As of March 10, 2017, there were 40,625,000
shares of common stock, $0.0001 par value per share, outstanding.
PART
I
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. III.
Introduction
We
are a Delaware company incorporated on July 13, 2015 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.
We
maintain a website located at http://www.capitolacquisition.com. Our corporate filings, including our Annual Report on Form 10-K,
our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, our proxy statements and reports filed by our officers and
directors under Section 16(a) of the Securities Exchange Act of 1934, as amended, and any amendments to those filings, are available,
free of charge, on our website as soon as reasonably practicable after we electronically file such material with the Securities
and Exchange Commission. We do not intend for information contained in our website to be a part of this Annual Report on Form
10-K.
In
addition, you can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at
www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E.,
Washington, D.C. 20549.
You
may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference
facilities.
Company
History
In
July 2015, we issued 10,062,500 shares of common stock (“founders’ shares”) to Capitol Acquisition Management
3 LLC and Capitol Acquisition Founder 3 LLC (our “sponsors”) for $25,000 in cash, at a purchase price of approximately
$0.002 share, in connection with our organization. Capitol Acquisition Management 3 LLC and Capitol Acquisition Founder 3 LLC
subsequently transferred a portion of these founders’ shares to certain individuals, including our independent directors,
for the same purchase price originally paid for such shares. In October 2015, our sponsors then contributed back to our capital,
for no additional consideration, an aggregate of 1,437,500 founders’ shares, leaving our initial stockholders, including
our sponsors and directors, with an aggregate of 8,625,000 founders’ shares. This number included an aggregate of 1,125,000
shares that were subject to forfeiture if the underwriters’ over-allotment option was not exercised in full in our initial
public offering (“Offering”).
On
October 19, 2015, we consummated the Offering of 32,500,000 units, including 2,500,000 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. An aggregate of 500,000 founders’ shares were forfeited based on the amount of units sold pursuant
to the overallotment. The shares of common stock and the warrants included in the units traded as a unit until December 6, 2015
when separate trading of common stock and warrants began. No fractional warrants were or 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 30 days after we complete an initial business combination 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 $325,000,000.
Simultaneously
with the consummation of the Offering, we consummated the private placement (“Private Placement”) of 8,250,000 warrants
(“founders’ warrants”) at a price of $1.00 per warrant, generating total proceeds of $8,250,000. The founders’
warrants are identical to the warrants included in the units sold in the Offering except that the founders’ warrants: (i)
are not redeemable by us and (ii) are exercisable 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 founders’ warrants have also agreed not
to transfer, assign or sell any of the founders’ warrants, including the common stock issuable upon exercise of the founders’
warrants (except to certain permitted transferees), until 30 days after the completion of an initial business combination.
We
paid a total of $6.5 million in underwriting discounts and commissions and $834,447 for other costs and expenses related to our
formation and the Offering.
After
deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the Offering
were $317,665,553 and net proceeds from the Private Placement were $8,250,000 (up to an additional $11,375,000 of deferred underwriting
expenses may be paid upon the completion of a business combination). Of these amounts, $325,000,000 we received from the sale
of units in the Offering and the Private Placement of founders’ 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 October
19, 2017).
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.
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. 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. These inherent limitations include limitations on our available financial
resources, which may be inferior to those of other entities pursuing the acquisition of similar target businesses; the requirement
that we seek shareholder approval of a business combination, which may delay the consummation of a transaction; and the existence
of our outstanding warrants, which may represent a source of future dilution.
Financial
position
With
a trust account initially in the amount of approximately $325,000,000 (including $11,375,000 of deferred underwriting commissions),
we offer a target business a variety of options. Having these funds could allow us to structure a business combination where a
portion of the consideration payable to owners of a target business is paid in cash. Such funds could also provide capital for
the potential growth and expansion of our target’s operations or strengthening its balance sheet by reducing its debt burden.
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 extensive experience and significant contacts of our executive officers in consummating an initial business
combination. Mark D. Ein, our Chief Executive Officer, has 25 years of private equity and venture capital investing experience,
and L. Dyson Dryden, our President and Chief Financial Officer, has over 16 years of investment banking and investing experience.
Over
the past nine years, Mr. Ein and Mr. Dryden have successfully executed two public acquisition vehicles.
Capitol
Acquisition Corp., or Capitol I, was a special purpose acquisition company that completed its initial public offering in June
2007. Mr. Ein was the founder, Chairman and Chief Executive Officer of Capitol I. Capitol I completed its business combination
with Two Harbors Investment Corp., or Two Harbors, a Maryland real estate investment trust, in October 2009. Two Harbors was a
newly formed shell company established to focus on residential mortgage backed securities in partnership with Pine River Capital
Management L.P. Mr. Ein played the lead role in Capitol I’s search for a target business and in consummating its business
combination, including, among other things, assisting in identifying and evaluating numerous prospective target businesses, including
the ultimate target, and the business plan presented by its control persons, and assisting in the solicitation of stockholder
approval for such a transaction. While Mr. Ein did not evaluate the specific assets that Two Harbors anticipated acquiring prior
to consummation of the business combination with Capitol I, nor has he evaluated the specific assets that Two Harbors has since
acquired, Mr. Ein served as Vice-Chairman of the board of directors from October 2009 to May 2015. In addition, CLA Founders LLC,
an entity controlled by Mr. Ein and for which he plays an active role, provided services as sub-manager to the manager of Two
Harbors (PRCM Advisers LLC) pursuant to a Sub-Management Agreement that was entered into in connection with the transaction. Mr.
Dryden served as Capitol I’s financial advisor throughout the search process and assisted with the execution of the Two
Harbors transaction.
Capitol
Acquisition Corp. II, or Capitol II, was a special purpose acquisition company that completed its initial public offering in May
2013. Mr. Ein was the Chairman of the Board, Chief Executive Officer, Treasurer and Secretary and Mr. Dryden was Chief Financial
Officer and Director of Capitol II. Capitol II completed its business combination with Lindblad Expeditions, Inc. in July 2015.
Lindblad Expeditions provides expedition cruising and adventure travel experiences. Lindblad Expeditions works in partnership
with National Geographic to inspire people to explore and care about the planet. The partnership’s educationally oriented
voyages allow guests to interact with and learn from leading scientists, naturalists and researchers while discovering stunning
natural environments, above and below the sea, through state-of-the-art exploration tools. Since the closing of the business combination,
Mr. Ein continues to serve as the Chairman of the Board and Mr. Dryden as a member of the board of Lindblad Expeditions. Lindblad’s
common stock is traded on the NASDAQ under the symbol LIND and its public warrants are traded on the NASDAQ under the symbol LINDW.
Messrs.
Ein and Dryden together lead Capitol II’s search for a target business and in consummating its business combination, including,
among other things, assisting in identifying and evaluating numerous prospective target businesses, including the ultimate target,
and assisting in the solicitation of stockholder approval for such a transaction.
Effecting
a Business Combination
General
We
are not presently engaged in, and we will not engage in, any substantive commercial business for an indefinite period of time.
We intend to utilize cash derived from the proceeds of our Offering and the Private Placement, our share capital, debt or a combination
of these in effecting a business combination. Although substantially all of the net proceeds of our Offering and the Private Placement
will be applied generally toward effecting a business combination as described in the prospectus for our Offering and this Form
10-K, the proceeds have not been otherwise designated for any more specific purposes. Accordingly, our investors do not have the
opportunity to evaluate the specific merits or risks of any one or more business combinations prior to making an investment in
us. A business combination may involve the acquisition of, or merger with, a company which does not need substantial additional
capital but which desires to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences
of undertaking a public offering itself. These include time delays, significant expense, loss of voting control and compliance
with various Federal and state securities laws. In the alternative, we may seek to consummate a business combination with a company
that may be financially unstable or in its early stages of development or growth. While we may seek to effect simultaneous business
combinations with more than one target business, we will probably have the ability, as a result of our limited resources, to effect
only a single business combination.
Sources
of Target Businesses
We
anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment
bankers, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds and other members of the
financial community. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited
by us through calls, advertisements or mailings. These sources may also introduce us to target businesses they think we may be
interested in on an unsolicited basis, since many of these sources will have read the prospectus for our Offering and know what
types of businesses we are targeting. Our officers and directors, as well as their affiliates, may also bring to our attention
target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries
or discussions they may have, as well as attending trade shows or conventions. Our management has experience in evaluating transactions,
but will retain advisors as they deem necessary to assist them in their due diligence efforts. In no event, however, will any
of our officers, directors or sponsors, or any entity with which they are affiliated, be paid any finder’s fee, consulting
fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of a business combination
(regardless of the type of transaction that it is) other than the $10,000 monthly aggregate rent and administrative services fee,
the payment of consulting or success fees (none of which payments will be made from the proceeds of the Offering held in the trust
account prior to the completion of our initial business combination) and reimbursement of any out-of-pocket expenses. If we determine
to enter into a business combination with a target business that is affiliated with our officers, directors or sponsors or their
affiliates, we would do so only if such transaction is approved by a majority of our disinterested independent directors and we
obtained an opinion from an independent investment banking firm that the business combination is fair to our unaffiliated shareholders
from a financial point of view.
Selection
of a Target Business and Structuring of a Business Combination
Subject
to the limitations that a target business have a fair market value of at least 80% of the balance in the trust account (excluding
the deferred underwriting commissions and taxes payable on the income earned on the trust account) at the time of the execution
of a definitive agreement for our initial business combination, and that we must acquire a controlling interest in the target
business, our management will have virtually unrestricted flexibility in identifying and selecting a prospective target business.
Except for the general criteria and guidelines set forth above under the caption “Business Strategy,” we have not
established any specific attributes or criteria (financial or otherwise) for prospective target businesses. In evaluating a prospective
target business, our management may consider a variety of factors, including one or more of the following:
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financial
condition and results of operation;
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brand
recognition and potential;
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experience
and skill of management and availability of additional personnel;
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stage
of development of its products, processes or services;
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existing
distribution and potential for expansion;
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degree
of current or potential market acceptance of the products, processes or services;
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proprietary
aspects of products and the extent of intellectual property or other protection for its products, processes or services;
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impact
of regulation on the business;
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regulatory
environment of the industry;
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costs
associated with effecting the business combination;
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industry
leadership, sustainability of market share and attractiveness of market industries in which a target business participates;
and
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macro
competitive dynamics in the industry within which the company competes.
