of public warehouses to deliver product from its manufacturers to its customers.

GFA’s distributor and warehouse agreements can be terminated by either party upon prior notice of 60 days or less. GFA is required to pay monthly warehousing fees, as well as handling and logistics fees. GFA is also responsible for freight charges for shipments to and from warehouses and distribution centers.

GFA’s Target Consumer

GFA targets people of all ages who seek to achieve a better balance of fats in their diet or a convenient means of helping to manage their weight and improve their ratio of good-to-bad cholesterol. GFA recently

 

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created individual portion cups of Smart Balance® Spread and is making them available wherever possible. In addition, GFA makes bulk containers of margarine, shortening and oil for restaurants and institutions that cook vegetables, meats and baked goods and want to reduce or eliminate the use of hydrogenated oils to make it possible to remove the trans fatty acids.

Marketing

We believe that consumers have become increasingly health conscious over the past decade, as reflected in the popularity of activities aimed at maintaining and improving health, including exercising and dieting. Moreover, we believe consumers have become more aware of the nutritional content of the foods they eat and seek foods that offer healthy ingredients. GFA’s marketing and advertising efforts are designed to increase consumer awareness of and demand for its products.

GFA’s current marketing efforts include cable and network television, network radio, free standing insert newspaper and magazine coupons, and store register and on-pack coupons. We intend to increase significantly GFA’s advertising expenditures to create greater awareness of the taste and nutritional attributes of GFA’s products. We plan to continue to use a combination of television, print and radio advertising and coupons, with emphasis on television, to reach a larger number of target consumers. However, we will continue to spend a significant portion of our advertising budget on print advertising, as print ads reach target audiences in a more cost-effective manner. In addition to advertising in magazines with wide circulation, GFA also places advertisements in special interest publications targeted to groups such as health food consumers, athletes and diabetics. We intend to use radio advertising primarily to support event marketing. GFA has advertised on television programs such as ABC Nightly News, Desperate Housewives and Grey’s Anatomy, and on radio shows such as Rush Limbaugh and Paul Harvey. GFA has experienced responsiveness to advertising as sales accelerated following national television ad campaigns. We intend to continue to use coupons as a marketing tool to help stimulate product trial and repeat purchasers by providing consumers with economic incentives to purchase our products. Coupon use is commonplace in the marketing mix of most consumer product companies and is widely used in the retail food industry as a consumer promotion device.

GFA is committed to providing superior service to its customers and consumers. Its sales and marketing team continually gathers information and feedback from consumers and retailers to enable GFA to better tailor its consumer support to meet changing consumer needs. GFA provides access to nutritionists and consumer service representatives through its toll free number to answer questions and educate consumers on balanced nutrition, new products and developments.

Manufacturers

GFA does not own or operate any manufacturing facilities and sources its products through third-party manufacturers. Outsourcing is designed to allow GFA to enhance production flexibility and capacity, leverage working capital, transfer risk, and focus its energy and resources on marketing and sales, while substantially reducing capital expenditures and avoiding the costs of managing a production work force. Most of GFA’s products have multiple third-party manufacturers, however, the Smart Balance® Omega Peanut Butter, Smart Balance® Light Mayonnaise, Smart Balance® Popcorn and Smart Balance® Bottled Oil are each supplied by a separate sole source. In the event of an interruption in supply from a sole source supplier, we believe GFA could arrange for additional suppliers to provide the affected products.

Most of GFA’s contracts with its manufacturers can be terminated by either party upon prior notice of six months or less. GFA’s manufacturers supply its products at a price equal to a fixed toll charge plus the cost of ingredients and certain packaging costs. Manufacturers are required by contract to announce changes in ingredient prices in advance to allow GFA to reformulate the product or negotiate pricing with vendors. Toll charges cannot be unilaterally increased by the manufacturers, however, some manufacturers are able to increase toll charges after giving GFA notice of the increase at least six months in advance. Except in unusual circumstances, GFA provides no raw materials. However, it works with its manufacturers to source high quality ingredients at attractive pricing. All freight costs associated with shipping finished products are borne by GFA.

 

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From a control perspective, GFA provides proprietary formula and processing information for most of its products to its manufacturers. In turn, GFA receives production reports and samples from each product run and has an on-site consultant present at each plant to oversee the manufacturing of GFA’s products. GFA has relationships with three different consultants. In addition, a GFA research/quality control chemist visits each manufacturing facility on a quarterly basis to ensure compliance with good manufacturing practices.

We believe GFA’s manufacturers have the capacity to fulfill GFA’s planned production needs for at least the next year. In addition, we believe these manufacturers are willing to increase capacity to meet GFA’s additional production needs. If GFA’s growth exceeds the production capacity of its manufacturers, or if any of them are unable or unwilling to continue production, we believe GFA could qualify other manufacturers to meet its production needs.

One of GFA’s third-party manufacturers for its margarine products is in Chapter 11 bankruptcy proceedings and, on April 3, 2007, the bankruptcy court approved the sale of all of this manufacturer’s assets, including its leases and executory contracts, to a company that has indicated that it will assume the manufacturer’s contracts and will continue to produce products for GFA. This manufacturer is responsible for the production of margarine products that currently account for approximately 30% of GFA’s sales. To date, GFA has not experienced any interruptions in supply from this manufacturer. GFA is in the process of locating and qualifying alternative sources of supply in the event this third-party manufacturer or its assignee are unable to continue to produce GFA’s products.

Competition

The specialty food industry is highly competitive, and numerous multinational, regional and local firms currently compete, or are capable of competing, with GFA. GFA is subject to competitive conditions in all aspects of its business. Some competitors may have different profit objectives and some international competitors may be more or less susceptible to currency exchange rates. In addition, certain international competitors benefit from government subsidies. GFA’s products also compete with generic products and private-label products of food retailers, wholesalers and cooperatives. GFA competes primarily on the basis of product quality, brand recognition, brand loyalty, service, marketing, advertising, patent protections and price. Substantial advertising and promotional expenditures are required to maintain or improve a brand’s market position or to introduce a new product. GFA’s largest principal competitors are Unilever, Kraft and ConAgra Foods, each of whom have substantially greater market presence, longer operating histories, better distribution, more significant customer bases and greater financial, marketing, capital and other resources than GFA.

Intellectual Property

In 1996, GFA licensed technology from Brandeis University relating to the use of a balanced proportion of saturated and polyunsaturated fatty acids from one or more vegetable oil sources for incorporation in food products to increase HDL and the HDL/LDL cholesterol ratio. GFA’s agreement with Brandeis provides GFA with an exclusive license to this technology, which includes the following patents and applications:

 

   

Patent No. 5,578,334 (US)—increasing the HDL level and the HDL/LDL ratio in human serum with fat blends;

 

   

Patent No. 5,843,497 (US)—increasing the HDL level and the HDL/LDL ratio in human serum by balancing saturated and polyunsaturated dietary fatty acids;

 

   

Patent No. 5,874,117 (US)—blends of palm fat and corn oil provide oxidation-resistant shortenings for baking and frying;

 

   

Patent No. 6,630,192 (US)—increasing the HDL level and the HDL/LDL ratio in human serum by balancing saturated and polyunsaturated fatty acids;

 

   

Patent application serial no. 10/434,907—increasing the HDL level and the HDL/LDL ratio in human serum by balancing saturated and polyunsaturated dietary fatty acids.

 

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Patent No. 2,173,545 (Canada)—increasing the HDL level and the HDL/LDL ratio in human serum by balancing saturated and polyunsaturated dietary fatty acids; and

 

   

Patent No. EP 0 820 307 B1 (Germany, France, Great Britain, Netherlands and Sweden)—increasing the HDL level and the HDL/LDL ratio in human serum by balancing saturated and polyunsaturated dietary fatty acids.

The license also covers any corresponding foreign patents and subsequent U.S. or foreign applications and any continuations, continuations-in-part, divisions and re-issues. The license will terminate: (1) with respect to the patents described above, on April 7, 2015, which is when the patents expire, (2) with respect to any other patent, upon the expiration of the patent and (3) with respect to unpatented technology, on June 18, 2013.

GFA is required to pay royalties to Brandeis for the use of the licensed technology. Royalties for 2006 totaled approximately $715,000. The amount of royalties due is based on a formula using the percentage of oil and/or fat used in products covered by the licensed technology. In 2006, GFA paid royalties of $40,000 to an individual pursuant to an agreement for the licensing of peanut butter.

 

GFA is allowed to sublicense the licensed technology to third parties and must pay a portion of the sublicense fees to Brandeis.

On March 26, 2007, the United States Patent and Trademark Office issued a non-final Office Action rejecting all claims of Application No. 10/834,518, which encompasses a new product innovation for peanut butter. GFA believes that patentable subject matter exists and that it will be able to overcome the rejections stated in the Office Action. GFA is in the process of preparing a response to that Office Action. GFA also owns Patent No. 5,147,134 for a process for the continuous production of emulsions used in the blending of ingredients and Patent No. 5,027,901 for a method minimizing the corrosion of machinery via emulsions.

Recently, three parties filed Oppositions to European Patent No. 820,307. GFA believes that these claims are without merit and that neither this proceeding, nor its outcome, will have any adverse effect on GFA’s business.

GFA’s two main registered trademarks are Smart Balance® and Earth Balance®. Approximately 91% of its 2006 revenues were derived from products marketed under these trademarks.

See “—Legal Proceedings” for information on litigation involving patents licensed by GFA.

Government Regulation and Environmental Matters

The manufacturing, packaging, labeling, advertising, distribution and sale of GFA’s products are subject to regulation by various government agencies, principally the FDA. The FDA regulates GFA’s products pursuant to the Federal Food, Drug, and Cosmetic Act, which we refer to as the FDCA and the Fair Packaging and Labeling Act, which we refer to as the FPLA, and regulations thereunder. The FDCA is intended, among other things, to ensure that foods are wholesome, safe to eat, and produced under sanitary conditions, and that food labeling is truthful and not deceptive. The FPLA provides requirements for the contents and placement of information required on consumer packages to ensure that labeling is useful and informative. GFA’s products are generally classified and regulated as food under the FDCA and are, therefore, not subject to premarket approval by the FDA. However, GFA’s products are subject to the comprehensive labeling and safety regulations of the FDA, the violation of which could result in product seizure and condemnation, injunction of business activities, or criminal or civil penalties. Furthermore, if the FDA determines, on the basis of labeling, promotional claims, or marketing by GFA, that the intended use of any of GFA’s products is for the diagnosis, cure, mitigation, treatment or prevention of disease, it could regulate those products as drugs and require, among other things, premarket approval for safety and efficacy. We believe that GFA presently complies in all material respects with the foregoing laws and regulations. However, there can be no assurance that non-compliance, or the cost of future compliance, with such laws or regulations will not have a material adverse effect on GFA’s business, results of operations or financial condition.

 

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GFA’s advertising is subject to regulation by the FTC, pursuant to the Federal Trade Commission Act, which we refer to as the FTCA which prohibits unfair or deceptive acts or practices including the dissemination of false or misleading advertising. Violations of the FTCA may result in a cease and desist order, injunction, or civil or criminal penalties. The FTC monitors advertising and entertains inquiries and complaints from competing companies and consumers. It also reviews referrals from industry self-regulatory organizations, including the National Advertising Division of the Council of Better Business Bureaus, Inc. The NAD administers a voluntary self-regulatory, alternative dispute resolution process that is supported by the advertising industry and serves the business community and the public by fostering truthful and accurate advertising. Certain advertising claims made by GFA have been challenged through the NAD in the past. GFA has addressed such challenges by either providing support for its claims or changing its advertisements. Although we do not believe that such changes have adversely affected GFA’s marketing success, any future NAD inquiries or FTC actions that result in modifications to GFA’s advertising or the imposition of fines or penalties could have a material adverse effect on GFA’s business, results of operations and financial condition.

GFA’s activities are also regulated by various agencies of the states, localities, and foreign countries in which GFA’s products are sold. In addition, GFA has been and will be required to re-formulate its products to comply with foreign regulatory standards. We believe that GFA presently complies in all material respects with the foregoing laws and regulations. There can be no assurance, however, that future compliance with such laws or regulations will not have a material adverse effect on GFA’s business, results of operations and financial condition.

GFA may be subject to additional laws or regulations administered by the FDA or other federal, state, or foreign regulatory authorities, the repeal of laws or regulations, or more stringent interpretations of current laws or regulations, from time to time in the future. We cannot predict the nature of such future laws, regulations, interpretations or applications, nor can we predict what affect additional government regulations or administrative orders, when and if promulgated, would have on GFA’s business in the future. Such laws could, however, require the reformulation of products, the recall, withholding or discontinuance of products, the imposition of additional recordkeeping requirements, the revision of labeling, advertising or other promotional materials, and changes in the level of scientific substantiation needed to support claims. Any or all such government actions could have a material adverse effect on GFA’s business, results of operation and financial condition.

