Business.
In this Annual Report on Form 10-K (the “Form 10-K”), references to “Capitol” or the “Company” and to “we,” “us” and “our” refer to Capitol Acquisition Corp. II.
Introduction
We are a Delaware company incorporated on August 9, 2010 for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.
Company History
In February 2011, we issued 4,417,684 shares of common stock (“founder’s shares”) to Capitol Acquisition Management 2 LLC (our “sponsor”) for $25,000 in cash, at a purchase price of approximately $0.006 share, in connection with our organization. In March 2013, our sponsor contributed an aggregate of 105,184 shares of our common stock to our capital, resulting in our sponsor owning an aggregate of 4,312,500 founder’s shares. The sponsor received no consideration for this contribution. Such contribution was made solely to maintain the sponsor’s collective 20% ownership interest in our shares of common stock based on the then current size of our initial public offering. Thereafter, also in March 2013, our sponsor transferred an aggregate of 1,078,126 founder’s shares to our executive officers and directors. In April 2013, our sponsor and Dyson Dryden, our chief financial officer and a director, transferred an aggregate of 22,998 founder’s shares to Messrs. Calcano, Donaldson and Sodha, each a director, resulting in our sponsor owning an aggregate of 3,222,875 founder’s shares and Mr. Dryden owning an aggregate of 974,626 founder’s shares. The shares were transferred for the same per share consideration originally paid for by the transferors. In May 2013, we effected a stock dividend of 0.2 shares for each outstanding share of common stock, resulting in our sponsor and officers and directors holding an aggregate of 5,175,000 founder’s shares, of which 175,000 shares were subsequently forfeited.
On May 15, 2013, we consummated our initial public offering (“Offering”) of 20,000,000 units, including 2,000,000 units under the underwriters’ over-allotment option, with each unit consisting of one share of common stock and one half of one warrant, each whole warrant to purchase one share of common stock. The shares of common stock and the warrants included in the units traded as a unit until July 1, 2013 when separate trading of common stock and warrants began. No fractional warrants will be issued and only whole warrants will trade. Holders now have the option to continue to hold units or separate their units into the component pieces. Each whole warrant entitles its holder, upon exercise, to purchase one share of common stock for $11.50 subject to certain adjustments, during the period commencing on the later of thirty days after we complete an initial business combination or May 10, 2014 and terminating on the five-year anniversary of the completion of our initial business combination. The units were sold at an offering price of $10.00 per unit, generating gross proceeds of $200,000,000.
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Simultaneously with the consummation of the Offering, we consummated the private placement (“Private Placement”) of 5,600,000 warrants (“sponsor’s warrants”) at a price of $1.00 per warrant, generating total proceeds of $5,600,000. The sponsor’s warrants are identical to the warrants included in the units sold in the Offering except that the sponsor’s warrants: (i) will not be redeemable by us and (ii) may be exercised for cash or on a cashless basis, in each case so long as they are held by the initial purchasers or any of their permitted transferees. The purchasers of the sponsor’s warrants have also agreed not to transfer, assign or sell any of the sponsor’s warrants, including the common stock issuable upon exercise of the sponsor’s warrants (except to certain permitted transferees), until 30 days after the completion of an initial business combination.
We incurred a total of $4,000,000 in underwriting discounts and commissions (not including deferred fees) and $666,300 for other costs and expenses related to the Offering.
After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the Offering were $200,933,700. Of this amount, $200,000,000 we received from the sale of units in the Offering and the Private Placement of sponsor’s warrants was deposited into a trust account. Except as described in this Form 10-K, these funds will not be released to us until the earlier of the completion of a business combination or our liquidation upon our failure to consummate a business combination within the required time period (which may not occur until May 15, 2015).
Business Strategy
We have identified the following criteria and guidelines that we believe are important in evaluating prospective target businesses. While these are being used in evaluating business combination opportunities, we may decide to enter into a business combination with a target business(es) that does not meet all of the criteria and guidelines.
Growth Orientation. We intend to acquire companies that we expect to experience substantial growth post-acquisition. We believe that we are well-positioned to evaluate a company’s current growth prospects and opportunities to enhance its growth post-acquisition.