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We
believe such factors will be important in evaluating prospective target businesses. We will generally use these criteria and guidelines
in evaluating acquisition opportunities although this list is not intended to be exhaustive. Furthermore, we may decide to enter
into a business combination with a target business that does not meet these criteria and guidelines.
Any
evaluation relating to the merits of a particular business combination will be based, to the extent relevant, on the above factors
as well as other considerations deemed relevant by our management in effecting a business combination consistent with our business
objective. In evaluating a prospective target business, we will conduct an extensive due diligence review which will encompass,
among other things, meetings with incumbent management and inspection of facilities, as well as review of financial and other
information which is made available to us. This due diligence review will be conducted either by our management or by unaffiliated
third parties we may engage.
The
time and costs required to select and evaluate a target business and to structure and complete the business combination cannot
presently be ascertained with any degree of certainty. Any costs incurred with respect to the identification and evaluation of
a prospective target business with which a business combination is not ultimately completed will result in a loss to us and reduce
the amount of capital available to otherwise complete a business combination.
Fair
Market Value of Target Business
The
target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance
of the funds in the trust account (excluding the deferred underwriting commissions and taxes payable on the income earned on the
trust account) at the time of the execution of a definitive agreement for our initial business combination, although we may acquire
a target business whose fair market value significantly exceeds 80% of the trust account balance.
We
currently anticipate structuring a business combination to acquire 100% of the equity interests or assets of the target business
or businesses. We may, however, structure our initial business combination where we merge directly with the target business or
where we acquire less than 100% of such interests or assets of the target business in order to meet certain objectives of the
target management team or shareholders or for other reasons, but we will only complete such business combination if the post-transaction
company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest
in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even
if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to
the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed
to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial
number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we could acquire a 100% controlling
interest in the target; however, as a result of the issuance of a substantial number of new shares, our stockholders immediately
prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business
combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the
post-transaction company, the portion of such business or businesses that is owned or acquired is what will be valued for purposes
of the 80% of trust account balance test. In order to consummate such an acquisition, we may issue a significant amount of our
debt or equity securities to the sellers of such businesses and/or seek to raise additional funds through a private offering of
debt or equity securities. Since we have no specific business combination under consideration, we have not entered into any such
fund raising arrangement and have no current intention of doing so. The fair market value of the target will be determined by
our board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential
sales, earnings, cash flow and/or book value). The proxy solicitation materials used by us in connection with any proposed transaction
will provide public stockholders with our analysis of the fair market value of the target business, as well as the basis for our
determinations. If our board is not able to independently determine that the target business has a sufficient fair market value,
we will obtain an opinion from an unaffiliated, independent investment banking firm with respect to the satisfaction of such criteria.
We
will not be required to obtain an opinion from an investment banking firm as to the fair market value if our board of directors
independently determines that the target business complies with the 80% threshold.
Prior
to approval of a business combination, our board of directors will determine whether the transaction is fair to and in the best
interests of us and our stockholders. We will disclose the basis of our board of director’s determination in the proxy solicitation
materials distributed to stockholders in connection with the business combination.
Lack
of Business Diversification
We
may seek to effect a business combination with more than one target business, and there is no required minimum valuation standard
for any target at the time of such acquisition. We expect to complete only a single business combination, although this process
may entail the simultaneous acquisitions of several operating businesses. Therefore, at least initially, the prospects for our
success may be entirely dependent upon the future performance of a single business operation. Unlike other entities which may
have the resources to complete several business combinations of entities operating in multiple industries or multiple areas of
a single industry, it is probable that we will not have the resources to diversify our operations or benefit from the possible
spreading of risks or offsetting of losses. By consummating a business combination with only a single entity, our lack of diversification
may:
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subject us to numerous economic, competitive and regulatory
developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent
to a business combination, and
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result in our dependency upon the performance of a single
operating business or the development or market acceptance of a single or limited number of products, processes or services.
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If
we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need for
each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other acquisitions,
which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple acquisitions,
we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and
due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation
of the operations and services or products of the acquired companies in a single operating business.
Limited
Ability to Evaluate the Target Business’ Management
Although
we intend to scrutinize the management of a prospective target business when evaluating the desirability of effecting a business
combination, we cannot assure you that our assessment of the target business’ management will prove to be correct. In addition,
we cannot assure you that the future management will have the necessary skills, qualifications or abilities to manage a public
company. Furthermore, the future role of our officers and directors, if any, in the target business following a business combination
cannot presently be stated with any certainty. While it is possible that some of our key personnel will remain associated in senior
management or advisory positions with us following a business combination, it is unlikely that they will devote their full time
efforts to our affairs subsequent to a business combination. Moreover, they would only be able to remain with the company after
the consummation of a business combination if they are able to negotiate employment or consulting agreements in connection with
the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and
could provide for them to receive compensation in the form of cash payments and/or our securities for services they would render
to the company after the consummation of the business combination. The personal and financial interests of our key personnel may
influence their motivation in identifying and selecting a target business. Additionally, we cannot assure you that our officers
and directors will have significant experience or knowledge relating to the operations of the particular target business.
Following
a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business.
We cannot assure you that we will have the ability to recruit additional managers, or that any such additional managers we do
recruit will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
Stockholder
Approval of Business Combination
In
connection with any proposed business combination, we will seek stockholder approval of an initial business combination at a meeting
called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for or against
the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account as of
two business days prior to the consummation of the initial business combination, less any taxes then due but not yet paid, subject
to the limitations described herein. As of December 31, 2016, there was approximately $325,732,000 in the trust account (including
approximately $165,000 of accrued interest and $567,000 in cash from interest earned available to pay taxes). We will consummate
our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and a majority
of the outstanding shares of common stock voted are voted in favor of the business combination.
Our
sponsors, officers and directors have agreed (i) to vote any shares owned by them in favor of any proposed business combination
and (ii) not to convert any shares in connection with a stockholder vote to approve a proposed initial business combination. No
minimum number of public shares is required to be voted in favor of a business combination. Because a business combination may
be approved by a majority of the outstanding shares voted, under certain circumstances a business combination could be approved
without the affirmative vote of any of our public shares. Notwithstanding, all of our public stockholders will have the right
to convert their shares into cash in connection with a business combination.
None
of our officers, directors, sponsors or their affiliates has indicated any intention to purchase any units or shares of common
stock from persons in the open market or in private transactions. However, if a significant number of stockholders votes, or indicates
an intention to vote, against such proposed business combination, our officers, directors, sponsors or their affiliates could
make such purchases in the open market or in private transactions in order to influence the vote. The purpose of such arrangements
would be to increase the likelihood of satisfaction of the requirements that the holders of a majority of our shares of common
stock outstanding vote in favor of a proposed business combination and that we have at least $5,000,001 of net tangible assets
upon consummation of such business combination where it appears that such requirements would otherwise not be met. All shares
purchased by our sponsors, officers, directors or their affiliates would be voted in favor of the proposed business combination.
No such arrangements currently exist.
Conversion
Rights
In
connection with any proposed initial business combination, public stockholders may seek to convert their shares, regardless of
whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on
deposit in the trust account, less any taxes then due but not yet paid.
Notwithstanding
the foregoing, a public stockholder, together with any affiliate of his or any other person with whom he is acting in concert
or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking conversion rights
with respect to 20% or more of the shares of common stock sold in the Offering. Such a public stockholder would still be entitled
to vote against a proposed business combination with respect to all shares of common stock owned by him or his affiliates. We
believe this restriction will prevent stockholders from accumulating large blocks of shares before the vote held to approve a
proposed business combination and attempt to use the conversion right as a means to force us or our management to purchase their
shares at a significant premium to the then current market price. By limiting a stockholder’s ability to convert no more
than 20% of the shares of common stock sold in the Offering, we believe we have limited the ability of a small group of stockholders
to unreasonably attempt to block a transaction which is favored by our other public stockholders.
Our
sponsors, officers and directors will not have conversion rights with respect to any shares of common stock owned by them, directly
or indirectly.
We
may also require public stockholders, whether they are a record holder or hold their shares in “street name,” to either
tender their certificates to our transfer agent at any time through the vote on the business combination or to deliver their shares
to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at
the holder’s option.
There
is a nominal cost associated with the above-referenced delivery process and the act of certificating the shares or delivering
them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker
whether or not to pass this cost on to the holder. However, this fee would be incurred regardless of whether or not we require
holders seeking to exercise conversion rights. The need to deliver shares is a requirement of exercising conversion rights regardless
of the timing of when such delivery must be effectuated. However, in the event we require stockholders seeking to exercise conversion
rights prior to the consummation of the proposed business combination and the proposed business combination is not consummated
this may result in an increased cost to stockholders.
The
proxy solicitation materials that we will furnish to stockholders in connection with the vote for any proposed business combination
will indicate whether we are requiring stockholders to satisfy such certification and delivery requirements. Accordingly, a stockholder
would have from the time the stockholder received our proxy statement through the vote on the business combination to deliver
his shares if he wishes to seek to exercise his conversion rights. This time period varies depending on the specific facts of
each transaction. However, as the delivery process can be accomplished by the stockholder, whether or not he is a record holder
or his shares are held in “street name,” in a matter of hours by simply contacting the transfer agent or his broker
and requesting delivery of his shares through the DWAC System, we believe this time period is sufficient for an average investor.
However, we cannot assure you of this fact.
The
foregoing is different from the procedures used by many blank check companies. Traditionally, in order to perfect conversion rights
in connection with a blank check company’s business combination, the company would distribute proxy materials for the stockholders’
vote on an initial business combination, and a holder could simply vote against a proposed business combination and check a box
on the proxy card indicating such holder was seeking to exercise his conversion rights. After the business combination was approved,
the company would contact such stockholder to arrange for him to deliver his certificate to verify ownership. As a result, the
stockholder then had an “option window” after the consummation of the business combination during which he could monitor
the price of the company’s stock in the market. If the price rose above the conversion price, he could sell his shares in
the open market before actually delivering his shares to the company for cancellation. As a result, the conversion rights, to
which stockholders were aware they needed to commit before the stockholder meeting, would become a “continuing” right
surviving past the consummation of the business combination until the holder delivered its certificate. The requirement for physical
or electronic delivery prior to the meeting ensures that a holder’s election to convert his shares is irrevocable once the
business combination is approved.
Any
request to convert such shares once made, may be withdrawn at any time up to the vote on the proposed business combination. Furthermore,
if a holder of a public share of common stock delivered his certificate in connection with an election of their conversion and
subsequently decides prior to the applicable date not to elect to exercise such rights, he may simply request that the transfer
agent return the certificate (physically or electronically).