Employees

Because GFA outsources the production of its products, it has a small number of employees. As of December 31, 2006, GFA had fourteen full time and one part-time employee who perform the following functions:

 

   

four regional sales managers who oversee the distributor and broker sales network,

 

   

one manager of foodservice who oversees the foodservice business as well as some elements of marketing,

 

   

one chief financial officer who is responsible for all accounting and finance matters who is supported in this capacity by two accounting clerks,

 

   

one vice president of manufacturing and research and development who is responsible for managing the co-packer network and all new product development and is supported in this capacity by two research/quality control chemists.

 

   

one vice president of distribution and administration who oversees customer service and warehousing and distribution of GFA’s products and is supported in this capacity by two clerical personnel, and

 

   

one part-time employee who is responsible for handling consumer inquiries concerning GFA’s products.

GFA also contracts with a firm (controlled by stockholders of GFA) to provide sales and marketing consulting services in return for a fixed monthly fee of $141,667. The services will continue on the same terms for a transition period of 60 days after the merger, or until June 30, 2007, whichever is earlier.

 

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Properties

GFA’s corporate headquarters are located at 211 Knickerbocker Road, Cresskill, New Jersey 07626 and their telephone number is (201) 568-9300. This facility is occupied under a lease for approximately 4,600 square feet, at a cost of approximately $6,500 per month, and it terminates on March 31, 2007, subject to a 3-year renewal at GFA’s option. GFA also leases 1,710 square feet of laboratory space at 2384 Centerline Industrial Drive, St. Louis, Missouri 63146, at a cost of approximately $1,100 per month under a lease that terminates on June 30, 2008.

Legal Proceedings

In July 2005, GFA commenced an action in the United States District Court for the District of New Jersey, alleging infringement of three United States patents for which GFA is the exclusive licensee as well as breach of contract.

GFA originally named the C.F. Sauer Co., which we refer to as Sauer, as the defendant, and by way of an amended complaint filed in October 2005, added as party defendants two wholly-owned subsidiaries of Sauer, Dean Foods Company and CFS Foods, Inc. GFA alleges that defendants manufacture, market and sell one or more margarine products, including a product marketed under the name “NATURAL MARGARINE,” that infringes GFA’s patents.

By motions filed in September 2005, Sauer sought to (i) dismiss the complaint, or, alternatively (ii) stay the action, pending Sauer’s request to the United States Patent and Trademark Office to reexamine patents in dispute. The United States Patent and Trademark Office granted Sauer’s request for reexamination of the patents in dispute. The U.S. District Court denied both of Sauer’s motions and ordered the parties to proceed with discovery. On November 15, 2006, the parties signed a negotiated settlement resolving all claims.

Two of the licensed patents have emerged from the reexamination with all claims upheld, and GFA has received certificates of reexamination. The other licensed patent has completed the substantive portion of the reexamination with all claims upheld and GFA expects to receive a certificate of reexamination in the near future.

On February 7, 2007, GFA was sued in the Superior Court of New Jersey, Bergen County, by Victor Ayoub. Mr. Ayoub claimed that GFA misappropriated his recipe for peanut butter and is now selling peanut butter under the Smart Balance® Omega mark using his recipe. On March 13, 2007, GFA answered the complaint by denying all claims. GFA believes that Mr. Ayoub’s claims are without merit and that neither the lawsuit nor its outcome will have any adverse effect on GFA’s business.

Recently, three parties filed Oppositions to European Patent No. 820,307. GFA believes that these claims are without merit and that neither this proceeding, nor its outcome, will have any adverse effect on GFA’s business.

On April 4, 2007 Kellogg North America Company filed a Notice of Opposition before the Trademark Trial and Appeal Board opposing GFA’s registration application for the “smart balance” mark for use with cereal. At this time, GFA does not believe that this administrative proceeding, nor its outcome, will have any adverse effect on GFA’s business.

Other than above, GFA is not a party to any legal proceeding that we believe would have a material adverse effect on GFA’s business, results of operations or financial condition.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF GFA

The following is a discussion of GFA’s financial condition and results of operations comparing the years ended December 31, 2006, 2005 and 2004. You should read this section together with GFA’s consolidated financial statements including the notes to those financial statements for the periods mentioned above, which are included elsewhere in this proxy statement.

On February 5, 2004, GFA Holdings was organized and on March 31, 2004 it acquired certain assets of New Industries Corporation, formerly known as GFA Brands, Inc. (an Ohio corporation), which we refer to as GFA Ohio. On the same date, GFA Holdings issued 100,000 shares of common stock to Fitness Foods, Inc., which we refer to as FFI, in exchange for certain of FFI’s assets as part of a contribution agreement between FFI and GFA Holdings. The results for 2004 include the combined results for GFA Ohio and FFI before the acquisition on March 31, 2004, and the period from its inception through December 31, 2004 as GFA Holdings. Although GFA was formed on February 5, 2004, it had no operating activities until the acquisitions on March 31, 2004. The discussion below includes tables that break out the results before and after GFA’s acquisition of GFA Ohio and FFI as well as the combined results of GFA and its predecessors for 2004 in order to facilitate year-to-year comparisons.

GFA paid $82 million cash for the assets it acquired from GFA Ohio, which is owned by the owners of FFI. The owners of FFI received stock valued at $10 million in exchange for the assets FFI contributed to GFA. GFA accounted for these acquisitions as a purchase. Pursuant to SFAS 141, GFA was the acquiring entity in the business combination because GFA’s stockholders other than the FFI stockholders control over 82% of GFA’s voting stock.

GFA Company Overview

GFA Holdings, through its wholly-owned subsidiary, GFA Brands (which we refer to collectively with GFA Holdings as GFA) is a consumer food products company that competes primarily in the retail branded food products industry and focuses on providing value-added, functional food products to consumers. Functional food is defined as a food or a food ingredient that has been shown to affect specific functions or systems in the body and may play an important role in disease prevention. GFA, headquartered in Cresskill, New Jersey, markets margarine, popcorn, peanut butter, cooking oil, mayonnaise and other products primarily under the trademark Smart Balance®. In the natural food channel, GFA sells organic margarine products under the trademark Earth Balance®. The Company’s trademarks are of material importance to its business and are protected by registration or other means in the United States and a number of international markets. GFA’s margarine business, marketed under SmartBalance®, EarthBalance®, SmartBeat® and Nucoa®, is by far the most developed product segment and accounted for approximately 75% of 2006 sales.

GFA’s products are sold in all 50 states, with little to no international sales presence. GFA sells its products in mass merchandise, grocery, natural food and club stores throughout the U.S, with a majority of products sold through supermarket chains and food wholesalers. GFA utilizes a total of four regional sales managers who are full-time employees and work with food brokers in each major market to help sell its products. Additionally, a small portion of the products marketed by GFA are sold through independent food distributors. GFA’s largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 13% of consolidated net sales for both of the fiscal years ending December 31, 2006 and 2005.

GFA’s signature margarine and popcorn products, which currently account for approximately 76% of sales, utilize a proprietary licensed, patented technology that is free of trans fats and enhances good-to-bad cholesterol ratios. In 1996, Brandeis University licensed to GFA certain technology relating to the use of a balanced proportion of saturated and polyunsaturated fatty acids from one or more vegetable oil sources for incorporation in food products to increase HDL and HDL/LDL cholesterol ratio. GFA’s agreement with Brandeis provides

 

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GFA with an exclusive license to a number of patents until April 7, 2015, at which time the patents will expire. GFA also has a license to a patent pending for a new product innovation with respect to peanut butter. In addition, the company has proprietary trade secrets, technology, know-how processes, and other intellectual property rights that are not registered.

GFA’s primary growth strategy is to continue to drive consumer and trade awareness of its brands, increase distribution of its existing products, and continue to launch additional line extensions and new products. GFA has identified several new categories for products that have the potential to leverage the trans-fat free, heart-healthy, and better-for-you positioning of the Smart Balance® and Earth Balance® brands. GFA has consistently made substantial investments in advertising and has found the Smart Balance® brand to be responsive to advertising. GFA actively advertises via network and cable TV, radio, free standing inserts (FSIs), and in-store promotions. GFA has also benefited from favorable trends in the food industry regarding the required labeling of trans fats levels in food products and increased consumer awareness of the negative health implications of trans fats in foods.

The retail branded food industry is highly competitive, and numerous multinational, regional and local firms currently compete, or are capable of competing, with GFA. GFA is subject to competitive conditions in all aspects of its business. Some competitors may have different profit objectives and some international competitors may be more or less susceptible to currency exchange rates. In addition, certain international competitors benefit from government subsidies. GFA’s products also compete with generic products and private-label products of food retailers, wholesalers and cooperatives. GFA competes primarily on the basis of product quality, brand recognition, brand loyalty, service, marketing, advertising, patent protections and price. Substantial advertising and promotional expenditures are required to maintain or improve a brand’s market position or to introduce a new product. GFA’s largest principal competitors are Unilever, Kraft and ConAgra Foods, each of whom have substantially greater market presence, longer operating histories, better distribution, more significant customer bases and greater financial, marketing, capital and other resources than GFA.

GFA does not own or operate any manufacturing facilities and sources its products through third-party manufacturers. Outsourcing is designed to allow GFA to enhance production flexibility and capacity, leverage working capital, transfer risk, and focus its energy and resources on marketing and sales, while substantially reducing capital expenditures and avoiding the costs of managing a production work force. Most of GFA’s products have multiple third-party manufacturers. However, some of GFA’s newer products are supplied by a sole source. In the event of an interruption in supply from a sole source supplier, it is believed that GFA could arrange for additional suppliers to provide the affected products. One of GFA’s third-party manufacturers for its margarine products is in Chapter 11 bankruptcy proceedings and, on April 3, 2007, the bankruptcy court approved the sale of all of this manufacturer’s assets, including its leases and executory contracts, to a company that has indicated that it will assume the manufacturer’s contracts and will continue to produce products for GFA. To date, GFA has not experienced any interruptions in supply from this manufacturer. GFA is in the process of locating and qualifying alternative sources of supply in the event this third-party manufacturer or its assignee are unable to continue to produce GFA’s products.

Except in unusual circumstances, GFA provides no raw materials to co-packers. Currently, GFA is providing raw materials to the third-party manufacturer in Chapter 11 bankruptcy proceedings. In most cases, the manufacturers will secure the raw materials and GFA works with its manufacturers to source high quality ingredients at attractive pricing. The prices paid for raw materials used in the products of GFA generally reflect factors such as weather, commodity market fluctuations, currency fluctuations, tariffs, and the effects of governmental agricultural programs. Although the prices of raw materials can be expected to fluctuate as a result of these factors, GFA believes such raw materials to be in adequate supply and generally available from numerous sources. As GFA expands its operations, it may have to seek new suppliers and service providers or enter into new arrangements with existing ones, and it may encounter difficulties or be unable to negotiate pricing or other terms as favorable as those it currently enjoys, which could harm its business and operating results.

 

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GFA uses third party distributors and a network of public warehouses to deliver product from its manufacturers to its customers. It relies primarily on two third party distributors to deliver all of its margarine and other refrigerated products. All freight costs associated with shipping finished products are borne by GFA.

Results of Operations

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Net Revenue. Net revenue for GFA is comprised mainly of revenue from product brands. In addition, GFA licenses use of some of its patents and derives royalty income. For the year ended December 31, 2006 net revenue increased 38.1% to $158.5 million, from $114.7 million for the year ended December 31, 2005. For the year ended December 31, 2006, royalty income amounted to $263,000 compared to $248,000 for the year ended December 31, 2005. The increase in net revenue was due to increased sales volume brought about by increased consumer demand for GFA’s core Smart Balance® Buttery Spread products and the introduction of new Smart Balance® products such as peanut butter, popcorn and cooking oil.

Cost of Goods Sold. GFA does not manufacture any of the products it currently sells. It negotiates the production of its products with contract manufacturers. Cost of goods sold includes the cost of the materials the contract manufacturer incurs on GFA’s behalf and a per unit fee the manufacturer charges GFA for production. For the year ended December 31, 2006, cost of goods sold increased to $69.8 million, or 46.2%, compared to $47.7 million for the year ended December 31, 2005 and as a percentage of revenues increased to 44.0% for the year ended December 31, 2006, compared to 41.6% for the year ended December 31, 2005. The increase was due to higher costs for soy, canola and palm oil, which are used in the production of GFA’s products.