Strong Competitive Position in Industry. We intend to acquire businesses that have developed leading positions within industries that exhibit strong fundamentals. We evaluate each industry based on several factors including its growth characteristics, competitive landscape, profitability margins and sustainability. We also analyze the strengths and weaknesses of target businesses relative to their competitors in order to identify those best positioned to grow their market share and profitability.
Hidden Intrinsic Value. We are seeking situations where we are able to acquire target companies that have unseen value or other characteristics that have been disregarded by the marketplace. We intend to leverage the operational experience and financial acumen of our team to focus on unlocking value others may have overlooked, as a means to generate significant growth post closing.
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Attractive Return on Investment. We intend to identify businesses that will offer an attractive risk-adjusted return on investment for our shareholders. We will look to consummate an acquisition on attractive terms and to use our corporate structure as an asset in negotiations with owners of prospective targets. Financial returns are evaluated based on both organic cash flow growth potential and an ability to create value through new initiatives such as future acquisitions, repositioning the company, increasing investment in new products or distribution channels and operational restructuring. This potential upside from growth in the business is weighed against the downside risks inherent in the plan and in the business.
Outstanding Management Team. We believe that experienced, proven entrepreneurial managers working as a complementary team are a critical component to creating and sustaining long-term value. We are looking for businesses that have management teams with a proven track record for delivering top line growth and bottom line profits, but, in each situation, we assess opportunities to improve a target’s management team and to recruit additional talent through our extensive network of contacts.
Competitive Strengths
We believe we have the following competitive strengths:
Status as a public company
We believe our structure makes us an attractive business combination partner to target businesses. As an existing public company, we offer a target business an alternative to the traditional initial public offering through a merger or other business combination. In this situation, the owners of the target business would exchange their shares of stock in the target business for shares of our stock or for a combination of shares of our stock and cash, allowing us to tailor the consideration to the specific needs of the sellers. We believe target businesses might find this method a more certain and cost effective method to becoming a public company than the typical initial public offering. In a typical initial public offering, there are additional expenses incurred in marketing, roadshow and public reporting efforts that will likely not be present to the same extent in connection with a business combination with us. Furthermore, once the business combination is consummated, the target business will have effectively become public, whereas an initial public offering is always subject to the underwriters’ ability to complete the offering, as well as general market conditions, that could prevent the offering from occurring. Once public, we believe the target business would then have greater access to capital and an additional means of providing management incentives consistent with stockholders’ interests than it would have as a privately-held company. It can offer further benefits by augmenting a company’s profile among potential new customers and vendors and aid in attracting talented employees.
While we believe that our status as a public company makes us an attractive business partner, some potential target businesses may view the inherent limitations in our status as a blank check company as a deterrent and may prefer to effect a business combination with a more established entity or with a private company.
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Financial position
With a trust account initially in the amount of approximately $200 million, we offer a target business a variety of options such as providing the owners of a target business with shares in a public company and a public means to sell such shares, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to consummate our initial business combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires.
Management Expertise and Prior Blank Check Experience
We seek to capitalize on the approximately 21 years of private equity and venture capital investing experience and significant contacts of our Chief Executive Officer, Mark D. Ein.
Since January 2007, Mr. Ein has been the Co-Chairman and Majority Owner of Kastle Systems, LLC, a firm specializing in building and office security systems, which he acquired through his personal investment holding company, Leland Investments Inc. Mr. Ein also currently serves as the Chairman and Lead Investor of Reed Krakoff International LLC, a luxury women’s clothing and accessories company. Mr. Ein is the founder and Chief Executive Officer of Venturehouse Group, LLC, a holding company that creates, invests in, grows and builds technology, communications and related business services companies. Venturehouse was founded in 1999 to work closely with a small number of portfolio companies at any one time and to provide operational, strategic, and financing support throughout their lifecycle. Prior to forming Venturehouse, from 1992 to 1999, Mr. Ein was a Principal with The Carlyle Group, a leading global private equity firm. Mr. Ein led many of Carlyle’s technology and telecommunications private equity investment activities totaling more than $300 million. Earlier in his career, from 1989 to 1990, Mr. Ein worked for Brentwood Associates, a leading West Coast growth-focused private equity firm, and from 1986 to 1989 for Goldman, Sachs & Co.