If
the initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise
their conversion rights would not be entitled to convert their shares for the applicable pro rata share of the trust account.
In such case, we will promptly return any shares delivered by public holders.
Liquidation
if No Business Combination
Our
amended and restated certificate of incorporation provides that we have only until October 19, 2017 to complete an initial business
combination. If we do not complete an initial business combination by such date, our amended and restated certificate of incorporation
provides that we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but
not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the trust account, including any interest but net of franchise and income taxes
payable (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares,
which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive
further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following
such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject
(in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements
of other applicable law.
Our
sponsors, officers and directors have agreed that they will not propose any amendment to our amended and restated certificate
of incorporation that would affect the substance or timing of our obligation to redeem 100% of our public shares if we do not
complete a business combination by October 19, 2017 unless we provide our public stockholders with the opportunity to convert
their shares of common stock upon such approval at a per-share price, payable in cash, equal to the aggregate amount then on deposit
in the trust account, including interest not previously released to us but net of franchise and income taxes payable, divided
by the number of then outstanding public shares. This redemption right shall apply in the event of the approval of any such amendment,
whether proposed by our sponsors, any executive officer, director or director nominee, or any other person.
Under
the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the
extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public
stockholders upon the redemption of 100% of our outstanding public shares in the event we do not complete our initial business
combination within the required time period may be considered a liquidation distribution under Delaware law. If the corporation
complies with certain procedures set forth in Section 280 of the Delaware General Corporation Law intended to ensure that it makes
reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought
against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day
waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a
liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed
to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution.
Furthermore,
if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our public
shares in the event we do not complete our initial business combination within the required time period is not considered a liquidation
distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the
Delaware General Corporation Law, the statute of limitations for claims of creditors could then be six years after the unlawful
redemption distribution, instead of three years, as in the case of a liquidation distribution. If we are unable to complete a
business combination within the prescribed time frame, we will (i) cease all operations except for the purpose of winding up,
(ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public
shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any
interest but net of franchise and income taxes payable, divided by the number of then outstanding public shares, which redemption
will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation
distributions, if any), subject to applicable law and (iii) as promptly as reasonably possible following such redemption, subject
to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii)
and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable
law. Accordingly, it is our intention to redeem our public shares as soon as reasonably possible following October 19, 2017 and,
therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially be liable for any claims
to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the
third anniversary of such date.
Because
we will not be complying with Section 280 of the Delaware General Corporation Law, Section 281(b) of the Delaware General Corporation
Law requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and
pending claims or claims that may be potentially brought against us within the subsequent ten years. However, because we are a
blank check company, rather than an operating company, and our operations will be limited to searching for prospective target
businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or
prospective target businesses.
We
are required to have all third parties (including any vendors or other entities we engage) and any prospective target businesses
enter into valid and enforceable agreements with us waiving any right, title, interest or claim of any kind they may have in or
to any monies held in the trust account. As a result, the claims that could be made against us will be limited, thereby lessening
the likelihood that any claim would result in any liability extending to the trust. We therefore believe that any necessary provision
for creditors will be reduced and should not have a significant impact on our ability to distribute the funds in the trust account
to our public stockholders. Nevertheless, we cannot assure you of this fact as there is no guarantee that vendors, service providers
and prospective target businesses will execute such agreements. Nor is there any guarantee that, even if they execute such agreements
with us, they will not seek recourse against the trust account. Our executive officers have agreed that they will be personally
liable to pay debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered
or contracted for or products sold to us, but we cannot assure you that they will be able to satisfy their indemnification obligations
if they are required to do so. Additionally the agreement they entered into by our executive officers specifically provides for
two exceptions to the personal indemnity they have given: they will have no personal liability (1) as to any claimed amounts owed
to a target business or vendor or other entity who has executed a valid and enforceable agreement with us waiving any right, title,
interest or claim of any kind they may have in or to any monies held in the trust account, or (2) as to any claims under our indemnity
with the underwriters of our Offering against certain liabilities, including liabilities under the Securities Act. As a result,
if we liquidate, the per-share distribution from the trust account could be less than $10.00 due to claims or potential claims
of creditors. We will distribute to all of our public stockholders, in proportion to their respective equity interests, an aggregate
sum equal to the amount in the trust account, inclusive of any interest, plus any remaining net assets (subject to our obligations
under Delaware law to provide for claims of creditors as described below).
We
anticipate notifying the trustee of the trust account to begin liquidating such assets promptly after such date and anticipate
it will take no more than 10 business days to effectuate such distribution. Our sponsors have waived their rights to participate
in any liquidation distribution with respect to their founders’ shares. There will be no distribution from the trust account
with respect to our warrants, including the founders’ warrants, which will expire worthless. We will pay the costs of any
subsequent liquidation from our remaining assets outside of the trust account and the up to $100,000 of interest earned on the
funds held in the trust account that we are permitted to withdraw to pay such expenses.
If
we are unable to complete an initial business combination, the per-share redemption price would be $10.00, without taking into
account interest, if any, earned on the trust account. The per share redemption price includes the deferred commissions that would
also be distributable to our public stockholders. The proceeds deposited in the trust account could, however, become subject to
claims of our creditors that are in preference to the claims of public stockholders.
Our
public stockholders shall be entitled to receive funds from the trust account only in the event of our failure to complete a business
combination within the required time period or if the stockholders seek to have us convert or purchase their respective shares
upon a business combination which is actually completed by us. In no other circumstances shall a stockholder have any right or
interest of any kind to or in the trust account.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds
held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject
to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete
the trust account, we cannot assure you we will be able to return to our public stockholders at least $10.00 per share.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions
received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential
transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received
by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders
promptly after twenty-four months from the date of our Offering, this may be viewed or interpreted as giving preference to our
public stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our
board may be viewed as having breached their fiduciary duties to our creditors and/or may have acted in bad faith, and thereby
exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing
the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Competition
In
identifying, evaluating and selecting a target business, we may encounter intense competition from other entities having a business
objective similar to ours. Many of these entities are well established and have extensive experience identifying and effecting
business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources
than us and our financial resources will be relatively limited when contrasted with those of many of these competitors. While
we believe there may be numerous potential target businesses that we could acquire with the net proceeds of our Offering, our
ability to compete in acquiring certain sizable target businesses may be limited by our available financial resources.
The
following also may not be viewed favorably by certain target businesses:
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our
obligation to seek stockholder approval of a business combination may delay the completion of a transaction;
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our
obligation to convert shares of common stock held by our public stockholders may reduce the resources available to us for
a business combination; and
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our
outstanding warrants, and the potential future dilution they represent.
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Any
of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. Our management
believes, however, that our status as a public entity and potential access to the United States public equity markets may give
us a competitive advantage over privately-held entities having a similar business objective as ours in acquiring a target business
with significant growth potential on favorable terms.
If
we succeed in effecting a business combination, there will be, in all likelihood, intense competition from competitors of the
target business. We cannot assure you that, subsequent to a business combination, we will have the resources or ability to compete
effectively.
Employees
We
have two executive officers. These individuals are not obligated to devote any specific number of hours to our matters and devote
only as much time as they deem necessary to our affairs. The amount of time they devote in any time period varies based on whether
a target business has been selected for the business combination and the stage of the business combination process the company
is in. Accordingly, once management locates a suitable target business to acquire, they will spend more time investigating such
target business and negotiating and processing the business combination (and consequently spend more time to our affairs) than
they would prior to locating a suitable target business. We do not have any full time employees as of the date of this Form 10-K
and we do not plan to have any full time employees prior to the consummation of a business combination.
An
investment in our securities involves a high degree of risk. You should consider carefully the material risks described below,
which we believe represent the material risks related to our business and our securities, together with the other information
contained in this Form 10-K, before making a decision to invest in our securities. This Form 10-K also contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking
statements as a result of specific factors, including the risks described below.
We
are an early stage company with no operating history, and, accordingly, you will not have any basis on which to evaluate our ability
to achieve our business objective.
We
are an early stage company with no operating results to date. Our business objective is to acquire an operating business; however,
until such time as an operating business is acquired you will have no basis of evaluating the value of your investment. We will
not generate any revenues until, at the earliest, after the consummation of a business combination.
If
we are unable to consummate a business combination, our public stockholders may be forced to wait until October 19, 2017 or later
before receiving distributions from the trust account.
We
have until October 19, 2017 to complete an initial business combination. We have no obligation to return funds to investors prior
to such date unless we consummate a business combination prior thereto and only then in cases where investors have sought to tender
or convert their shares. Only after the expiration of this full time period will public stockholders be entitled to distributions
from the trust account if we are unable to complete a business combination. Accordingly, investors’ funds may be unavailable
to them until after such date.
We
may issue shares of capital stock or debt securities to complete a business combination, which would reduce the equity interest
of our stockholders and likely cause a change in control of our ownership.
Our
amended and restated certificate of incorporation authorizes the issuance of up to 120,000,000 shares of common stock, par value
$.0001 per share, and 1,000,000 shares of preferred stock, par value $.0001 per share. Although we have no commitment as of the
date of this Form 10-K, we may issue a substantial number of additional shares of common stock or shares of preferred stock, or
a combination of shares of common stock and shares of preferred stock, to complete a business combination. The issuance of additional
shares of common stock or preferred stock:
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may
significantly reduce the equity interest of our existing investors;
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may
subordinate the rights of holders of shares of common stock if we issue shares of preferred stock with rights senior to those
afforded to our shares of common stock;
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may
cause a change in control if a substantial number of shares of common stock are issued, which may affect, among other things,
our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present
officers and directors; and
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may
adversely affect prevailing market prices for our shares of common stock.
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Similarly,
if we issue debt securities, it could result in:
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default
and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations;
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acceleration
of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
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our
immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and
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our
inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain
such financing while the debt security is outstanding.
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Notwithstanding
the foregoing, if we incur indebtedness, our lenders will not have a claim on the cash in the trust account and such indebtedness
will not decrease the per-share conversion amount in the trust account.
If
the net proceeds of the offering not being held in trust are insufficient to allow us to operate, we may be unable to complete
a business combination.