Selling, General and Administrative. Selling, general and administrative expenses include costs for distribution, advertising, transportation, recruiting, training, human resources, marketing and depreciation. For the year ended December 31, 2006, selling, general and administrative expenses increased 25.0 % to $64.7 million from $51.7 million for the year ended December 31, 2005. Selling, general and administrative expenses decreased as a percentage of revenue for the year ended December 31, 2006 to 40.8% compared to 45.1% for the year ended December 31, 2005. The increase in total expense was attributable primarily to trade deals and marketing costs, freight and handling charges and management fees. Trade deals and marketing costs increased by approximately $3.8 million, freight and handling charges rose by approximately $3.3 million and management fees increased by approximately $2.0 million in the year ended December 31, 2006 compared to the year ended December 31, 2005. Increased trade deals and marketing costs resulted from an increase in spending on coupons and related redemption costs, including free-standing inserts and in-store promotions. Freight and handling costs increased due to the growth in sales discussed above and also from the utilization of additional third party warehouses around the country to better service customers. The management fee increase was principally due to a performance bonus recorded in the year ended December 31, 2006 in accordance with a transitional services agreement. For more information about the transitional services agreement, see “Related Party Transactions” below.

Interest Expense. For the year ended December 31, 2006, interest expense increased 10.0% to $2.2 million from $2.0 million in the comparable prior year period, though decreasing to 1.4% of net revenue in the year ended December 31. 2006 from 1.7% of net revenue in the year ended December 31, 2005.

Interest, Dividend and Other Income. Interest, dividend and other income increased to $663,700 for the year ended December 31, 2006 from $376,200 for the year ended December 31, 2005. The increase was due to having greater amounts of cash available for investment combined with higher interest rates on investments.

Income Taxes. For the year ended December 31, 2006, income tax expense increased to $9.1 million from $5.4 million for the year ended December 31, 2005. This increase was primarily the result of higher taxable income.

 

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Net Income. Net income for the year ended December 31, 2006 was $13.4 million, up approximately $5.2 million from $8.2 million for the year ended December 31, 2005. As described above, net income growth was driven by increased revenue, which was the result of increased sales volume. This revenue increase was partially offset by a higher percentage increase in cost of goods sold and an increase in selling, general and administrative costs.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Net Revenue

 

     (in millions)
     GFA
2005
   Pro Forma
Combined
2004
   GFA
February 5 -
Dec. 31, 2004
   Combined
Predecessors
January 1, 2004 -
March 31, 2004

Net revenue

   $ 114.7    $ 84.0    $ 66.8    $ 17.2
                           

Net revenue for the year ended December 31, 2005 increased $30.7 million, or 36.6%, to $114.7 million from $84.0 million for the year ended December 31, 2004. This increase was driven primarily by increased sales of GFA’s core Smart Balance® Buttery Spread product. This increase was the result of increased volume of units sold to both first time buyers and repeat customers. Unit pricing remained relatively unchanged in 2005 from 2004. It is believed that the increase in volume sales resulted from an increased brand awareness of GFA’s core products. It is also believed that this heightened awareness was the result of aggressive advertising programs in which GFA has advertised its products frequently on national television and radio programs, along with in-store promotions.

Cost of Goods Sold

 

     (in millions)
     GFA
2005
   Pro Forma
Combined
2004
   GFA
February 5 -
Dec. 31, 2004
   Combined
Predecessors
January 1, 2004 -
March 31, 2004

Cost of goods sold

   $ 47.7    $ 36.8    $ 29.2    $ 7.6
                           

Cost of goods sold increased by 29.6% for the year ended December 31, 2005 to $47.7 million, compared to $36.8 million for 2004, primarily due to increased product costs from increased volume. However, as a percentage of net revenue, these costs decreased to 41.6% from 43.8% for the prior year. Cost of goods sold as a percentage of net revenue decreased due to the relatively lower costs for palm, soy and canola oil compared to 2004, when prices rose as a result of market shortages for those commodities. The price decline in oil was partially offset by higher fuel surcharges and freight costs.

Selling, General and Administrative

 

     (in millions)
     GFA
2005
   Pro Forma
Combined
2004
   GFA
February 5 -
Dec. 31, 2004
   Combined
Predecessors
January 1, 2004 -
March 31, 2004

Selling, general & administrative expenses

   $ 51.7    $ 38.3    $ 31.1    $ 7.3
                           

Selling, general and administrative expenses increased 35.0% for the year ended December 31, 2005 to $51.7 million, compared to $38.3 million for the same period in the prior year, while decreasing slightly as percentage of net revenue to 45.1% from 45.6%. The increase included $12.0 million in higher combined

 

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expense for advertising, marketing and distribution. Advertising expense increased as GFA expanded the number and frequency of advertising messages on network and cable television as well as on radio and in print media. The increase in distribution costs was primarily a function of an increase in product volume. This increased expense was part of GFA’s effort to build awareness of its various products.

Interest Expense

 

     (in millions)
     GFA
2005
   Pro Forma
Combined
2004
   GFA
February 5 -
Dec. 31, 2004
   Combined
Predecessors
January 1, 2004 -
March 31, 2004

Interest expense

   $ 2.0    $ 2.1    $ 2.1    $ —  
                           

Interest expense decreased 5.3% in 2005 to $2.0 million from $2.1 million for the prior year. This decrease was a function of lower average outstanding borrowings on GFA’s term loans during the period, offset by higher interest rates in 2005.

Interest, Dividend and Other Income

 

     (in millions)
     GFA
2005
   Pro Forma
Combined
2004
   GFA
February 5 -
Dec. 31, 2004
   Combined
Predecessors
January 1, 2004 -
March 31, 2004

Interest, dividend and other income

   $ 0.4    $ 0.4    $ 0.15    $ 0.26
                           

Interest, dividend and other income for the year ended December 31, 2005 was $376,200, down $41,000 compared to interest, dividend and other income of $417,200 for the fiscal year December 31, 2004. The decrease was due to lower scrap sales offset by an increase in dividend and interest income as a result of an increase in cash available for investment and higher yields.

Income Taxes

 

     (in millions)
     GFA
2005
   Pro Forma
Combined
2004
   GFA
February 5 -
Dec. 31, 2004
   Combined
Predecessors
January 1, 2004 -
March 31, 2004

Income tax

   $ 5.4    $ 2.8    $ 1.8    $ 1.0
                           

Income tax expense increased to $5.4 million in 2005 from pro forma income tax expense of $2.8 million in 2004. This increase was a function of higher taxable income in 2005 compared to 2004. GFA Ohio and FFI were both S corporations for tax purposes for the first three months of 2004, and federal income taxes were paid at the shareholder level. We have calculated pro forma income tax expense for 2004 assuming GFA Ohio and FFI were subject to federal and state income taxes.

Net Income

 

     (in millions)
     GFA
2005
   Pro Forma
Combined
2004
   GFA
February 5 -
Dec. 31, 2004
   Combined
Predecessors
January 1, 2004 -
March 31, 2004

Net income

   $ 8.2    $ 4.3    $ 2.7    $ 1.6
                           

 

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Net income for the year ended December 31, 2005 was $8.2 million, compared to pro forma combined 2004 net income of $4.3 million. Pro forma combined 2004 net income does not include the gain realized on the sale of GFA Ohio and FFI on March 31, 2004 of $78.0 million. The net income reported on the audited financial statements for the period ended March 31, 2004 equaled $80.6 million. After excluding the gain of $78.0 million and subtracting the pro forma income taxes of $1.0 million, net income equaled $1.6 million. This amount was combined with the net income for the period from February 5, 2004 – December 31, 2004 of $2.7 million to arrive at pro forma combined 2004 net income of $4.3 million.

Liquidity and Capital Resources

Liquidity

GFA’s liquidity and capital resource planning is largely dependent on the generation of operating cash flows, which is highly sensitive to changes in demand and to a lesser extent, pricing, for its major products. While changes in key operating costs, such as outsourced production, advertising, promotion and distribution, may adversely affect cash flows, GFA generates significant cash flows as demand for its products grows. GFA’s principal liquidity requirements are to finance current operations, pay down existing indebtedness and fund future expansion. Currently, GFA’s primary sources of liquidity requirements to meet these needs are cash generated by its operations.

We believe that cash flows generated from operations, existing cash and cash equivalents, and borrowing capacity under the revolving credit facility should be sufficient to finance capital requirements for GFA’s core business for the foreseeable future. Developing and bringing to market other new brands and business opportunities may require additional outside funding.

Cash Flows

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Cash provided by operating activities totaled $15.9 million for the year ended December 31, 2006 and was generated by business operations, offset primarily by an increase in accounts receivable and inventory, compared to cash provided by operating activities of $14.6 million for the year ended December 31, 2005. Although net income for the year ended December 31, 2006 was $13.4 million compared to $8.2 million for the year ended December 31, 2005, the increase in cash flow from operations was reduced primarily due to the increase of accounts receivable of $1.7 million and the increase in inventory of $2.2 million for the year ended December 31, 2006. In addition for the year ended December 31, 2005, amounts expensed for deferred income taxes of $3.5 million and an increase in accounts payable and accrued expenses of $5.2 million were significant sources of cash during the period compared to sources of $0.7 million for deferred income taxes, $1.5 million increase in accounts payable and accrued expenses, and $2.8 million increase in amounts due to related party for the year ended December 31, 2006.

Cash used in investing activities totaled $1.2 million for the year ended December 31, 2006, primarily attributable to the purchase of investments, compared to cash used in investing activities of $0.7 million for the year ended December 31, 2005, also primarily from the purchase of investments.

Cash used in financing activities of $14.0 million for the year ended December 31, 2006 and $14.2 million for the year ended December 31, 2005 resulted from paying principal on outstanding indebtedness.

Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004

Net cash provided by operating activities was $14.6 million for the year ended December 31, 2005, compared with $15.6 million for the year ended December 31, 2004. Net cash provided by operating activities for 2004 combines cash from operating activities for the period ended March 31, 2004 of $1.4 million and for the

 

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period ended December 31, 2004 of $14.2 million. Net income in 2004 included the sale of GFI Ohio and FFI. After adjusting for the effect of the gain on sale in 2004, operating cash flows were greater than net income in both years as a result of an increase in accounts payable and accrued expenses and deferred income taxes. In 2004, accounts payable and accrued expenses decreased by $1.3 million for the period ended March 31 and increased by $6.9 million for the period ended December 31.

Net cash used in investing activities was $731,000, mainly as a result of purchases of investments for the year ended December 31, 2005 compared with net cash used in investing activities in the year ended December 31, 2004 of $89.9 million, primarily for the GFI Ohio and FFI assets acquired. Net cash used in investing activities for 2004 combines net cash provided by investing activities of $5.9 million for the period ended March 31, 2004 and net cash used in investing activities of $95.8 million for the period ended December 31, 2004.

Net cash used in financing activities was $14.2 million, mainly as a result of the repayment of long-term debt for the year ended December 31, 2005, compared with net cash provided in financing activities of $83.7 million for the year ended December 31, 2004, primarily generated by the issuance of $40 million of long-term borrowings (net of repayments and fees of $10.0 million) and the issuance of $53.6 million of common stock related to the formation of GFA and the acquisition of GFA Ohio and FFI. For 2004, all cash flows from financing activities were generated in the period ended December 31, 2004.

In March 2004, GFA’s wholly owned subsidiary, GFA Brands, entered into an agreement with a bank that provided for a revolving credit facility, through September 2009, of up to $5.0 million with interest at LIBOR plus or the federal funds effective rate plus a set margin. The LIBOR margin ranged from 3.5% to 4.5% and the federal funds effective margin ranged from 2% to 2.5% based on the ratio of GFA’s total funded debt to adjusted EBITDA ratio. The revolving credit facility was subject to an unused commitment fee of 0.5% per annum based on the average aggregate amount of available borrowings.

The agreement also provided for term loan A and term loan B notes in an aggregate amount of $32.5 million and $7.5 million, respectively. The term loan A notes were payable through December 31, 2009, with quarterly payments commencing June 30, 2004. The term loan B notes were payable through March 31, 2010, with quarterly payments commencing June 30, 2007. Interest rates on both term loans were consistent with those applicable to the revolving line of credit.

In May 2005, GFA Brands cancelled its $5.0 million revolving credit facility, for which there were no outstanding borrowings. Also in May 2005, GFA Brands entered into an amended credit agreement that, among other things, modified term loan A notes and term loan B notes aggregating $27.6 million at the time of the amendment, and new term loan A notes were issued. The new term loan A notes provide for an aggregate principal amount of $27.6 million through March 31, 2011 with quarterly payments commencing June 30, 2005. Interest rates are at LIBOR plus 2% or the federal funds effective rate plus 0.5%, as determined by GFA. GFA may prepay the loans upon notice to the lender. Each prepayment will be applied to the relevant loans to reduce the remaining installments on a pro rata basis. Term loan prepayments are not available for reborrowing.

In September 2006, GFA entered into a merger agreement with Boulder which will substantially change its financial situation. Upon completion of the proposed merger, the existing notes will be paid off and canceled.

 

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Contractual Obligations

The following table summarizes contractual obligations and borrowings as of December 31, 2006 and the timing and effect that such commitments are expected to have on GFA’s liquidity and capital requirements in future periods. GFA expects to fund these commitments primarily with operating cash flows generated in the normal course of business.

Contractual Obligations

 

     Total    Due in less
than 1 year
  

Due

1-3 years

   Due
3-5 years

Term Loan A notes payable

   $ 4,725,000    $ 4,725,000    $ —      $ —  

Building leases

     39,507      32,838      6,669      —  

Peanuts and Oil Purchase Commitments

     4,683,000      4,683,000      —        —  
                           
   $ 9,447,507    $ 9,440,838    $ 6,669    $ —  
                           

Off Balance Sheet Arrangements

GFA does not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “variable interest entities.” Transactions with related parties are in the ordinary course of business, are conducted at an arm’s length basis, and are not material to the GFA’s results of operations, financial condition, or cash flows.

Supply, Availability and General Risk Conditions

GFA contracts for significant amounts of soy, palm and canola oil products to support the needs of its brands. The price and availability of these commodities directly impacts GFA’s results of operations and can be expected to impact its future results of operations. In addition, GFA contracts for the manufacture of its products with several contract manufacturers. One contract manufacturer produces approximately 53% of GFA’s Smart Balance® Buttery Spread products. GFA is dependent on these manufacturers for the necessary production capacity in order for GFA to meet its customer demands. GFA is not required under any contract for any minimum levels of production.

Seasonality and Quarterly Results

GFA’s business is subject to seasonal fluctuations. Historically, significant portions of GFA’s net revenue and profits were, and may continue to be realized during the fourth quarter of GFA’s fiscal year, which includes cooler weather periods and the holiday season, both of which are conducive to baking, in which several of GFA’s products are utilized. Because of the seasonality of GFA’s business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Contingent Liabilities

Under GFA’s shareholder’s agreement, Fitness Foods, Inc. (“FFI”) was granted a put option which entitles FFI, upon the occurrence of a change of control event, to require GFA to purchase all its Class A-1 common shares for $10 per share and its Class L common shares for $910 per share. As part of the merger with Boulder, FFI has agreed to waive this right.

Related Party Transactions

GFA has a transitional services agreement with GFA Ohio, a company controlled by the shareholders of FFI. FFI is a shareholder of GFA. As part of the agreement, GFA Ohio was to provide GFA certain sales and

 

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marketing, management, administrative, and operational services for a period of 16 months from March 31, 2004 through July 31, 2005 for a total fee of $4.2 million. GFA expensed the remaining amount due under this agreement during the year ended December 31, 2005 which amounted to approximately $1.9 million. GFA amended the transitional services agreement in 2005 to extend the term to the earlier of six months after a sale transaction or June 30, 2007. In 2006 the term of the agreement was shortened and will terminate two months after the closing of the proposed merger with a Boulder subsidiary. Base fees in connection with this agreement are $141,667 per month. GFA expensed $700,000 during the year ended December 31, 2005 and $1.7 million for the year ended December 31, 2006 for base fees under this agreement. The agreement also contains a provision for an additional performance bonus payment in an amount equal to 10% of GFA’s adjusted earnings before interest, taxes, depreciation and amortization, (“EBITDA”), for the year ending December 31, 2006, which approximates $2.8 million. This EBITDA payment is payable on the later of the termination of the agreement or thirty days after the receipt of audited financial statements for the fiscal year ending December 31, 2006.

GFA paid balances due to GFA Ohio of $1.1 million during the year ended December 31, 2005, in connection with certain purchase adjustments arising from the acquisition of GFA Brands from GFA Ohio on March 31, 2004. GFA Ohio is owned and controlled by family members and affiliates of Robert Harris and James Harris, GFA’s president and executive vice president of sales, respectively.

GFA has a management agreement with Mason Sundown Management, LLC, an entity which controls the majority shareholder of GFA. The agreement provides for management and advisory services to GFA for an annual management fee of $500,000 commencing March 31, 2004. GFA expensed $500,000 for each of the years ended December 31, 2006 and 2005 related to this agreement. Upon completion of the proposed merger with a Boulder subsidiary, this agreement will terminate.

GFA leases its New Jersey office space from Woodland Company, an entity controlled by the shareholders of FFI. The agreement provides for annual lease payments of $78,000 commencing April 1, 2004 through March 31, 2007. GFA expensed $78,000 for each of the years ended December 31, 2006 and 2005 pursuant to the fixed annual payments under this lease agreement. Subsequent to December 31, 2006 the New Jersey lease has been extended on a month to month basis effective April 1, 2007.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, many of which require GFA to make estimates and assumptions about future events and their impact on amounts reported in GFA’s consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results may differ from GFA’s estimates. Such differences may be material to the consolidated financial statements.

GFA believes its application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, GFA has found its application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

GFA’s accounting policies are more fully described in the notes to its consolidated financial statements included elsewhere in this proxy statement. GFA has identified the following critical accounting policies:

Investments

GFA invests excess cash in various marketable equity securities. The investments are managed by GFA with the objective of minimizing the risk of loss of principal while maximizing returns. At times, these objectives may cause sales of investments before their maturity. Therefore, the investments are classified as investments

 

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available for sale. These investments are carried at fair value. Realized and unrealized gains and losses during the period were not material. The cost of investments sold is based on the specific identification method.

Other Intangibles

Other intangibles are comprised of indefinite life intangible assets which are not amortized but are tested annually for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. In assessing the recoverability of indefinite life intangible assets, GFA must make assumptions about the estimated future cash flows and other factors to determine the fair value of these assets. Assumptions about future revenue and cash flows require significant judgment because of the fluctuation of actual revenue and the timing of expenses. GFA’s management develops future revenue estimates based on projected growth and other factors. Estimates of future cash flows assume that expenses will grow at rates consistent with historical rates. If the expected cash flows are not realized, impairment losses may be recorded in the future. An intangible asset is determined to have an indefinite useful life when there are no legal, regulatory, contractual, competitive, economic or any other factors that may limit the period over which the asset is expected to contribute directly or indirectly to the future cash flows of GFA. In each reporting period, GFA also evaluates the remaining useful life of an intangible asset that is not being amortized to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is determined to have a finite useful life, the asset will be amortized prospectively over the estimated remaining useful life and accounted for in the same manner as intangible assets subject to amortization.

GFA has determined that its “Smart Balance®”, “Earth Balance®” and “Smart Beat®” trademarks have an indefinite life and these assets are not being amortized.

Impairment of Long-Lived Assets

GFA evaluates long-lived assets, which includes leasehold improvements and equipment and other intangibles, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. To date, no impairment was required to be recognized.

Goodwill

Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that impairment may have occurred. The impairment analysis for goodwill includes a comparison of GFA’s carrying value (including goodwill) to GFA’s estimated fair value. If the fair value of GFA does not exceed its carrying value, then an additional analysis is performed to allocate the fair value to all assets and liabilities of GFA as if GFA had been acquired in a business combination and the fair value was its purchase price. If the excess of the fair value of GFA over the fair value of its identifiable assets and liabilities is less than the carrying value of recorded goodwill, an impairment charge is recorded for the difference. In assessing the fair value of GFA, management must make assumptions about estimated future operating results and resulting cash flows and consider other factors, including comparable company information. Assumptions about future sales and cash flows require significant judgment involving economic conditions, the fluctuation of actual revenues and the timing of expenses. Management develops future sales estimates based on available customer information, planned timing of new products, planned timing and cost of promotional events and historical trends. Estimates of future cash flows assume that expenses will grow at rates consistent with historical rates. If the expected cash flows are not realized, impairment losses may be recorded in the future.

Income taxes

In establishing deferred income tax assets and liabilities, GFA makes judgments and interpretations based on enacted tax laws and published tax guidance applicable to its operations. GFA records deferred tax assets and

 

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liabilities and evaluates the need for valuation allowances to reduce deferred tax assets to realizable amounts. Changes in GFA’s valuation of the deferred tax assets or changes in the income tax provision may affect its annual effective income tax rate.

Revenue Recognition

Revenue is recognized when the earnings process is complete and the risks and rewards of ownership have transferred to the customer, which is generally considered to have occurred upon receipt of the product by the customer. GFA sells their products to customers without the right of return.

GFA offers its customers a variety of sales and incentive programs, including discounts for prompt payment, allowances, coupons, slotting fees, and co-op advertising. GFA believes that these costs are essential for increasing distribution, in the case of payments for slotting fees and increasing sales and brand awareness in the case of coupons. Payments made or discounts granted for off invoice, slotting fees and prompt payment discounts are accounted for as reduction in gross sales to arrive at net sales on the statement of operations. The accounting treatment for these items is consistent with Emerging Issues Task Force (“EITF”) No. 01-09. For the years ended December 31, 2006 and 2005, the sum of these items reduced gross sales by approximately $13.8 million and $10.5 million, respectively.

GFA also utilizes coupons in its promotional activities. In 2006 and 2005, GFA spent approximately $16.0 million and $13.1 million, respectively, on coupons, including costs for distribution and redemption. Under EITF 01-09, since the benefits of such promotions are identifiable and the value can be measured, they are accounted for as a selling expense.

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires GFA recognize in its financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of GFA’s 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. GFA is currently evaluating the impact of adopting FIN 48 on its financial statements.

In March 2006, Statement No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140” (“FAS 156”), was released. FAS 156 amends Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“FAS 140”), to require that all separately recognized servicing assets and liabilities in accordance with FAS 140 be initially measured at fair value, if practicable. Furthermore, this standard permits, but does not require, fair value measurement for separately recognized servicing assets and liabilities in subsequent reporting periods. FAS 156 is also effective for GFA beginning January 1, 2007; however, the standard is not expected to have any impact on GFA’s financial position, results of operation or cash flows.

In February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid Financial Instruments” which amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring in fiscal years beginning after September 15, 2006. GFA is currently evaluating the effect that the adoption of SFAS 155 will have on its financial statements.

 

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In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which replaces Accounting Principles Board Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” and requires the retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The retrospective application of the change would be limited to the direct effects of the change, and indirect effects would be recognized in the period of the accounting change.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, (“SFAS No. 151”) which requires that abnormal amounts of idle facility expense, freight, handling costs, and wasted material be recognized as current-period charges. This Statement also introduces the concept of “normal capacity” and requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities. Unallocated overhead must be recognized as an expense in the period in which it is incurred. The Statement was effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 did not have a material impact on its results of operations, cash flows, and financial position.

Quantitative and Qualitative Disclosures About Market Risk

GFA is exposed to financial market risks due primarily to changes in interest rates, which GFA manages primarily by managing the maturities of its financial instruments. GFA does not use derivatives to alter the interest characteristics of its financial instruments.

GFA purchases significant amounts of soy, palm and canola oil products to support the needs of its brands. The price and availability of these commodities directly impacts the results of operations and can be expected to impact the future results of operations. GFA does not engage in any hedging activities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF BOULDER

Overview

The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this proxy statement.

We were incorporated in Delaware on May 31, 2005 as a blank check company formed to complete a business combination with one or more operating businesses. We have focused our efforts to conclude a business combination on target businesses in the food and beverage industries. While we may seek to effect a business combination with more than one target business, our initial business combination must be with a target business having a fair market value of at least 80% of Boulder’s net assets at the time of the business combination.

A registration statement for our initial public offering was declared effective on December 16, 2005. On December 21, 2005, we sold 12,760,840 units in the offering. Each of our units consists of one share of our common stock, $.0001 par value per share, and one redeemable common stock purchase warrant. Each warrant entitles the holder to purchase from us one share of common stock at an exercise price of $6.00. We received net proceeds of approximately $95.9 million (excluding deferred underwriting discounts and commissions of approximately $3.6 million) from our initial public offering.

Prior to entering into the merger agreement with GFA, we were engaged in identifying a suitable business combination candidate. We had met with target companies, service professionals and other intermediaries to discuss with them Boulder, the background of our management and our combination preferences. In the course of these discussions, we had also spent time explaining the capital structure of our initial public offering, the business combination approval process, and the timeline under which we were operating before the proceeds of the offering must be returned to investors.