We
believe that the funds available to us outside of the trust account will be sufficient to allow us to operate at least until October
19, 2017, which is the date by which we have to complete a business combination, assuming that a business combination is not consummated
during that time. However, we cannot assure you that our estimates will be accurate. Accordingly, if we use all of the funds held
outside of the trust account, we may not have sufficient funds available with which to structure, negotiate or close an initial
business combination. In such event, we would need to borrow funds from our sponsors, officers or directors or their affiliates
to operate or may be forced to liquidate. On August 11, 2016, August 12, 2016 and August 15, 2016, our officers and directors
(or their affiliates) loaned us an aggregate of $500,000. On November 9, 2016, we received new commitments (which commitments
replaced and superseded the prior commitments provided to us in May and August 2016) from our officers and directors to provide
additional loans to us of up to $767,000 in the aggregate if needed. On February 7, 2017, our officers and directors (or their
affiliates) loaned us an aggregate of $450,000. The loans, and any future ones that may be made by our officers and directors
(or their affiliates), are, and will be, evidenced by notes and would either be repaid upon the consummation of a business combination
or up to $1,500,000 of the notes may be converted into warrants, at a price of $1.00 per warrant.
If
third parties bring claims against us, the proceeds held in trust could be reduced and the per-share redemption price received
by stockholders may be less than $10.00.
Our
placing of funds in trust may not protect those funds from third party claims against us. Although we will seek to have all vendors
and service providers we engage and prospective target businesses we negotiate with execute agreements with us waiving any right,
title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders,
they may not execute such agreements. Furthermore, even if such entities execute such agreements with us, they may seek recourse
against the trust account. A court may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could
be subject to claims which could take priority over those of our public stockholders. If we are unable to complete a business
combination within the required time periods, our executive officers have agreed that they will be personally liable to ensure
that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities
that are owed money by us for services rendered or contracted for or products sold to us. However, they may not be able to meet
such obligation. Therefore, the per-share distribution from the trust account in such a situation may be less than the $10.00
per share held in the trust account as of December 31, 2016, plus any additional interest, due to such claims.
Additionally,
if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, or if
we otherwise enter compulsory or court supervised liquidation, the proceeds held in the trust account could be subject to applicable
bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the
claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we may not be able to return to our
public stockholders at least the $10.00 per share held in the trust account as of December 31, 2016.
Our
stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.
Our
amended and restated certificate of incorporation provides that we will continue in existence only until October 19, 2017. If
we have not completed a business combination by such date, we will (i) cease all operations except for the purpose of winding
up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public
shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any
interest not previously released to us but net of franchise and income taxes payable (less up to $100,000 of interest to pay dissolution
expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’
rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law,
and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders
and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware
law to provide for claims of creditors and the requirements of other applicable law. We cannot assure you that we will properly
assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for any claims
to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the
third anniversary of the date of distribution. Accordingly, we cannot assure you that third parties will not seek to recover from
our stockholder’s amounts owed to them by us.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions
received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential
transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received
by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders
promptly after expiration of the deadlines set forth above, this may be viewed or interpreted as giving preference to our public
stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our board may
be viewed as having breached their fiduciary duties to our creditors and/or may have acted in bad faith, and thereby exposing
itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing
the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Our
directors may decide not to enforce our executive officers’ indemnification obligations, resulting in a reduction in the
amount of funds in the trust account available for distribution to our public stockholders.
In
the event that the proceeds in the trust account are reduced below $10.00 per public share and our executive officers assert that
they are unable to satisfy their obligations or that they have no indemnification obligations related to a particular claim, our
independent directors would determine whether to take legal action against our executive officers to enforce such indemnification
obligations. While we currently expect that our independent directors would take legal action on our behalf against our executive
officers to enforce such indemnification obligations to us, it is possible that our independent directors in exercising their
business judgment may choose not to do so in any particular instance. If our independent directors choose not to enforce these
indemnification obligations, the amount of funds in the trust account available for distribution to our public stockholders may
be reduced below $10.00 per share.
If
we do not file and maintain a current and effective prospectus relating to the shares of common stock issuable upon exercise of
the warrants, public holders will only be able to exercise such warrants on a “cashless basis.”
If
we do not file and maintain a current and effective prospectus relating to the shares of common stock issuable upon exercise of
the public warrant at the time that holders wish to exercise such warrants, they will only be able to exercise them on a “cashless
basis” pursuant to the exemption provided by Section 3(a)(9) of the Securities Act of 1933. As a result, the number of shares
of common stock that holders will receive upon exercise of the public warrants will be fewer than it would have been had such
holder exercised his warrant for cash. Further, if an exemption from registration is not available, holders would not be able
to exercise on a cashless basis and would only be able to exercise their warrants for cash if a current and effective prospectus
relating to the common stock issuable upon exercise of the warrants is available. Under the terms of the warrant agreement, we
have agreed to use our best efforts to meet these conditions and to maintain a current and effective prospectus relating to the
shares of common stock issuable upon exercise of the warrants until the expiration of the warrants. However, we cannot assure
you that we will be able to do so. If we are unable to do so, the potential “upside” of the holder’s investment
in our company may be reduced or the warrants may expire worthless.
An
investor will only be able to exercise a warrant if the issuance of shares of common stock upon such exercise has been registered
or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.
No
warrants will be exercisable for cash and we will not be obligated to issue shares of common stock unless the shares of common
stock issuable upon such exercise have been registered or qualified or deemed to be exempt under the securities laws of the state
of residence of the holder of the warrants. If the shares of common stock issuable upon exercise of the warrants are not qualified
or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the warrants may be deprived of
any value, the market for the warrants may be limited and they may expire worthless if they cannot be sold.
We
may amend the terms of the warrants in a way that may be adverse to holders with the approval by the holders of a majority of
the then outstanding warrants.
Our
warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant
agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder
to cure any ambiguity or correct any defective provision. The warrant agreement requires the approval by the holders of at least
50% of the then outstanding warrants in order to make any change that adversely affects the interests of the registered holders.
Our sponsors and directors own approximately 34% of the outstanding warrants. Therefore, we would only need approval from holders
of approximately 25% of public warrants to amend the terms of the warrants.
Since
we have not yet selected a particular industry or target business with which to complete a business combination, we are unable
to currently ascertain the merits or risks of the industry or business in which we may ultimately operate.
We
may consummate a business combination with a company in any region or industry we choose. Accordingly, there is no current basis
for you to evaluate the possible merits or risks of the particular industry in which we may ultimately operate or the target business
which we may ultimately acquire. To the extent we complete a business combination with a financially unstable company or an entity
in its development stage, we may be affected by numerous risks inherent in the business operations of those entities. If we complete
a business combination with an entity in an industry characterized by a high level of risk, we may be affected by the currently
unascertainable risks of that industry. Although our management will endeavor to evaluate the risks inherent in a particular industry
or target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors. We also
cannot assure you that an investment in our securities will not ultimately prove to be less favorable than a direct investment,
if an opportunity were available, in a target business.
Our
ability to successfully effect a business combination and to be successful thereafter will be totally dependent upon the efforts
of our key personnel, some of whom may join us following a business combination. While we intend to closely scrutinize any individuals
we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct.
Our
ability to successfully effect a business combination is dependent upon the efforts of our key personnel. We believe that our
success depends on the continued service of our key personnel, at least until we have consummated our initial business combination.
We cannot assure you that any of our key personnel will remain with us for the immediate or foreseeable future. In addition, none
of our officers are required to commit any specified amount of time to our affairs (although we expect them to devote approximately
10 hours per week to our business) and, accordingly, they will have conflicts of interest in allocating management time among
various business activities, including identifying potential business combinations and monitoring the related due diligence. We
do not have employment agreements with, or key-man insurance on the life of, any of our officers. The unexpected loss of the services
of our key personnel could have a detrimental effect on us.
The
role of our key personnel after a business combination, however, cannot presently be ascertained. Although some of our key personnel
may serve in senior management or advisory positions following a business combination, it is likely that most, if not all, of
the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after
a business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals
may be unfamiliar with the requirements of operating a public company which could cause us to have to expend time and resources
helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various regulatory
issues which may adversely affect our operations.
Our
officers and directors may not have significant experience or knowledge regarding the jurisdiction or industry of the target business
we may seek to acquire.
We
may consummate a business combination with a target business in any geographic location or industry we choose. We cannot assure
you that our officers and directors will have enough experience or have sufficient knowledge relating to the jurisdiction of the
target or its industry to make an informed decision regarding a business combination.
Our
key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business
combination. These agreements may provide for them to receive compensation following a business combination and as a result, may
cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our
key personnel will be able to remain with the company after the consummation of a business combination only if they are able to
negotiate employment or consulting agreements or other appropriate arrangements in connection with the business combination. Such
negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals
to receive compensation in the form of cash payments and/or our securities for services they would render to the company after
the consummation of the business combination. The personal and financial interests of such individuals may influence their motivation
in identifying and selecting a target business.
Our
officers and directors will allocate their time to other businesses thereby potentially limiting the amount of time they devote
to our affairs.
Our
officers and directors are not required to commit their full time to our affairs, which could create a conflict of interest when
allocating their time between our operations and their other commitments. We presently expect each of our employees to devote
such amount of time as they reasonably believe is necessary to our business. We do not intend to have any full time employees
prior to the consummation of our initial business combination. All of our officers and directors are engaged in several other
business endeavors and are not obligated to devote any specific number of hours to our affairs. If our officers’ and directors’
other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to
devote time to our affairs and could have a negative impact on our ability to consummate our initial business combination. We
cannot assure you that these conflicts will be resolved in our favor.
Our
officers, directors and their respective affiliates may in the future become affiliated with entities engaged in business activities
similar to those intended to be conducted by us and accordingly, may have conflicts of interest in determining to which entity
a particular business opportunity should be presented.
Our
officers and directors may in the future become affiliated with entities, including other “blank check” companies,
engaged in business activities similar to those intended to be conducted by us. Additionally, our officers and directors may become
aware of business opportunities which may be appropriate for presentation to us and the other entities to which they owe fiduciary
duties. As a result, a potential target business may be presented to another entity prior to its presentation to us and this may
negatively impact our ability to complete a business combination.
In
addition to the foregoing, Leland Investments Inc. provides management services to Kastle Acquisition LLC and its subsidiaries,
which provides building security products and services. The agreement with Kastle Acquisition LLC contains a non-competition clause
that provides that neither Leland Investments Inc., Mr. Ein nor any entity that he controls shall directly and materially compete
with the business of Kastle Acquisition LLC and its subsidiaries. Accordingly, we generally will not be able to acquire a target
business in the same line of business that Kastle Acquisition LLC and its subsidiaries are in.