Overall, we have concluded that the environment for target companies has been competitive and we believe that private equity firms and strategic buyers represented our biggest competition. Our management believes that many of the fundamental drivers of alternative investment vehicles like Boulder are becoming more accepted by investors and potential business combination targets; these include a difficult initial public offering environment, a cash-rich investment community looking for differentiated opportunities for incremental yield, and business owners seeking new ways to maximize their stockholder value while remaining invested in the business.

Results of Operations and Known Trends or Future Events

We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for our initial public offering, and thereafter, activities related to pursuing acquisitions of target businesses. We will not generate any operating revenues until after completion of our initial business combination. We have generated non-operating income in the form of interest income on cash and cash equivalents and short term investments.

For the twelve months ended December 31, 2006, our net loss equaled $13.8 million. Interest income, primarily on the trust account investment, was $4.2 million. This was reduced by a non-operating loss on derivative liabilities of $15.3 million. For more information on the derivative liabilities, see “MDA—Critical Accounting Policies and Estimates—Accounting for Warrants—Derivate Liability.” Expenses included $120,000 for a monthly administrative services agreement, $610,000 for professional fees, $360,000 for consulting expenses, $360,000 for insurance, primarily director and officer liability insurance, $155,000 for travel expenses, $266,000 for other expenses and income tax expense of $808,000.

Net loss of $637,000 for the period from May 31, 2005 (inception) to December 31, 2005 consists of $2.4 million for stock related compensation expense, $109,000 of other expenses, offset by a non-operating gain on

 

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derivative liabilities of $1.8 million and by interest income, primarily on the trust account investment, of $24,000.

Net loss of $14.4 million for the period from May 31, 2005 (inception) to December 31, 2006 consists of $2.4 million for stock related compensation expense, $125,000 for a monthly administrative services agreement, $625,000 for professional fees, $360,000 for consulting fees, $377,000 for insurance, primarily director and officer liability insurance, $155,000 for travel expenses, $266,000 for other expenses, offset by interest income, primarily on the trust account investment, of $4.2 million further reduced by a non-operating loss on derivative liabilities of $13.5 million. Income tax expense for the period was $808,000.

Liquidity and Capital Resources

The net proceeds from the sale of our units in our initial public offering were $99.5 million. Of this amount, approximately $98.4 million (including deferred underwriting discounts and commissions of approximately $3.6 million) was deposited in trust and, in accordance with our amended and restated certificate of incorporation, will be released either upon the consummation of the GFA merger, or an alternate business combination, or upon our liquidation. The remaining $1.1 million was held outside of the trust and is available to be used to provide for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. In addition, under the terms of our initial public offering, up to $750,000 of interest income from the trust account, net of income tax, was available to us for use for general expenses. In June 2006, we transferred $750,000 out of the trust account. Given the proposed GFA merger, we anticipate that all of the net proceeds available outside the trust, approximately $569,000 at December 31, 2006, will have been exhausted by the time of closing of the proposed merger.

On February 15, 2007, our chairman, chief executive officer and a director, Stephen B. Hughes, agreed to lend us up to $500,000 to cover operating expenses, to be drawn as needed by the Company. As of March 16, 2007, $300,000 in advances were outstanding. The loan will bear interest at a rate equal to the lowest applicable federal short term rate in effect pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as amended, as the same may be adjusted from time to time. The loan and accrued interest must be repaid within thirty days after consummation of a business combination.

Our primary liquidity requirements include expenses for the due diligence and investigation of our target business. As of December 31, 2006, we estimate to incur approximately $5,500,000 for legal, accounting and other expenses associated with structuring, negotiating and documenting our contemplated merger and private placement. We will pay Citigroup Global Markets, Inc. $5,625,000 for advisory services upon completion of the merger. In addition, we have incurred approximately $200,000 for legal and accounting fees relating to our SEC reporting obligations and approximately $1.7 million for various expenses and reserves, including approximately $376,000 for director and officer liability insurance premiums. We have agreed to pay Hughes Consulting, Inc. JELTEX Holdings, LLC, affiliates of Messrs. Hughes and Mr. James E. Lewis, a vice chairman and director, an aggregate of $10,000 per month for up to 24 months for administrative services. We have incurred, but not paid, $125,200 since our inception for these services. In addition, several consultants and other service providers, whose expenses are included in the $5,500,000 figure described above, have agreed to defer payment until we have completed our business combination or the business combination is terminated or abandoned.

As part of the indemnity arrangement between one of the underwriters and us, we agreed to pay certain legal fees and expenses, up to a total of $500,000, associated with any controversy that may arise in connection with the underwriter’s enforcement of rights to collect underwriting related compensation. We have been advised by the underwriters that a distribution has been made and that while there is agreement on much of the compensation allocations, there are open issues that need to be resolved by them and that discussions remain ongoing, although there can be no assurances that a final resolution on the open issues will be achieved and that the provisions of the indemnity will not be triggered. If a claim were made against us under this indemnity agreement, it could reduce the amount of either proceeds not held in trust or proceeds held in trust. If an amount

 

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for this potential claim is paid out of the proceeds held in trust, Messrs. Hughes and Lewis may be personally liable for such amounts.

In connection with the merger, the private placement and the debt financing, after extensive negotiations, we succeeded in obtaining waiver language in the merger agreement, the securities purchase agreement and the commitment letter for the debt financing in which the other parties to these agreements waived claims against the amounts held in trust.

Duff & Phelps, who provided our fairness opinion, and our accountants did not accept our requests that they waive claims against amounts held in trust, indicating that if their fees were contingent upon the successful completion of a business combination, they would not be considered independent in connection with the rendering of their services.

For the same reason, we believe that requiring a waiver from our legal advisors of claims against amounts held in trust would create a potential conflict of interest and could potentially compromise the independence of their advice. Those firms that we did ask to waive their claims refused to do so.

The fees of Citigroup Global Markets as our financial advisor and co-placement agent in the private placement and the fees of Banc of America Securities, LLC as co-placement agent in the private placement are contingent upon the closing of the business combination. The $3.6 million deferred underwriting fee in our initial public offering likewise is contingent on the closing of the business combination. Therefore, we did not believe it was necessary to require either Citigroup or Banc of America to waive claims against amounts held in trust.

In addition, if any of our vendors or service providers attempt to access funds held in trust, Messrs. Hughes and Lewis are contractually required to indemnify us for these amounts.

At December 31, 2006 we estimate that approximately $5.5 million will be owed at closing to vendors or service providers who have not waived their claims to amounts held in trust. Assuming all of these vendors and service providers are paid out of the funds held in trust and Messrs. Hughes and Lewis cannot or do not indemnify us for these amounts, the amount of the liquidating distribution would be reduced by approximately $0.34 per share.

The table below compares the use of net proceeds from our initial public offering held outside of the trust account estimated at the time of the public offering (December 16, 2005) versus those we estimated as of December 31, 2006.

 

     S-1    Currently estimated (2)(3)

Net Proceeds

     

Held in trust

   $ 98,354,755    $ 102,200,000

Not held in trust

     1,250,000      1,820,000

Use of proceeds not held in trust

     

Legal, accounting and other expenses attendant to the due diligence investigation, structuring and negotiation of a business combination and private placement, and due diligence of target business, including fees paid to consultants to perform due diligence and reimbursements of due diligences expenses incurred by initial stockholders, officers or directors (1)

     600,000      5,500,000

Payment of $10,000 in administrative fees to Hughes Consulting, Inc. and JELTEX Holdings, LLC

     240,000      175,000

Merger advisory fee payable Citigroup Global Markets, Inc. upon completion of merger

     —        5,625,000

Legal and accounting fees related to SEC reporting obligations

     50,000      250,000

Working capital to cover other expenses

     360,000      2,350,000
             

Total

   $ 1,250,000    $ 13,900,000
             

 

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(1)

Due diligence and legal, accounting and non-due diligence expenses were expected to total $1,200,000. The difference between these amounts and the budgeted allocations from amounts not held in trust was to be funded from interest income, net of income taxes, of up to $750,000 which was released to us from the trust account in June 2006. Any such interest income not used for due diligence or legal, accounting and non-due diligence expenses was usable by us to pay other expenses.

(2)

Assumes the proposed business combination with GFA is consummated prior to May 31, 2007.

(3)

Existing available funds are not sufficient to satisfy estimated transaction costs prior to the GFA merger. However, certain of our advisors other than accountants and the fairness opinion consultant have agreed to alter their fees or defer a substantial amount of their fees until we complete a business combination. As a result, we believe we have adequate funds to complete the GFA merger.

As of December 31, 2006, we had (i) $569,000 in cash held outside the trust account and (ii) $5.5 million in estimated transaction costs including accrued legal fees, due diligence expenses and related transaction expenses, of which approximately $3.6 million have been incurred. The increase in the estimated fees versus our original estimates is due primarily to the required private placement financing and the length of time and associated expenses that have been required to complete the merger including the time and expense of preparing various merger and financing documents and the associated costs therewith relative to what was originally estimated.

At the completion of our initial public offering, we did not contemplate executing a transaction as large or as complex as the one pending with GFA. We also did not expect to incur any advisory fees from an investment bank, such as Citigroup in connection with evaluating, structuring and negotiating a transaction. However, when we began our negotiations with the shareholders of GFA, management and the board of directors believed, due to the size and complexity of the transaction, it was essential to have an investment bank advise us on the transaction. We engaged Citigroup in the middle of May, 2006 to assist us with the transaction. The services provided to us by Citigroup included advice on structuring the transaction, negotiation strategy, valuation analyses, financial terms and other financial matters.

At our initial public offering we did consider the cost of due diligence and legal fees to complete a transaction, but we did not foresee a transaction as complex and negotiations as protracted as our contemplated merger with GFA. Although it is always difficult to estimate the amount of time to prepare an agreement, we did not expect the merger discussions to last over four months to arrive at a negotiated merger agreement. In addition, although we considered the necessity of raising additional funding to complete a transaction, we did believe that if necessary, we would raise the additional capital through debt financing from a major financial institution. We also did not anticipate the length of time required to clear a definitive proxy statement with the SEC. Due to the size and the complexity of the contemplated transaction, we have incurred additional fees for legal and due diligence costs for the raising of the $246.1 million through the private placement and the $180 million debt financing. Total legal fees are estimated to approximate $3.6 million, the fairness opinion and other valuation costs are estimated to equal $750,000, and other due diligence costs, including filing fees are estimated to approximate $1.1 million. Thus, legal, professional and due diligence fees for the merger agreement, private placement and debt financing are currently estimated to be approximately $5.5 million compared to our initial estimate of $600,000.

We also incurred legal, accounting and due diligence costs of approximately $200,000 on the investigation of another acquisition candidate. We were in the process of conducting such due diligence when we became aware of the GFA opportunity.

Certain of our advisors other than accountants and the fairness opinion consultant have agreed to alter their fees or defer a substantial portion thereof until we have completed our business combination or the business combination is terminated or abandoned and to forego such fees in the event the merger is not consummated. Accordingly, we believe we have adequate funds to complete the proposed merger with GFA. Given that the total

 

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currently estimated use of proceeds exceeds the net proceeds held out of trust, we will not be able to search for, negotiate or complete a business combination other than the proposed combination with GFA without obtaining additional funding. Additionally, our ability to manage cash through the completion, if approved, of the GFA merger, will dictate whether we are required to raise additional funds in order to meet the expenditures required for operating our business after the merger. One of our initial stockholders, Stephen B. Hughes, has agreed to lend us up to $500,000 to cover operating expenses. He and other initial stockholders may elect to provide us with additional capital, although they are not obligated to do so. We could try to raise any required funds via a private offering of debt or equity securities, however there is no guarantee that we would be successful in completing such fundraising on terms acceptable to us. For a further discussion see “Risk Factors.”

On September 25, 2006, we entered into a securities purchase agreement with prospective investors that provides for the investors, simultaneously with the closing of the GFA merger, to purchase (1) 14,410,188 shares of our common stock at a price of $7.46 per share and (2) 15,388,889 shares of Series A convertible preferred stock and related warrants at a combined price of $9.00 per share/warrant, resulting in aggregate gross proceeds to us of approximately $246 million and net proceeds of approximately $234 million after the payment of placement fees to Citigroup Global Markets, Inc. and Banc of America Securities, LLC. The net proceeds will be used to fund a portion of the GFA merger consideration. In the event the merger proposal is not approved or the merger is not completed, the contemplated private placement will not be completed.

Commitment for Secured Debt Financing

On September 25, 2006, we entered into a commitment letter with Banc of America Securities LLC and Bank of America, N.A. for $180 million in debt financing, which is contingent upon the completion of the GFA merger. The commitment letter sets forth the terms and conditions of a proposed first lien facility consisting of a $120 million term loan and a $20 million revolver as well as a proposed second lien facility consisting of a $40 million term loan. The first lien facility will be secured by a first lien on all of our assets and the second lien facility will be secured by a second lien on all of our assets.