Our
officers’ and directors’ personal and financial interests may influence their motivation in determining whether a
particular target business is appropriate for a business combination.
All
of our officers and directors own founder shares. Such individuals have waived their right to receive distributions from the trust
account with respect to their founder shares if we are unable to consummate a business combination. Accordingly, the founder shares,
as well as the founders’ warrants, and any warrants purchased by our officers or directors in the aftermarket will be worthless
if we do not consummate a business combination. The personal and financial interests of our directors and officers may influence
their motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our
directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict
of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and
in our stockholders’ best interest.
NASDAQ
may delist our securities from quotation on its exchange which could limit investors’ ability to make transactions in our
securities and subject us to additional trading restrictions.
Our
securities are listed on the NASDAQ Stock Market LLC (“NASDAQ”), a national securities exchange. However, we cannot
assure you that our securities will continue to be listed on NASDAQ in the future prior to an initial business combination. On
January 3, 2017, we received a notice from NASDAQ stating that we failed to hold an annual meeting of stockholders within 12 months
after our fiscal year ended December 31, 2015, as required by NASDAQ Listing Rules 5620(a) and 5810(c)(2)(G). We submitted a plan
to regain compliance pursuant to the procedures set forth in the NASDAQ Listing Rules on February 16, 2017. On March 2, 2017,
NASDAQ approved our plan and indicated that we now have until June 29, 2017 to regain compliance with the aforementioned rules
by holding an annual meeting of shareholders by such date. We intend to hold an annual meeting in connection with any proposed
business combination we submit to stockholders for approval. Failure to hold an annual meeting by such date could result in the
delisting of our securities from NASDAQ. Additionally, in connection with our initial business combination, it is likely that
NASDAQ will require us to file a new initial listing application and meet its initial listing requirements as opposed to its more
lenient continued listing requirements. We cannot assure you that we will be able to meet those initial listing requirements at
that time.
If
NASDAQ delists our securities from trading on its exchange, we could face significant material adverse consequences, including:
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a
limited availability of market quotations for our securities;
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reduced
liquidity with respect to our securities;
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a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;
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a limited amount of news and analyst coverage for our company; and
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a
decreased ability to issue additional securities or obtain additional financing in the future.
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The
National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating
the sale of certain securities, which are referred to as “covered securities.” Because our units, common stock and
warrants are listed on NASDAQ, our securities are covered securities. Although the states are preempted from regulating the sale
of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if
there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular
case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank
check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten
to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer
listed on Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which
we offer our securities.
We
are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our shares of common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act. We will remain an “emerging growth company”
for up to five years. However, if our non-convertible debt issued within a three-year period or revenues exceeds $1 billion, or
the market value of our shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second
fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an
emerging growth company, we are not required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley
Act, we have reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and
we are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of
any golden parachute payments not previously approved. Additionally, as an emerging growth company, we have elected to delay the
adoption of new or revised accounting standards that have different effective dates for public and private companies until those
standards apply to private companies. As such, our financial statements may not be comparable to companies that comply with public
company effective dates. We cannot predict if investors will find our shares of common stock less attractive because we may rely
on these provisions. If some investors find our shares of common stock less attractive as a result, there may be a less active
trading market for our shares and our share price may be more volatile.
We
may only be able to complete one business combination with the proceeds of our Offering, which will cause us to be solely dependent
on a single business which may have a limited number of products or services.
We
may only be able to complete one business combination with the proceeds of our Offering. By consummating a business combination
with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments.
Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses,
unlike other entities which may have the resources to complete several business combinations in different industries or different
areas of a single industry. Accordingly, the prospects for our success may be:
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solely
dependent upon the performance of a single business, or
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dependent
upon the development or market acceptance of a single or limited number of products, processes or services.
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This
lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may
have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination.
Alternatively,
if we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need
for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business
combinations, which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple
business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple
negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent
assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable
to adequately address these risks, it could negatively impact our profitability and results of operations.
The
ability of our stockholders to exercise their conversion rights may not allow us to effectuate the most desirable business combination
or optimize our capital structure.
If
our business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know
how many stockholders may exercise conversion rights we may either need to reserve part of the trust account for possible payment
upon such conversion, or we may need to arrange third party financing to help fund our business transaction. In the event that
the business combination involves the issuance of our shares as consideration, we may be required to issue a higher percentage
of our shares to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity
financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive
business combination available to us.
We
may be unable to consummate a business combination if a target business requires that we have cash in excess of the minimum amount
we are required to have at closing pursuant to our amended and restated certificate of incorporation and public stockholders may
have to remain stockholders of our company and wait until our liquidation to receive a pro rata share of the trust account or
attempt to sell their shares in the open market.
A
potential target may make it a closing condition to our business combination that we have a certain amount of cash in excess of
the $5,000,001 of net tangible assets we are required to have pursuant to our organizational documents available at the time of
closing. If the number of our stockholders electing to exercise their conversion rights has the effect of reducing the amount
of money available to us to consummate a business combination below such minimum amount required by the target business and we
are not able to locate an alternative source of funding, we will not be able to consummate such business combination and we may
not be able to locate another suitable target within the applicable time period, if at all. In that case, public stockholders
may have to remain stockholders of our company and wait until October 19, 2017 in order to be able to receive a pro rata portion
of the trust account, or attempt to sell their shares in the open market prior to such time, in which case they may receive less
than a pro rata share of the trust account for their shares.
In
connection with any vote to approve a business combination, we will offer each public stockholder the option to vote in favor
of a proposed business combination and still seek conversion of his, her or its shares.
In
connection with any vote to approve a business combination, we will offer each public stockholder (but not our sponsors, officers
or directors) the right to have his, her or its shares of common stock converted to cash (subject to the limitations described
in the prospectus for our Offering and in this Form 10-K) regardless of whether such stockholder votes for or against such proposed
business combination. We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001
upon such consummation and a majority of the outstanding shares of common stock voted are voted in favor of the business combination.
Public
stockholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group,”
will be restricted from seeking conversion rights with respect to more than 20% of the public shares.
In
connection with any vote to approve a business combination, we will offer each public stockholder (but not holders of our founders’
shares) the right to have his, her, or its shares of common stock converted into cash. Notwithstanding the foregoing, a public
stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group”
will be restricted from seeking conversion rights with respect to more than 20% of the shares sold in the Offering. Accordingly,
if you purchase more than 20% of the shares sold in the Offering and a proposed business combination is approved, you will not
be able to seek conversion rights with respect to the full amount of your shares and may be forced to hold such additional shares
of common stock or sell them in the open market. We cannot assure you that the value of such additional shares will appreciate
over time following a business combination or that the market price of our shares of common stock will exceed the per-share conversion
price.
We
may require stockholders who wish to convert their shares in connection with a proposed business combination to comply with specific
requirements for conversion that may make it more difficult for them to exercise their conversion rights prior to the deadline
for exercising their rights.
We
may require public stockholders who wish to convert their shares in connection with a proposed business combination to either
tender their certificates to our transfer agent at any time prior to the vote taken at the stockholder meeting relating to such
business combination or to deliver their shares to the transfer agent electronically using the Depository Trust Company’s
DWAC (Deposit/Withdrawal At Custodian) System. In order to obtain a physical stock certificate, a stockholder’s broker and/or
clearing broker, DTC and our transfer agent will need to act to facilitate this request. It is our understanding that stockholders
should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not
have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical
stock certificate. While we have been advised that it takes a short time to deliver shares through the DWAC System, we cannot
assure you of this fact. Accordingly, if it takes longer than we anticipate for stockholders to deliver their shares, stockholders
who wish to convert may be unable to meet the deadline for exercising their conversion rights and thus may be unable to convert
their shares.
If
we require public stockholders who wish to convert their shares to comply with specific requirements for conversion, such converting
stockholders may be unable to sell their securities when they wish to in the event that the proposed business combination is not
approved.
If
we require public stockholders who wish to convert their shares to comply with specific requirements for conversion and such proposed
business combination is not consummated, we will promptly return such certificates to the tendering public stockholders. Accordingly,
investors who attempted to convert their shares in such a circumstance will be unable to sell their securities after the failed
acquisition until we have returned their securities to them. The market price for our shares of common stock may decline during
this time and you may not be able to sell your securities when you wish to, even while other stockholders that did not seek conversion
may be able to sell their securities.
Because
of our structure, other companies may have a competitive advantage and we may not be able to consummate an attractive business
combination.
We
expect to encounter intense competition from entities other than blank check companies having a business objective similar to
ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these
entities are well established and have extensive experience in identifying and effecting business combinations directly or through
affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources
will be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential
target businesses that we could acquire with the net proceeds of our Offering, our ability to compete in acquiring certain sizable
target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage
in pursuing the acquisition of certain target businesses. Furthermore, seeking stockholder approval of a business combination
may delay the consummation of a transaction. Additionally, our outstanding warrants, and the future dilution they potentially
represent, may not be viewed favorably by certain target businesses. Any of the foregoing may place us at a competitive disadvantage
in successfully negotiating a business combination.
We
may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth
of the target business, which could compel us to restructure or abandon a particular business combination.
Although
we believe that the net proceeds of our Offering will be sufficient to allow us to consummate a business combination, because
we have not yet identified any prospective target business, we cannot ascertain the capital requirements for any particular transaction.
If the net proceeds of our Offering prove to be insufficient, either because of the size of the business combination, the depletion
of the available net proceeds in search of a target business, or the obligation to convert into cash a significant number of shares
from dissenting stockholders, we will be required to seek additional financing. Such financing may not be available on acceptable
terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business
combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek
an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing
to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse
effect on the continued development or growth of the target business. None of our officers, directors or stockholders is required
to provide any financing to us in connection with or after a business combination.
Our
sponsors, officers and directors control a substantial interest in us and thus may influence certain actions requiring a stockholder
vote.
Our
sponsors, officers and directors collectively own approximately 20% of our issued and outstanding shares of common stock. In connection
with any vote for a proposed business combination, our sponsors, as well as all of our officers and directors, have agreed to
vote their founder shares as well as any shares of common stock acquired in the aftermarket in favor of such proposed business
combination.