The term loan of the first lien facility will mature on the seventh anniversary of the closing date of the loan and the revolving loan under the first lien facility will mature on the sixth anniversary of the loan closing date. The term loan of the second lien facility will mature seven years and six months after the closing date of the loan.

At our option, the interest rate on the first lien facility revolver will be LIBOR plus an applicable margin which we expect to be 3.25% per annum or the higher of (i) the Bank of America prime rate or (ii) the federal funds rate plus 0.50%, in either case plus an applicable margin which we expect to be 2.25% per annum. Such rate will be in effect for the first six months following closing. Thereafter, the interest rate on the revolver will be determined in accordance with a pricing grid to be agreed upon based on our leverage ratio. The interest rate on the first lien facility term loan will be at our option: (i) LIBOR plus an applicable margin which we expect to be 3.25% per annum or (ii) the Bank of America prime rate, in either case plus an applicable margin which we expect to be 2.25%. At our option, the interest rate on the second lien facility will be LIBOR plus an applicable margin which we expect to be 5.00% per annum or the higher of (i) the Bank of America prime rate or (ii) the federal funds rate plus 0.50%, in either case plus an applicable margin which we expect to be 5.00% per annum.

There are to be no prepayment penalties for optional prepayments of the first lien facility and the following penalties for optional prepayments on the second lien facility: 2.00% premium if prepaid the first year; 1.00% premium if prepaid the second year; and no prepayment penalty thereafter. Mandatory prepayments under both facilities include 50% of excess cash flow (to be defined in the loan documentation) and 50% of all net cash proceeds from the issuance of additional equity interests by us. In addition, the term loan of the first lien facility will be subject to quarterly amortization of principal with 1.00% of the initial aggregate advances under such loan to be payable in each of the first six years and the remainder of the initial aggregate advance to be payable in a balloon payment at maturity.

 

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The other terms and conditions of the commitment letter are consistent with credit facilities of this nature and contain customary representations and warranties, affirmative and negative covenants including financial covenants, conditions precedent, events of default, indemnification provisions and other miscellaneous provisions.

Liquidity for Conversions

In the event any of our stockholders vote against the merger and exercise their right to convert their stock into cash pursuant to the provisions of our certificate of incorporation, TSG4 L.P., a stockholder of GFA, will be obligated, at Boulder’s option, to accept up to $10 million of the common stock of Boulder at $7.46 per share in lieu of cash otherwise payable to TSG4 L.P. at the closing of the merger.

Off-Balance Sheet Arrangements; Commitments and Contractual Obligations

As of December 31, 2006, Boulder did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations other than our payments to affiliates of Messrs. Hughes and Lewis as described above for the office and administrative services provided in Colorado.

Related Party Transactions

At December 31, 2006, amounts owed to three initial stockholders for advances to us to cover expenditures was approximately $86,300. At December 31, 2005, the corresponding amount owed to four initial stockholders was approximately $74,700.

We have agreed to pay Hughes Consulting, Inc. JELTEX Holdings, LLC, affiliates of Messrs. Hughes and Mr. James E. Lewis, a vice chairman and director, an aggregate of $10,000 per month for up to 24 months for office space and administrative services. Services commenced on the effective date of the initial public offering and will terminate upon the earlier of (i) the consummation of a Business Combination, or (ii) the liquidation of the Company. Approximately $120,000 and $5,200 was incurred, but not paid, under this arrangement in 2006 and 2005, respectively.

On February 15, 2007, our chairman, chief executive officer and a director, Stephen B. Hughes, agreed to lend us up to $500,000 to cover operating expenses, to be drawn as needed by us. As of March 16, 2007, $300,000 in advances were outstanding. The loan will bear interest at a rate equal to the lowest applicable federal short term rate in effect pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as amended, as the same may be adjusted from time to time. The loan and accrued interest will be repaid within thirty days after consummation of a business combination.

During 2005, Mr. Hughes and James E. Lewis, a vice chairman and director, had advanced on our behalf a total of $200,000 for payment of expenses related to our formation and initial public offering. These advances were non-interest bearing, unsecured and were due at the earlier of March 31, 2006 or the consummation of the offering. The loans were repaid out of the proceeds of the initial public offering not placed in trust.

Concurrently with the closing of the initial public offering, Messrs. Hughes and Lewis, along Robert J. Gillespie, Robert F. McCarthy, William E. Hooper, all of whom are directors, and Michael R. O’Brien, a Senior Advisor, purchased a combined total of 1,000,000 founding director warrants from us for a purchase price of $1.70 per warrant. The founding director warrants have terms and provisions that are identical to the warrants included in the units being sold in this offering, except that the founding director warrants (i) will not be transferable or salable by the purchasers who initially purchased the warrants from us until we complete a business combination, (ii) will be non-redeemable so long as these persons hold such warrants, and (iii) are being purchased pursuant to an exemption from the registration requirements of the Securities Act and will become

 

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freely tradable only after they are registered pursuant to a registration rights agreement to be signed on or before the date of this prospectus, or if an exemption from registration is then available. The transfer restriction does not apply to transfers occasioned by operation of law or for estate planning purposes.

One of the founding stockholders, Mr. Lewis, has issued an option to purchase 61,927 of common shares that he currently holds individually, at $.0082 per share, to our former legal counsel as partial compensation for legal services rendered during our formation and initial public offering.

Critical Accounting Policies and Estimates

Accounting for Warrants-Derivative Liability

On December 21, 2005, Boulder consummated its initial public offering of 12,760,840 units. Each unit consists of one share of common stock and one redeemable common stock purchase warrant. Each warrant entitles the holder to purchase one share of our common stock at an exercise price of $6.00. In addition, our founding directors, certain other directors and a senior advisor purchased 1,000,000 warrants for $1.70 per warrant with an exercise price of $6.00 per share.

Emerging Issues Task Force Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”), requires freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability. Under the provisions of EITF 00-19, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in the company’s results of operations. A contract designated as an equity instrument must be included within equity, and no fair value adjustments are required from period to period. In accordance with EITF 00-19, the 12,760,840 warrants issued in the initial public offering are separately accounted for as liabilities and the 1,000,000 warrants issued to our founding directors, certain other directors and a senior advisor to purchase common stock are accounted for as equity.

Statement of Financial Accounting Standard No. 133 (“SFAS No. 133”), “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires all derivatives to be recorded on the balance sheet at fair value. Furthermore, paragraph 11 (a) of SFAS No. 133 precludes contracts issued or held by a reporting entity that are both (1) indexed to its own stock and (2) classified as stockholders’ equity in its statement of financial position from being treated as derivative instruments. While the warrants to purchase the additional 12,760,840 shares are indexed to our common stock, the fact that the shares underlying the warrants require future registration in accordance with the warrant agreement requires us to classify these instruments as a liability in accordance with EITF 00-19 paragraph 14. This derivative liability will be adjusted to fair value, and any changes will be recorded as non-operating gains or losses.

The warrants sold as part of the units in our initial public offering began separate trading from the units in January 2006 and the price is quoted on the Over the Counter Bulletin Board. Consequently, the fair value of these warrants is estimated as the market price of a warrant at each period end. To the extent that the market price increases or decreases, our derivative liabilities will also increase or decrease, with a corresponding effect on our consolidated statement of operations. The fair value at December 31, 2006 was calculated to be $32.3 million, or approximately $2.53 per warrant. This compares to a valuation of $17.0 million, or approximately $1.33 per warrant, when valued at December 31, 2005. For the twelve months ended December 31, 2006, the change in valuation from December 31, 2005 resulted in a non-operating loss of $15.3 million being recognized. For the period from May 31, 2005 (inception) through December 31, 2006, $13.5 million was recognized as a non-operating loss.

Prior to January 2006, we performed a valuation of the warrants to purchase 12,760,840 shares. The pricing model we used for determining fair value of the warrants was the Black-Scholes Pricing Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model used

 

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market-sourced inputs such as interest rates, market prices and volatilities. Selection of these inputs involves management’s judgment and may impact net income. We used volatility rates based upon a peer group of ten publicly traded food products companies in the Dow Jones U.S. Small Cap Index. The volatility factor used in Black-Scholes had a significant effect on the resulting valuation of the derivative liabilities on our balance sheet. The volatility as calculated at December 31, 2005 approximated 17.65%. We used a risk-free interest rate, which is the rate on U.S. Treasury instruments, for a security with a maturity that approximated the estimated remaining contractual life of the derivative.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices, and other market-driven rates or prices. We are not presently engaged in, and if a suitable business target is not identified by us prior to the prescribed liquidation of the trust account we may not engage in, any substantive commercial business. Accordingly, the risks associated with foreign exchange rates, commodity prices, and equity prices are not significant. The net proceeds of our initial public offering held in the trust account have been invested only in United States “government securities,” defined as any Treasury Bill issued by the United States having a maturity of one hundred and eighty days or less. Given our limited risk in our exposure to U.S. Treasury Bills, we do not view the interest rate risk to be significant. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

 

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BENEFICIAL OWNERSHIP OF SECURITIES

Stock Ownership

The following table sets forth information regarding the beneficial ownership of our common stock as of April 20, 2007 and immediately after the private placement, by:

 

   

each person known by us to be the beneficial owner of more than 5% of our outstanding shares of voting stock;

 

   

each of our executive officers and directors; and

 

   

all our executive officers and directors, as a group.

The table is based on the following assumptions:

 

   

the current ownership of the entities and individuals identified remains unchanged, except for those shares acquired in the private placement; and

 

   

14,410,188 shares of common stock, 15,388,889 shares of Series A convertible preferred stock and 15,388,889 related investor warrants are issued in the private placement.

Unless otherwise indicated, we believe that all persons named in the following table have sole voting and investment power with respect to all shares of stock beneficially owned by them. As of April 20, 2007, we had 15,951,050 shares of common stock issued and outstanding.

 

Name and Address of

Beneficial Owner

  

Beneficial

Ownership as of

April 20, 2007(1)

  

Percentage of

Outstanding

Common

Stock as of

April 20, 2007(1)

   

Amount of

Common Stock

Purchased

Pursuant to Private

Placement

  

Amount of

Preferred Stock

Purchased Pursuant
to Private

Placement

  

Percentage of

Outstanding

Voting Stock
After Private
Placement(2)

 

Stephen B. Hughes(3)(4)(5)

   1,603,805    9.78 %   0    0    3.47 %

Robert S. Gluck(3)(5)(6)

   300,255    1.88 %   0    0    *  

James E. Lewis(3)(5)(7)

   1,283,378    7.83 %   0    0    2.78 %

Robert J. Gillespie(3)(5)

   69,290    *     16,756    13,889    *  

William E. Hooper(3)(5)

   54,584    *     0    0    *  

Gerald J. Laber(3)(5)

   39,878    *     0    0    *  

Robert F. McCarthy(3)(5)

   69,290    *     0    0    *  

Christopher W. Wolf(8)

   0    *     0    0    *  

Glenhill Advisors, L.L.C and Glenn J. Krevlin(9)(19)

   5,000,000    27.10 %   670,241    555,556    12.90 %

O.S.S. Capital Management LP and Oscar S. Schafer(10)

   3,750,000    21.04 %   0    0    7.87 %

Fir Tree, Inc.(11)

   1,210,140    7.59 %   0    0    2.65 %

BAMCO, Inc. and Ronald Baron(12)

   947,700    5.94 %   0    0    2.07 %

Michael A. Roth and Brian J. Stark, joint filers(13)

   1,250,000    7.84 %   0    0    2.73 %

Adage Capital Partners GP, LLC, Phillip Gross and Robert Atchinson(14)(20)

   1,000,000    6.27 %   2,010,724    1,111,111    9.01 %

OZ Management, L.L.C(15)(19)

   0    *     2,369,303    7,719,444    22.05 %

Glenview Capital Management, LLC(16)(19)

   0    *     1,015,415    3,308,333    9.45 %

Citigroup Global Markets, Inc.(17)

   1,485,734    9.06 %   3,016,086    0    9.84 %

Kings Road Investments LTD.(18)(19)

   0    *     1,005,362    1,333,333    5.11 %

All directors and executive officers as a group (seven individuals before the private placement, eight individuals after the private placement)

   3,420,480    20.21 %   16,756    13,889    7.32 %

 

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(1)

The amount and nature of beneficial ownership includes shares of common stock issuable upon the exercise of the founding director and public warrants. For more information about the beneficial owners shown in this table who own founding director or public warrants, see the table immediately following these footnotes.

(2)

Holders of the Series A convertible preferred stock will be entitled to vote on an as-converted basis together with the holders of common stock (without regard to any 4.99% to 9.99% limitation on conversion described above to which investors may elect to be subject), and not separately as a class except as required by law or by the restated certificate of incorporation. Assuming a conversion price of $9.00 per share of Series A convertible preferred stock, each share of Series A convertible preferred stock is entitled to one vote. This column assumes no exercise of the public warrants or founding director warrants, which become exercisable upon completion of the GFA merger.

(3)

The business address of each of the noted individuals is 6106 Sunrise Ranch Drive, Longmont, Colorado 80503.

(4)

Mr. Hughes is our chairman of the board and chief executive officer. Includes 100,000 shares owned by Mr. Hughes’ spouse and 239,265 shares owned in equal 79,755 share increments by the Caroline Elise Hughes Irrevocable Trust, the John Trevelyn Hughes Irrevocable Trust, and the Henry Thomas Hughes Irrevocable Trust, trusts established for the benefit of Mr. Hughes’ three minor children and as to which his spouse is the trustee. Excludes 150,128 shares sold in November 2005 by Mr. Hughes, at a price equal to that paid by him, to three irrevocable trusts established in favor of adult members of Mr. Hughes’ family, as to which Mr. Hughes disclaims beneficial ownership. The voting rights for shares held in the three trusts are exercisable by the trustee, Mr. Stephen Feldhaus, one of our initial stockholders.

(5)

Each of the noted individuals is a director.

(6)

Mr. Gluck became a vice chairman and a director on November 4, 2005. Mr. Gluck purchased 112,596 and 187,659 shares of common stock from Messrs. Hughes and Lewis, respectively, in November 2005.

(7)

Mr. Lewis is a vice chairman and a director. Includes 560,919 shares owned of record by Janis M. Lewis, the spouse of Mr. Lewis. Excludes 159,511 shares owned by Lee Anne Lewis, Mr. Lewis’ adult sister.

(8)

Mr. Wolf currently serves as a consultant to us. Following the GFA merger, we intend to enter into a formal employment agreement with him as our chief financial officer.

(9)

Information based on Schedule 13G filed by Glenhill Advisors, LLC. Glenn J. Krevlin is the managing member and control person of Glenhill Advisors and Glenhill Overseas. He is a director of Glenhill Overseas GP. Glenhill Advisors is the managing member of GJK and GJK is the general partner and control person of Glenhill Capital. Glenhill Overseas is the investment manager of Overseas Partners. Overseas Partners is an offshore feeder fund which invests its assets in Overseas Master. Overseas GP is the general partner of Overseas Master. The business address for Glenhill Advisors, L.L.C. is 598 Madison Avenue, 12th Floor, New York, New York 10022.

(10)

Information based on Schedule 13G filed by O.S.S. Capital Management LP, Oscar Schafer & Partners I LP, Oscar S. Schafer & Partners II LP, O.S.S. Overseas Fund Ltd., O.S.S. Advisors LLC, Schafer Brothers LLC, and Oscar S. Schafer. O.S.S. Capital Management and Mr. Schafer are deemed to beneficially own 11.75% of outstanding shares. The business address of O.S.S. Capital Management LP is 598 Madison Avenue, New York, New York 10022.

(11)

Information based on Schedule 13G/A filed by Fir Tree, Inc. Includes shares owned by Sapling, LLC and Fir Tree Recovery Master Fund, L.P. Fir Tree Value Master Fund, LP is the sole member of Sapling, LLC and Fir Tree, Inc. Fir Tree, Inc. is the investment manger to both Sapling, LLC and Fir Tree Recovery Master Fund, L.P. Sapling, LLC and Fir Tree Recovery Master Fund, L.P. are deemed beneficial owners of 1,018,932 and 191,208 shares of common stock, respectively. The business address of Fir Tree, Inc. is 505 Fifth Avenue, New York, New York 10017.

(12)

Information based on Schedule 13G filed by BAMCO, Inc., Baron Capital Group, Inc., Baron Small Cap Fund and Ronald Baron. BAMCO, Inc. is a subsidiary of Baron Capital Group, Inc. Baron Small Cap Fund is an advisory client of BAMCO, Inc. and Ronald Baron owns a controlling interest in Baron Capital Group, Inc. Each are deemed to beneficially own all 947,700 shares of common stock. BAMCO Inc. is an

 

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investment adviser and has been given discretion to direct the disposition of all of the shares of common stock. The business address of BAMCO, Inc. is 767 Fifth Avenue, New York, NY 10153.

(13)

Information based on Schedule 13G filed by Michael A. Roth and Brian J. Stark, joint filers. Messrs. Roth and Stark beneficially own 1,250,000 common shares. The shares are held directly by Shephard Investments International, Ltd. (“Shephard”). Messrs. Roth and Stark direct the management of Stark Offshore Management, LLC, which acts the investment manager of Shephard. The business address of Messrs. Roth and Stark is 3600 South Lake Drive, St. Francis, Wisconsin 53235.

(14)

Information based on Schedule 13G filed by Adage Capital Partners, L.P., Adage Capital Partners GP, LLC, Adage Capital Advisors, LLC, Philip Gross and Robert Atchinson. Each are deemed to beneficially own all 1,000,000 shares of common stock. The business address of Adage Capital Partners GP, LLC is 200 Claredon Street, 52nd Floor, Boston, Massachusetts 02116.

(15)

The business address of OZ Management, L.L.C. is 9 West 57th Street, 39th Floor, New York, New York 10019. OZ Management, L.L.C.’s shares reflect the beneficial ownership of:

 

   

2,266,025 shares of common stock and 7,382,953 shares of Series A convertible preferred stock held by OZ Master Fund, Ltd.

   

46,794 shares of common stock and 152,459 shares of Series A convertible preferred stock held by OZ Global Special Investments Master Fund, L.P.

   

28,716 shares of common stock and 93,560 shares of Series A convertible preferred stock held by GPC LVII, L.L.C.

   

27,768 shares of common stock and 90,472 shares of Series A convertible preferred stock held by Fleet Maritime, Inc.

(16)

The business address of Glenview Capital Management, LLC is 767 Fifth Avenue, 44th Floor, New York, New York 10153.

(17)

Information based on Schedule 13G filed by Citigroup Global Markets, Inc., Citigroup Financial Products, Inc., Citigroup Global Markets Holdings, Inc. and Citigroup, Inc. The business address of Citigroup Global Markets, Inc. is 390 Greenwich Street, 5th Floor, New York, New York 10013.

(18)

The business address of Kings Road Investments, LTD. is 598 Madison Avenue, 14th Floor, New York, New York 10022.

(19)

Each of the noted investors may not convert any of their Series A convertible preferred stock into our common stock to the extent that after giving effect to such conversion, the investor would have acquired, through conversion of the Series A convertible preferred stock or otherwise, beneficial ownership of shares of our common stock in excess of 9.99% of the shares of our common stock outstanding immediately after giving effect to such conversion. Each investor may elect to: (i) apply any percentage between 4.99% and 9.99% instead of 9.99%; or (ii) waive such limitation in whole or in part permanently or temporarily upon 65 days notice.

(20)

Adage Capital Partners GP, LLC has elected to opt out of the Series A convertible preferred stock conversion limitations set forth in note 19 to this table. However, Adage Capital Partners GP, LLC may elect to be subject to the conversion limitations if it sends written notice to us stating that it has elected to be subject to these provisions.

 

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The following table sets forth information regarding the percentage of our outstanding common stock owned immediately after the private placement by each stockholder shown in the above table who owns founding director or public warrants, all of which will become exercisable upon completion of the GFA merger. The table assumes that each named stockholder (but not any other named stockholder) exercised all of the warrants held by such stockholder individually. The numbers shown in this table are included for the applicable holder and for all directors and executive officers as a group in the above beneficial ownership table.

 

Beneficial Owner

  

Number of

Warrants

  

Percentage of
Outstanding Common
Stock After Private

Placement

(including Warrants)

 

Stephen B. Hughes(1)

   448,529    3.47 %

James E. Lewis(1)

   448,529    2.78 %

Robert J. Gillespie(1)

   29,412    * %

William E. Hooper(1)

   14,706    * %

Robert F. McCarthy(1)

   29,412    * %

Glenhill Advisors, L.L.C and Glenn J. Krevlin(2)

   2,500,000    12.90 %

O.S.S. Capital Management LP and Oscar S. Schafer(2)

   1,875,000    7.87 %

Citigroup Global Markets, Inc.(2)

   451,436    9.84 %

All directors and executive officers as a group (seven individuals)

   970,558    7.32 %

(1) The founding director warrants were purchased by our founding directors, certain other directors and a senior advisor in our initial public offering at a price of $1.70 per warrant. Each warrant will be exercisable to purchase one share of our common stock at the same time as the public warrants described in note (2) to this table. These warrants are not transferable or salable until we complete a business combination, and will be non-redeemable so long as these persons hold such warrants. The warrants will expire at 5:00 p.m., New York time, on December 16, 2009 or earlier upon redemption.
(2) The public warrants were purchased by investors in our initial public offering and have an exercise price of $6.00 per warrant. Each public warrant is exercisable to purchase one share of common stock. The public warrants become exercisable on the later of: (i) the completion of our initial business combination, or (ii) December 16, 2006. The public warrants will expire at 5:00 p.m., New York time, on December 16, 2009 or earlier upon redemption.

Escrowed Common Stock

All of the shares of our common stock outstanding prior to the date of our initial public offering have been placed in escrow with Continental Stock Transfer & Trust Company, as escrow agent. The shares of common stock are subject to release from escrow in two equal increments:

 

   

1,595,105 shares on December 16, 2008; and

 

   

1,595,105 shares after we have completed an initial business combination and the last sale price of our common stock thereafter equals or exceeds $11.50 per share for any 20 trading days within any 30 trading day period beginning after we complete our initial business combination.

The escrowed shares are eligible for release from escrow prior to the dates described above on:

 

   

our liquidation; or

 

   

the consummation of a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property subsequent to our consummating an initial business combination.

The GFA merger and the related financing will not have the effect of releasing shares from escrow. The certificates representing shares currently in escrow may be replaced by certificates representing the shares of the renamed entity.

 

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During the escrow period, the holders of these shares will not be able to sell or transfer their securities, except to their spouses and children or trusts established for their benefit, but will retain all other rights as Boulder stockholders, including, without limitation, the right to vote their shares of common stock and the right to receive cash dividends, if declared. If dividends are declared and payable in shares of common stock, such dividends will also be placed in escrow. If we are unable to effect a business combination and liquidate, none of our existing stockholders who owned shares of our common stock prior to our initial public offering will receive any portion of the liquidation proceeds with respect to common stock owned by them prior to our initial public offering.

 

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PRICE RANGE OF SECURITIES AND DIVIDENDS

Our common stock, warrants and units are quoted on the OTC Bulletin Board under the symbols BSDB, BSDBW and BSDBU, respectively. Each unit consists of one share of common stock and one redeemable common stock purchase warrant, which we sometimes refer to as a “public warrant.”. The public warrants became separable from our common stock on January 23, 2006. See “Description of Securities – Existing Public Warrants and Founding Director Warrants” for a description of the public warrants.

The closing prices per share of common stock, per warrant and per unit on September 22, 2006, the last trading day before the announcement of the execution of the merger agreement, were $7.46, $1.10 and $8.47, respectively. Prior to January 23, 2006, there was no established public trading market for our common stock.

There is no established public trading market for the securities of GFA Holdings, Inc.

The following table sets forth, for the calendar quarter indicated, the quarterly high and low sales prices of our common stock, warrants and units as quoted on the OTC Bulletin Board. The quotations listed below reflect inter-dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions.

 

     OTC Bulletin Board
     Common Stock    Warrants    Units
     High    Low    High    Low    High    Low

December 16 – 31, 2005 (1)

     n/a      n/a      n/a      n/a    $ 9.00    $ 8.00

2006 First Quarter

   $ 7.80    $ 7.60    $ 1.45    $ .80    $ 9.15    $ 8.40

2006 Second Quarter

   $ 8.20    $ 7.50    $ 1.83    $ 1.16    $ 10.10    $ 8.45

2006 Third Quarter

   $ 7.65    $ 7.45    $ 1.65    $ .90    $ 9.20    $ 8.40

2006 Fourth Quarter

   $ 8.60    $ 7.45    $ 2.69    $ 1.10    $ 11.35    $ 8.40

2007 First Quarter

   $ 9.50    $ 8.15    $ 3.35    $ 2.15    $ 12.90    $ 10.30

April 1 – 20, 2007

   $ 9.90    $ 9.32    $ 3.85    $ 3.21    $ 13.80    $ 12.60

(1)

Our units began trading on the OTC Bulletin Board on December 16, 2005. Our common stock and warrants became separable on January 23, 2006.