Our
board of directors are and will be 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. It is unlikely that there will be an annual meeting of stockholders to
elect new directors prior to the consummation of a business combination, in which case all of the current directors will continue
in office until at least the consummation of the business combination. Accordingly, you may not be able to exercise your voting
rights under corporate law until October 19, 2017. If there is an annual meeting, as a consequence of our “staggered”
board of directors, only a minority of the board of directors will be considered for election and our sponsors, because of their
ownership position, will have considerable influence regarding the outcome. Accordingly, our sponsors will continue to exert control
at least until the consummation of a business combination.
Our
outstanding warrants may have an adverse effect on the market price of shares of common stock and make it more difficult to effect
a business combination.
We
have issued the warrants to purchase 16,250,000 shares of common stock as part of the units sold in our Offering and the founders’
warrants to purchase 8,250,000 shares of common stock. We may also issue additional warrants to our officers, directors, sponsors
or their affiliates upon conversion of promissory notes issued to such persons or entities for loans made to supplement our working
capital requirements, as described elsewhere in this Form 10-K and the prospectus for the Offering. To the extent we issue shares
of common stock to effect a business combination, the potential for the issuance of a substantial number of additional shares
upon exercise of these warrants could make us a less attractive acquisition vehicle in the eyes of a target business. Such securities,
when exercised, will increase the number of issued and outstanding shares of common stock and reduce the value of the shares issued
to complete the business combination. Accordingly, our warrants may make it more difficult to effectuate a business combination
or increase the cost of acquiring the target business. Additionally, the sale, or even the possibility of sale, of the shares
underlying the warrants could have an adverse effect on the market price for our securities or on our ability to obtain future
financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.
We
may redeem the warrants at a time that is not beneficial to public investors.
We
may call the public warrants for redemption at any time after the redemption criteria described in the prospectus for the Offering
have been satisfied. If we call the public warrants for redemption, public stockholders may be forced to accept a nominal redemption
price or sell or exercise the warrants when they may not wish to do so.
Our
management’s ability to require holders of our warrants to exercise such warrants on a cashless basis will cause holders
to receive fewer shares of common stock upon their exercise of the warrants than they would have received had they been able to
exercise their warrants for cash.
If
we call our public warrants for redemption after the redemption criteria described in the prospectus for the Offering have been
satisfied, our management will have the option to require any holder that wishes to exercise its warrant (including any warrants
held by our initial stockholders or their permitted transferees) to do so on a “cashless basis.” If our management
chooses to require holders to exercise their warrants on a cashless basis, the number of shares of common stock received by a
holder upon exercise will be fewer than it would have been had such holder exercised his warrant for cash. This will have the
effect of reducing the potential “upside” of the holder’s investment in our company.
If
our stockholders exercise their registration rights with respect to their securities, it may have an adverse effect on the market
price of our shares of common stock and the existence of these rights may make it more difficult to effect a business combination.
Our
sponsors, officers and directors are entitled to make a demand that we register the resale of their founder shares at any time
commencing three months prior to the date on which their shares may be released from escrow. Additionally, the purchasers of the
sponsor warrants are entitled to demand that we register the resale of their warrants and any other warrants we issue to them
(and the underlying shares of common stock) at any time after we consummate a business combination. The presence of these additional
shares of common stock trading in the public market may have an adverse effect on the market price of our securities. In addition,
the existence of these rights may make it more difficult to effectuate a business combination or increase the cost of acquiring
the target business, as the stockholders of the target business may be discouraged from entering into a business combination with
us or will request a higher price for their securities because of the potential effect the exercise of such rights may have on
the trading market for our shares of common stock.
If
we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities
may be restricted, which may make it difficult for us to complete a business combination.
A
company that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business
of investing, reinvesting, owning, trading or holding certain types of securities would be deemed an investment company under
the Investment Company Act of 1940, as amended (“Investment Company Act”). Since we will invest the proceeds held
in the trust account, it is possible that we could be deemed an investment company. Notwithstanding the foregoing, we do not believe
that our anticipated principal activities will subject us to the Investment Company Act. To this end, the proceeds held in trust
may be invested by the trustee only in United States treasuries. By restricting the investment of the proceeds to these instruments,
we intend to meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act.
If
we are nevertheless deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions
that may make it more difficult for us to complete a business combination, including:
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restrictions
on the nature of our investments; and
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restrictions
on the issuance of securities.
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In
addition, we may have imposed upon us certain burdensome requirements, including:
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registration
as an investment company;
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adoption
of a specific form of corporate structure; and
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reporting,
record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations.
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Compliance
with these additional regulatory burdens would require additional expense for which we have not allotted.
We
may complete a business combination with a target business that is privately held, which may present certain challenges to us,
including the lack of available information about this company.
We
may complete a business combination with a target business that is privately held. Generally, very little public information exists
about such companies, and we would be required to rely on the ability of our management team to obtain adequate information to
evaluate the potential returns from investing in one of these companies. If we are unable to uncover all material information
about such a target business, we may not make a fully informed investment decision, and we may lose money on our investment.
If
we effect a business combination with a company located outside of the United States, we would be subject to a variety of additional
risks that may negatively impact our business operations and financial results.
We
may effect a business combination with a company located outside of the United States. If we did, we would be subject to any special
considerations or risks associated with companies operating in the target business’ governing jurisdiction, including any
of the following:
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rules
and regulations or currency conversion or corporate withholding taxes on individuals;
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tariffs
and trade barriers;
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regulations
related to customs and import/export matters;
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tax
issues, such as tax law changes and variations in tax laws as compared to the United States;
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currency
fluctuations and exchange controls;
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challenges
in collecting accounts receivable;
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cultural
and language differences;
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employment
regulations.
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crime,
strikes, riots, civil disturbances, terrorist attacks and wars; and
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deterioration
of political relations with the United States.
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We
cannot assure you that we would be able to adequately address these additional risks. If we were unable to do so, our operations
might suffer.
If
we effect a business combination with a company located outside of the United States, the laws applicable to such company will
likely govern all of our material agreements and we may not be able to enforce our legal rights.
If
we effect a business combination with a company located outside of the United States, the laws of the country in which such company
operates will govern almost all of the material agreements relating to its operations. We cannot assure you that the target business
will be able to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system
of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as
in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant
loss of business, business opportunities or capital. Additionally, if we acquire a company located outside of the United States,
it is likely that substantially all of our assets would be located outside of the United States and a majority of our officers
and directors will reside outside of the United States. As a result, it may not be possible for investors in the United States
to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States
courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws.
Compliance
with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and
costs of completing an acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls and may require
us in the future to have such system audited by an independent registered public accounting firm. If we fail to maintain the adequacy
of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation.
Any inability to provide reliable financial reports could harm our business. A target may also not be in compliance with the provisions
of the Sarbanes-Oxley Act regarding the adequacy of internal controls. The development of the internal controls of any such entity
to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.
Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of
adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail
to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our securities.
We
do not intend to pay any dividends until our consummation of a business combination at the earliest.
We
have not paid any cash dividends on our shares of common stock to date and do not intend to pay cash dividends prior to the completion
of an initial business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings,
if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of
any dividends subsequent to a business combination will be within the discretion of our board of directors at such time. It is
the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly,
our board of directors does not anticipate declaring any dividends in the foreseeable future. As a result, any gain you will realize
on our securities will result solely from the appreciation of such securities.
Item 1B.
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Unresolved Staff Comments.
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None.
We
currently maintain our principal executive offices at 509 7
th
Street, N.W., Washington, DC 20004 and maintain other
offices as provided to us by our officers. The cost for this space is included in the $10,000 per-month aggregate fee Venturehouse
Group, LLC and Dryden Capital Management, LLC charge us for office space and administrative services pursuant to a letter agreement
between us and such entities. We believe, based on rents and fees for similar services in the D.C. metropolitan area, that the
fee charged by Venturehouse Group, LLC and Dryden Capital Management, LLC to us is at least as favorable as we could have obtained
from an unaffiliated person. We consider our current office space, combined with the other office space otherwise available to
our executive officers, adequate for our current operations.
Item 3.
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Legal Proceedings.
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None.
Item 4.
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Mine Safety Disclosures.
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Not
Applicable.
PART
III
Item 10.
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Directors, Executive Officers and Corporate Governance.
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Directors
and Executive Officers
Our
current directors and executive officers are as follows:
Name
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Age
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Position
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Mark
D. Ein
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52
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Chairman,
Chief Executive Officer and Director
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L.
Dyson Dryden
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41
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President,
Chief Financial Officer, Treasurer, Secretary and Director
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Richard
C. Donaldson
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57
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Director
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Piyush
Sodha
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58
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Director
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Lawrence
Calcano
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52
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Director
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Mark
D. Ein
has served as our Chairman, Chief Executive Officer and Director since our inception. Mr. Ein is an investor, entrepreneur
and philanthropist, who has created, acquired, invested in and built a series of growth companies across a diverse set of industries
over the course of his 25-year career. From August 2010 to July 2015, Mr. Ein was the Chairman of the Board, Chief Executive Officer,
Treasurer and Secretary of Capitol II, a blank check company formed for substantially similar purposes as our company. Capitol
II completed its business combination with Lindblad Expeditions, Inc. in July 2015. Since the closing of the business combination,
Mr. Ein has continued to serve as the Chairman of the Board of Capitol II (now renamed Lindblad Expeditions Holdings, Inc.). From
June 2007 to October 2009, Mr. Ein was the Chief Executive Officer and Director of Capitol I, a blank check company formed for
substantially similar purposes as our company. Capitol I completed its business combination with Two Harbors Investment Corp.,
a Maryland real estate investment trust, in October 2009. From October 2009 to May 2015, Mr. Ein served as the Non-Executive Vice
Chairman of Two Harbor’s board of directors. Mr. Ein is the Founder of Venturehouse Group, LLC, a holding company that creates,
invests in and builds companies, and has served as its Chief Executive Officer since 1999. Venturehouse’s portfolio includes
or has included the seed investment in Matrics Technologies in August 2000 (sold to Symbol Technologies in September 2004), the
lead investment in the buyout of Cibernet Corporation from the CTIA in March 2003 (sold to MACH S.à.r.l. in April 2007),
the acquisition of VSGi from Net2000 Communications, and an early investment in XM Satellite Radio. He has also been the President
of Leland Investments Inc., a private investment firm, since 2005. Mr. Ein is Co-Chairman of Kastle Holding Company LLC, which
through its subsidiaries conducts the business of Kastle Systems, LLC, a provider of building and office security systems that
was acquired in January 2007. An entity owned by Mr. Ein is also the majority owner and managing member of Kastle Holding Company
LLC. In 2008, Mr. Ein founded and is the owner of the Washington Kastles, the World Team Tennis franchise in Washington, D.C.,
that has won the league championship six times in its nine years in the league. Previously in his career, Mr. Ein worked for The
Carlyle Group, Brentwood Associates, and Goldman, Sachs & Co. Mr. Ein is the Chairman of the Board of VSGi. Mr. Ein is also
the Chairman of the Board of the District of Columbia Public Education Fund and Vice President of the board of directors of the
United States Tennis Association and a member of the boards of The District of Columbia College Access Program (DC-CAP) and the
International Tennis Hall of Fame. He was appointed by Mayor Vincent Gray to be a member of the D.C. Tax Revision Commission and
also serves on the Executive Committee of the Federal City Council. Mr. Ein received a B.S. in Economics with a concentration
in Finance from the University of Pennsylvania’s Wharton School of Finance and an M.B.A. from the Harvard Business School.