We have agreed to apply to list our common stock on the NASDAQ Capital Market on or promptly after the date of the closing of the merger. We have also agreed to apply to designate the Series A convertible preferred stock as Portal Trading Securities with the PORTAL Market of the NASDAQ Stock Market, Inc., to the extent the shares are eligible for such designation. We cannot assure you, however, that any these securities will be approved for listing, or if approved, will continue to be so listed.

Upon consummation of the merger, GFA Holdings, Inc. will become our wholly-owned subsidiary, and our name will be changed to “Smart Balance, Inc.” We anticipate seeking to change our trading symbols to reflect the name change, assuming its approval.

Holders

As of April 5, 2007, there was one holder of record of our units, 24 holders of record of our common stock and one holder of record of our public warrants.

Dividends

We have not paid any dividends on our common stock to date and do not intend to pay dividends prior to the completion of a business combination. The payment of dividends in the future will be contingent upon our revenue and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our then board of directors. Our restated certificate of incorporation that will become effective upon

 

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the closing of the private placement will prohibit the payment of dividends on our common stock unless we have paid all accrued but unpaid dividends on our Series A convertible preferred stock issued in the private placement. Our secured debt financing will prohibit the payment of any cash dividends. Furthermore, our board of directors presently intend to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends on our Series A convertible preferred stock or common stock in the foreseeable future.

 

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DESCRIPTION OF SECURITIES

General

The following description summarizes the material terms of our capital stock, including the Series A convertible preferred stock that we propose to issue in the private placement discussed in Proposal 2. Because it is only a summary, it may not contain all the information that is important to you. For a complete description you should refer to our certificate of incorporation and bylaws and to the applicable provisions of the Delaware General Corporation Law, as well as the proposed restated certificate of incorporation that is discussed in Proposal 3 and attached as Annex “F” and the form of stock subscription warrant for the private placement that is discussed in Proposal 2 and attached as Annex “E.”

Common Stock

Our certificate of incorporation currently authorizes 75,000,000 shares of common stock. In Proposal 3, we are seeking to increase the number of authorized shares of common stock to 250,000,000 shares.

Holders of common stock currently have exclusive voting rights for the election of our directors and all other matters requiring stockholder action. However, if the amendment and restatement of our certificate of incorporation is approved, holders of Series A convertible preferred stock will be entitled to vote on an as-converted basis together with the holders of common stock. Holders of common stock are entitled to one vote per share on matters to be voted on by stockholders and also are entitled to receive such dividends, if any, as may be declared from time to time by our board of directors in its discretion out of funds legally available therefor. After the GFA merger is completed, if ever, or upon our liquidation or dissolution, the holders of common stock will be entitled to receive pro rata all assets remaining available for distribution to stockholders after payment of all liabilities and provision for the liquidation preference of any shares of preferred stock at the time outstanding.

Our board of directors is divided into three classes, each of which will generally serve for a term of three years, with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors.

Holders of our common stock have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock, except that holders of our common stock issued in our initial public offering have the right to have their shares of common stock converted to cash equal to their pro rata share of the trust account plus any interest if they vote against the GFA merger and the merger is approved and completed. Those stockholders who convert their common stock into their pro rata share of the trust account will retain the right to exercise any public warrants they own.

The payment of dividends, if ever, on the common stock will be subject to the prior payment of dividends on any outstanding preferred stock, including our Series A convertible preferred stock, when issued.

Preferred Stock

Our current certificate of incorporation provides that up to 1,000,000 shares of preferred stock may be issued from time to time in one or more series. Our board of directors is authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions, applicable to the shares of each series. Our board of directors currently may, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the common stock and could have anti-takeover effects. The ability of our board of directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of us or the removal of existing management.

 

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The underwriting agreement for our initial public offering prohibits us, prior to a business combination, from issuing preferred stock which participates in any manner in the proceeds of the trust account, or which votes as a class with the common stock on a business combination. We may issue some or all of the preferred stock to effect a business combination and intend to do so to fund the GFA merger. We have no preferred stock outstanding at the date hereof.

Series A Convertible Preferred Stock

If Proposal 3 is approved, the total number of shares of preferred stock that we will have authority to issue will be increased from 1,000,000 to 50,000,000, of which 15,388,889 shares will be designated as Series A convertible preferred stock. The Series A convertible preferred stock will, with respect to dividend rights and rights upon our liquidation, dissolution or winding up, rank senior to our common stock. Holders of the Series A convertible preferred stock will not be entitled to preemptive or other subscription rights. The following summary of the material terms and provisions of the Series A convertible preferred stock does not purport to be complete and is qualified in its entirety by reference to our proposed restated certificate of incorporation, which will designate the Series A convertible preferred stock. We urge you to read this document, which is attached as Annex “F,” because it, rather than this description, defines the rights of a holder of the Series A convertible preferred stock.

Dividends

Dividends on the Series A convertible preferred stock will be cumulative and will compound from the closing date of the private placement described in Proposal 2, which we sometimes refer to as the date of original issuance, at the annual rate of 8% (multiplied times the $9.00 per share purchase price) and will be payable quarterly when and as declared by our board of directors. Beginning five years after the date of original issuance and at the end of each calendar quarter thereafter, the dividend rate will increase at the rate of 0.25% until the dividend rate equals 11%. Beginning seven years after the date of issuance:

 

   

the annual dividend rate will increase to 15% for each quarter thereafter for which we fail to declare and pay dividends in full in cash, and

 

   

the annual dividend rate will be fixed at 15% if we fail thereafter to declare and pay dividends in cash for three consecutive quarters.

No dividends may be declared or paid on any common stock, nor may we redeem any common stock, subject to limited exceptions, until we have paid all accrued dividends on the Series A convertible preferred stock in cash. If we pay any dividend or distribution on the common stock, the holders of the Series A convertible preferred stock also will be entitled to receive such dividend or distribution on an as-converted basis.

Liquidation Preference

Holders of the Series A convertible preferred stock will have a liquidation preference in the amount of $9.00 per share plus accrued but unpaid dividends. If a “Liquidation” occurs before the fifth anniversary of the date original issuance of the Series A convertible preferred stock, the liquidation preference will include a premium calculated assuming that the Liquidation occurred on the last day of the quarterly dividend period on or after the fifth anniversary. If our assets are not sufficient to pay the liquidation preference of the Series A convertible preferred stock in full, the holders of the Series A convertible preferred stock will share pro rata in any distribution based on the relative amounts of their respective liquidation preferences, and no distributions will be made to the holders of common stock. However, the holders of Series A convertible preferred stock will participate in liquidating distributions on an as-converted basis, if by so doing the amount they receive would be greater than their liquidation preference. A “Liquidation” is defined as:

(1) a voluntary or involuntary liquidation, dissolution or winding up;

 

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(2) a sale of all or substantially all our assets;

(3) the sale or other transfer of outstanding shares of our capital stock to a purchaser and its affiliates and/or a group of purchasers and their affiliates acting in concert, or a merger or consolidation, in each case under circumstances in which the holders of the voting power of our outstanding capital stock immediately before the transaction (other than the investors in the private placement) own less than 50% of the voting power of our outstanding capital stock, the surviving or resulting corporation or the acquirer, as the case may be, immediately after the transaction; or

(4) any other transaction or series of transactions as a result of which a single person (or investors in the private placement) acquires a majority of our outstanding voting power.

Optional Conversion at Holder’s Election

The Series A convertible preferred stock will be convertible at any time, at the option of the holder, into the number of shares of common stock arrived at by dividing $9.00 per share (which is the initial conversion price) into the per share liquidation preference of $9.00 per share, plus accrued but unpaid dividends. To the extent that dividends accrue but are not paid, the number of shares of common stock issuable upon conversion of the Series A convertible preferred stock will increase.

The securities purchase agreement permits an investor to elect to be subject to article IV, section 9(l), of the restated certificate of incorporation that limits the number of shares of common stock that may be acquired upon conversion of Series A convertible preferred stock to the number that would not cause the holder to beneficially own more than 9.99% of our outstanding common stock immediately after the conversion. An investor may elect to reduce this threshold to 4.99%, or any other percentage between 4.99% and 9.99%, and to waive, temporarily or permanently, any of these limitations, upon 65 prior days’ notice to us.

Adjustments to Conversion Rate

The conversion price will decrease, and the number of shares of common stock issuable upon conversion will therefore increase, if we become subject to penalties for delays in taking actions required by the investors relating to the listing of our common stock or the Series A convertible preferred stock or the registration of the shares of common stock issued or issuable in connection with the private placement. If we:

(1) do not designate the Series A convertible preferred stock as Portal Trading Securities with the PORTAL Market of the NASDAQ Stock Market, Inc., to the extent the Series A convertible preferred stock is eligible for such designation, by 14 days after the closing (as required by section 4.13 of the securities purchase agreement);

(2) do not file to list our common stock on the NASDAQ Global Market or the NASDAQ Capital Market or the American Stock Exchange by 14 days after the closing;

(3) do not so list our common stock by 90 days after the closing;

(4) do not file a registration statement under the Securities Act for the resale of the shares of common stock issued or issuable to the investors in the private placement by the 14th day after the closing (or file the registration statement without affording the investors in the private placement the opportunity to review and comment, to the extent required in the registration rights agreement attached as Annex “D”);

(5) do not have the registration statement declared effective by the earlier of (i) the 44th calendar day following the closing (the 74th calendar day in the event of a full review by the SEC) and (ii) the fifth business day after the SEC advises us that the registration statement will not be reviewed or is no longer subject to further review and comment); or

 

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(6) do not cause the registration statement to remain effective for the period required by the registration rights agreement, or if investors are not permitted to utilize the registration statement to resell shares for 45 consecutive days or for more than an aggregate of 90 days during any 12-month period,

then the conversion price will be reduced by 1% on each 90th day anniversary of the default, if the default has not been cured, subject to a maximum total reduction of 9%. In no event will a holder of Series A convertible preferred stock be entitled to a cash adjustment in lieu of these adjustments to the conversion price.

The conversion price will also be reduced if and to the extent that the shares of common stock issuable upon conversion of the Series A convertible preferred stock represent less than 22.2508% of our common stock on a fully diluted basis immediately after the closing of the private placement, based upon our representations and warranties to the investors as to our capitalization at that time. We do not believe that this particular adjustment will be required. The conversion price also will be subject to typical anti-dilution adjustments in the event of stock splits, stock dividends and similar events, and will be entitled to anti-dilution protection, subject to limited exceptions (including an exception for up to 9,650,000 options issued to employees, directors or consultants under a board-approved option plan), for issuances of common stock at a price below the conversion price then in effect or the average closing price of the common stock over the 30-day period ending three days before the date of determination. The anti-dilution adjustments will be made on a weighted average basis, which means that the number of shares sold at such price will be taken into account in adjusting the conversion price.

See article IV, section 9, of the restated certificate of incorporation attached as Annex “F,” for additional information about these anti-dilution adjustments to the conversion price.

Mandatory Conversion

Conversion of all, or a portion of (but not less than 20% of the then outstanding) Series A convertible preferred stock will be mandatory, at the conversion price then in effect, upon the first to occur of:

 

(1) the election to convert by holders of at least a majority of the Series A convertible preferred stock, or

(2) our election to force a conversion if (i) a registration statement for the resale of the common stock issuable upon conversion of the Series A convertible preferred stock is effective, (ii) we have also elected to redeem all the public warrants that we sold in our initial public offering, and (iii) the last sales price of our common stock has been at least $11.50 per share, if before three years after the date of original issuance of the Series A convertible preferred stock, or at least $12.50 per share on each of 20 trading days within any 30-trading day period ending on the third business day before we provide notice of our election to force the conversion of the Series A convertible preferred stock, if more than three years after the date of original issuance.

If we elect to exercise our right to force conversion within three years of the date of original issuance, the number of shares of common stock issued on conversion will be calculated assuming that the redemption occurs on the last date of the dividend period to occur on or after such third-year anniversary.

Our right to force conversion will be limited to the extent that conversion would require the holder of the shares of Series A convertible preferred stock subject to forced conversion to make filings under the HSR Act or other laws concerning competition.

Redemption

We will have the right to redeem all or a portion of (but not less than 20% of the then outstanding) Series A convertible preferred stock at any time after issuance, out of funds legally available for that purpose and subject to compliance with restrictions on redemptions imposed by our lenders, for a cash amount equal to the liquidation preference of $9.00 per share, plus accrued but unpaid dividends. However, if the redemption occurs

 

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prior to five years after the date of original issuance of the Series A convertible preferred stock, the redemption price will include a premium calculated assuming that the redemption occurs on the last day of the quarterly dividend period to occur on or after such fifth-year anniversary.

Section 4.14 of the securities