We
believe Mr. Ein is well-qualified to serve as a member of the board due to his public company experience, business leadership,
operational experience, and experience in prior blank check offerings, such as Capitol I and Capitol II.
L.
Dyson Dryden
has served as our President, Chief Financial Officer, Treasurer, Secretary and a member of the Board of Directors
since our inception. From March 2013 to July 2015, Mr. Dryden served as the Chief Financial Officer and a Director of Capitol
II. Mr. Dryden has continued to serve as a director of Lindblad Expeditions since the closing of its business combination. Mr.
Dryden is also the founder of Dryden Capital Management, LLC, a private investment firm that invests in and builds private companies,
and has served as its President since March 2013. From August 2005 to February 2013, Mr. Dryden worked in Citigroup’s Investment
Banking division in New York, most recently as a Managing Director where he led the coverage effort for a number of the firm’s
Global Technology, Media and Telecommunications clients. From 2000 to 2005, Mr. Dryden held the titles of Associate and Vice President
at Jefferies & Company, a middle market investment banking firm. From 1998 to 2000, Mr. Dryden worked in the investment banking
group at BB&T Corporation. Mr. Dryden holds a B.S. in Business Administration with a dual concentration in finance and management
from the University of Richmond.
We
believe Mr. Dryden is well-qualified to serve as a member of the board due to his public company experience and experience in
prior blank check offerings, such as Capitol I and Capitol II.
Richard
C. Donaldson
has served as a member of our Board of Directors since September 2015. Mr. Donaldson has been with Pillsbury
Winthrop Shaw Pittman LLP, a global law firm, as an attorney since 1985, where he is a Partner, and has served as Pillsbury’s
Chief Operating Officer since June 2006. As Chief Operating Officer, Mr. Donaldson oversees the finances, capital structure and
operations of Pillsbury, with nearly 650 lawyers, $573 million in 2016 revenues and 20 offices across the United States and overseas.
Mr. Donaldson serves on the Pillsbury Executive Team and served as a member of Pillsbury’s Board of Directors from May 2006
until May 2015. From September 2007 until its merger with Two Harbors in October 2009, Mr. Donaldson served as a member of the
Board of Directors of Capitol I. From March 2013 until its merger with Lindblad Expeditions, Mr. Donaldson also served as a member
of the Board of Directors of Capitol II. Mr. Donaldson also serves on the Board of Directors of Arizona Cardinals Holdings, Inc.
From June 2000 to August 2001, Mr. Donaldson served as Managing Director of Venturehouse Group and he has served as a member of
its Board of Directors since June 2000. He previously served on the Board of Directors of Greater DC Cares and the Board of Directors
of the Woolly Mammoth Theatre Company in Washington, D.C. Mr. Donaldson received a B.A. from Cornell University in 1982 and a
J.D. from The University of Chicago Law School in 1985.
We
believe Mr. Donaldson is well-qualified to serve as a member of the board due to his public company experience, business leadership,
operational experience, and experience in Capitol I and Capitol II.
Piyush
Sodha
has served as a member of our Board of Directors since September 2015. Mr. Sodha has served as the Chief Executive
Officer and Co-Chairman of Kastle Systems, LLC since April 2008. Prior to joining Kastle Systems, Mr. Sodha was Chief Technical
Officer and head of the Americas Region for MACH S.á.r.l., a leading global provider of clearing and settlement services
for the mobile phone industry. He previously served as the Chairman and Chief Executive Officer of Cibernet Corporation which
merged into MACH S.à.r.l. in April 2007. Prior to that, he was a General Manager and Vice President of Symbol Technologies,
Inc., a company which acquired Matrics, Inc. Mr. Sodha had served as the Chairman and Chief Executive Officer of Matrics, Inc.,
which was a leading provider of RFID technology solutions and infrastructure products. From June 2007 until its merger with Two
Harbors in October 2009, Mr. Sodha served as a member of the Board of Directors of Capitol I. From March 2013 until its merger
with Lindblad Expeditions, Mr. Sodha also served as a member of the Board of Directors of Capitol II. Earlier in his career, Mr.
Sodha had served as Chief Executive Officers of WirelessHome, NextLinx Corp and LCC International, a Nasdaq listed provider of
integrated network design, implementation and optimization solutions for wireless voice and data communication networks which
went public under his leadership in 1996. Mr. Sodha is currently a director of Orchestro, a data analytics company serving the
retail industry. Mr. Sodha received a Bachelor of Science in Electrical Engineering from India Institute of Technology in New
Delhi, India, a Master of Science in Electrical Engineering from Drexel University and an M.B.A. from Wharton Business School.
We
believe Mr. Sodha is well-qualified to serve as a member of the board due to his public company experience, business leadership,
operational experience, and experience in Capitol I and Capitol II.
Lawrence
Calcano
has served as a member of our Board of Directors since September 2015. Mr. Calcano is the Chief Executive Officer
of iCapital Network, which he joined in January 2014. Prior to iCapital Network, Mr. Calcano co-founded i1 Biometrics, a privately
held information and technology company developing protection and performance products for the sports and military markets, in
June 2012 and served as the company’s Chief Executive Officer from June 2012 to September 2013. From January 2010 to June
2012, Mr. Calcano served as Chairman and Chief Executive Officer of Bite Tech, Inc., a maker of protective and performance oriented
oral devices for the athletic marketplace. Mr. Calcano served as a member of the Board of Directors of Capitol II from March 2013
until its merger with Lindblad Expeditions; Mr. Calcano also served as a member of the Board of Directors of Capitol I. From 1990
to June 2006, Mr. Calcano was affiliated with Goldman, Sachs & Co., most recently serving as the co-head of the Global Technology
Banking Group of the Investment Banking Division, prior to which he headed the firm’s east coast technology group and was
the co-Chief Operating Officer of the High Technology Department. From 1985 to 1988, Mr. Calcano was an analyst at Morgan Stanley.
Mr. Calcano was named to the Forbes Midas List of the most influential people in venture capital in 2001 (the inaugural year),
2002, 2004, 2005 and 2006. Mr. Calcano received a B.A. from Holy Cross College, and attended the Amos Tuck School of Business
at Dartmouth from 1988 to 1990, and graduated as a Tuck Scholar.
We
believe Mr. Calcano is well-qualified to serve as a member of the board due to his public company experience, business leadership,
operational experience, and experience in Capitol I and Capitol II.
Our
board of directors is divided into three classes with only one class of directors being elected in each year and each class serving
a three-year term. The term of office of the first class of directors, consisting of Piyush Sodha and Lawrence Calcano, will expire
at our first annual meeting of stockholders. The term of office of the second class of directors, consisting of L. Dyson Dryden
and Richard C. Donaldson, will expire at the second annual meeting. The term of office of the third class of directors, consisting
of Mark D. Ein, will expire at the third annual meeting.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our officers, directors and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and ten percent shareholders are required by regulation to furnish us with copies of all Section 16(a) reports
they file. Based solely on a review of such reports received by us and written representations from certain reporting persons
that no Form 5s were required for those persons, we believe that, during the fiscal year ended December 31, 2016, all reports
required to be filed by our officers, directors and persons who own more than ten percent of a registered class of our equity
securities were filed on a timely basis.
Code
of Ethics
In
October 2015, we adopted a code of ethics that applies to all of our executive officers, directors and employees. The code of
ethics codifies the business and ethical principles that govern all aspects of our business. We will provide, without charge,
upon request, copies of our code of ethics. Requests for copies of our code of ethics should be sent in writing to Capitol Acquisition
Corp. III, 509 7th Street, N.W., Washington, D.C. 20004.
Corporate
Governance
Audit
Committee
Our
audit committee consists of Messrs. Calcano, Donaldson and Sodha, each of whom is an independent director. The audit committee’s
duties, which are specified in our Audit Committee Charter, include, but are not limited to:
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reviewing
and discussing with management and the independent auditor the annual audited financial statements, and recommending to the
board whether the audited financial statements should be included in our Form 10-K;
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discussing
with management and the independent auditor significant financial reporting issues and judgments made in connection with the
preparation of our financial statements;
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discussing
with management major risk assessment and risk management policies;
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monitoring
the independence of the independent auditor;
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verifying
the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner
responsible for reviewing the audit as required by law;
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reviewing
and approving all related-party transactions;
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inquiring
and discussing with management our compliance with applicable laws and regulations;
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pre-approving
all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms
of the services to be performed;
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appointing
or replacing the independent auditor;
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determining
the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management
and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related
work;
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establishing
procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting
controls or reports which raise material issues regarding our financial statements or accounting policies; and
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approving
reimbursement of expenses incurred by our management team in identifying potential target businesses.
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Financial
Experts on Audit Committee
The
audit committee is composed exclusively of “independent directors” who are “financially literate” as defined
under the NASDAQ Stock Market LLC listing standards. The NASDAQ Stock Market LLC listing standards define “financially literate”
as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement
and cash flow statement.
In
addition, we must certify to the NASDAQ Stock Market LLC that the committee has, and will continue to have, at least one member
who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable
experience or background that results in the individual’s financial sophistication. The board of directors has determined
that each of Mr. Calcano and Mr. Sodha qualifies as an “audit committee financial expert,” as defined under rules
and regulations of the SEC.
Nominating
Committee
Our
nominating committee consists of Messrs. Calcano, Donaldson and Sodha, each of whom is an independent director. The nominating
committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The nominating
committee considers persons identified by its members, management, shareholders, investment bankers and others.
Guidelines
for Selecting Director Nominees
The
guidelines for selecting nominees, which are specified in the Nominating Committee Charter, generally provide that persons to
be nominated:
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should
have demonstrated notable or significant achievements in business, education or public service;
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should
possess the requisite intelligence, education and experience to make a significant contribution to the board of directors
and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and
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should
have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of the
shareholders.
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The
Nominating Committee will consider a number of qualifications relating to management and leadership experience, background and
integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The nominating
committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that
arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse
mix of board members. The nominating committee does not distinguish among nominees recommended by shareholders and other persons.
There
have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
Compensation
Committee
Out
Compensation Committee consists of Messrs. Donaldson, Calcano and Sodha, each of whom is an independent director under Nasdaq’s
listing standards. The compensation committee’s duties, which are specified in our Compensation Committee Charter, include,
but are not limited to:
•
reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s
compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining
and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation;
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reviewing and approving the compensation of all of our
other executive officers;
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reviewing our executive compensation policies and plans;
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implementing and administering our incentive compensation
equity-based remuneration plans;
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assisting management in complying with our proxy statement
and annual report disclosure requirements;
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approving all special perquisites, special cash payments
and other special compensation and benefit arrangements for our executive officers and employees;
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if required, producing a report on executive compensation
to be included in our annual proxy statement; and
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reviewing, evaluating and recommending changes, if appropriate,
to the remuneration for directors.
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Item 11.
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Executive Compensation.
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To
date, no executive officer or director has received any cash compensation for services rendered to us. Commencing on October 13,
2015 through the consummation of a business combination, we will pay Venturehouse Group, LLC, an affiliate of Mark D. Ein, and
Dryden Capital Management, LLC, an affiliate of L. Dyson Dryden, an aggregate fee of $10,000 per month for providing us with office
space and certain office and secretarial services. However, this arrangement is solely for our benefit and is not intended to
provide Messrs. Ein or Dryden compensation in lieu of a salary. Other than the $10,000 per month office space and administrative
fee, no compensation of any kind, including finders, consulting or other similar fees, will be paid to any of our sponsors, officers
and directors, or any of their respective affiliates, prior to, or for any services they render in order to effectuate, the consummation
of a business combination. However, such individuals will be reimbursed for any out-of-pocket expenses incurred in connection
with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business
combinations. There is no limit on the amount of these out-of-pocket expenses.
After
our initial business combination, members of our management team who remain with us may be paid consulting, management or other
fees from the combined company with any and all amounts being fully disclosed to shareholders, to the extent then known, in the
proxy solicitation materials furnished to our shareholders. It is unlikely the amount of such compensation will be known at the
time of a stockholder meeting held to consider our initial business combination, as it will be up to the directors of the post-combination
business to determine executive and director compensation. In this event, such compensation will be publicly disclosed at the
time of its determination in a Current Report on Form 8-K, as required by the SEC.
Since
our formation, we have not granted any stock options or stock appreciation rights or any other awards under long-term incentive
plans to any of our executive officers or directors.
Item 12.
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Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
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The
following table sets forth information regarding the beneficial ownership of our ordinary shares as of March 7, 2017 by:
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each
person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
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each
of our officers and directors; and
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all
of our officers and directors as a group.
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Unless
otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all
shares of common stock beneficially owned by them.
Name and Address of Beneficial Owner (1)
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Amount and
Nature of
Beneficial
Ownership
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Approximate Percentage of Outstanding Shares of Common Stock
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Mark D. Ein
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5,936,250
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(2)
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14.6
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%
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L. Dyson Dryden
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1,978,750
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(3)
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4.9
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%
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Richard C. Donaldson
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50,000
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(4)
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*
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Lawrence Calcano
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50,000
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(4)
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*
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Piyush Sodha
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50,000
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(4)
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*
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Capitol Acquisition Management 3 LLC
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5,936,250
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(5)
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14.6
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%
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Capitol Acquisition Founder 3 LLC
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1,978,750
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(6)
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4.9
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%
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Davidson Kempner Partners
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2,970,000
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(7)
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7.3
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%
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TD Asset Management Inc.
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2,946,600
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(8)
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7.3
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%
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BlueMountain Capital Management, LLC
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2,750,000
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(9)
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6.8
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%
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All directors and executive officers as a group (five individuals)
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8,065,000
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19.9
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%
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*
Less than 1%
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(1)
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Unless
otherwise indicated, the business address of each of the individuals is 509 7th Street, N.W., Washington, D.C. 20004.
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(2)
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Represents
shares held by Capitol Acquisition Management 3 LLC, of which Leland Investments Inc., an entity controlled by Mr. Ein, is
the sole member. Does not include an aggregate of 45,000 shares held by two individuals that it may receive in the event such
shares do not vest in accordance with restricted stock agreements between such individuals and Capitol Acquisition Management
3 LLC.
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(3)
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Represents
shares held by Capitol Acquisition Founder 3 LLC, an entity controlled by Mr. Dryden. Does not include an aggregate of 15,000
shares held by two individuals that it may receive in the event such shares do not vest in accordance with restricted stock
agreements between such individuals and Capitol Acquisition Founder 3 LLC.
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(4)
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Does
not include 200,000 shares issuable upon exercise of founders’ warrants that are not exercisable.
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(5)
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Does
not include 5,737,500 shares issuable upon exercise of founders’ warrants held by Capitol Acquisition Management 3 LLC
that are not exercisable.
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(6)
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Does
not include 1,912,500 shares issuable upon exercise of founders’ warrants held by Capitol Acquisition Founder 3 LLC
that are not exercisable.
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(7)
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The business address of Davidson Kempner Partners
is c/o Davidson Kempner Capital Management LP, 520 Madison Avenue, 30th Floor, New York, New York 10022. Messrs. Thomas L. Kempner,
Jr. and Robert J. Brivio, Jr. through Davidson Kempner Capital Management LP, are responsible for the voting and investment decisions
relating to the securities held by Davidson Kempner Partners, Davidson Kempner Institutional Partners, L.P. and Davidson Kempner
International, Ltd. Information derived from a Schedule 13G filed on October 26, 2015.
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(8)
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The business address of TD Asset Management Inc. is Canada Trust Tower, BCE Place, 161 Bay Street, 35th Floor, Toronto, Ontario, M5J 2T2. Excludes 1,600 shares held by TDAM USA Inc. Information derived from a Schedule 13G filed on February 10, 2017.
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(9)
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The business address of BlueMountain Capital Management, LLC is 280 Park Avenue, 12th Floor, New York, New York 10017. Information derived from a Schedule 13G/A filed on February 13, 2017.
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Our
initial shareholders beneficially own approximately 20% of our issued and outstanding shares of common stock. Because of the ownership
block held by our initial stockholders, such individuals may be able to effectively exercise influence over all matters requiring
approval by our shareholders, including the election of directors and approval of significant corporate transactions other than
approval of our initial business combination.
All
of the founder shares outstanding prior to the date of our Offering were placed in escrow with Continental Stock Transfer &
Trust Company, as escrow agent, to be held until one year after the date of the consummation of our initial business combination
or earlier if, subsequent to our business combination, (i) the last sales price of our common stock equals or exceeds $12.00 per
share for any 20 trading days within any 30-trading day period commencing 150 days after our initial business combination or (ii)
we consummate a subsequent liquidation, merger, share exchange or other similar transaction which results in all of our shareholders
having the right to exchange their ordinary shares for cash, securities or other property.
During
the escrow period, the holders of these shares will not be able to sell or transfer their securities except for transfers, assignments
or sales (i) to our officers, directors, consultants or their affiliates, (ii) to an entity’s members upon its liquidation,
(iii) to relatives and trusts for estate planning purposes, (iv) by virtue of the laws of descent and distribution upon death,
(v) pursuant to a qualified domestic relations order, (vi) to us for no value for cancellation in connection with the consummation
of our initial business combination, or (vii) at or prior to the consummation of a business combination at prices no greater than
the price at which the shares were originally purchased, in each case (except for clause (vi)) where the transferee agrees to
the terms of the escrow agreement and to be bound by these transfer restrictions, but will retain all other rights as our 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, there will be no liquidation distribution with respect to the founders’
shares.
Our
sponsors, officers and directors purchased an aggregate of 8,250,000 founders’ warrants for an aggregate purchase price
of $8,250,000. The founders’ warrants are identical to the warrants held by the public shareholders except that the founders’
warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are not redeemable by us, in each
case so long as such warrants are held by the initial purchasers or their affiliates. The purchases agreed not to not sell or
transfer the founders’ warrants (except to certain permitted transferees) until 30 days after we have completed a business
combination.
If
necessary, in order to meet our working capital needs, our sponsors, officers and directors may loan us funds, from time to time
or at any time, in whatever amount they deem reasonable in their sole discretion. On August 11, 2016, August 12, 2016 and August
15, 2016, our officers and directors (or their affiliates) loaned us an aggregate of $500,000. On November 9, 2016, we received
new commitments (which commitments replaced and superseded the prior commitments provided to us in May and August 2016) from our
officers and directors to provide additional loans to us of up to $767,000 in the aggregate when and if needed. On February 7,
2017, our officer and directors (or their affiliates) loaned us an aggregate of $450,000. These loans, and any future ones that
may be made by our officers and directors (or their affiliates), are, and will be, evidenced by notes and would either be repaid
upon the consummation of a business combination or up to $1,500,000 of the notes may be converted into warrants. The warrants
would be identical to the founders’ warrants. If we do not complete a business combination, the loans will be forgiven.
Equity
Compensation Plans
As
of December 31, 2016, we had no compensation plans (including individual compensation arrangements) under which equity securities
of the registrant were authorized for issuance.
Item 13.
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Certain Relationships and Related Transactions, and
Director Independence.
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In
July 2015, we issued 10,062,500 shares of common stock to Capitol Acquisition Management 3 LLC and Capitol Acquisition Founder
3 LLC for $25,000 in cash, at a purchase price of approximately $0.002 per share, in connection with our organization. Capitol
Acquisition Management 3 LLC and Capitol Acquisition Founder 3 LLC subsequently transferred a portion of these shares to certain
individuals, including our independent directors, for the same purchase price originally paid for such shares. In October 2015,
our sponsors then contributed back to our capital, for no additional consideration, an aggregate of 1,437,500 shares. In connection
with the closing of the Offering, an additional 500,000 shares were contributed back to our capital for no additional consideration.
Our
sponsors, officers and directors purchased an aggregate of 8,250,000 founders’ warrants (for a total purchase price of $8,250,000)
from us on a private placement basis simultaneously with the consummation of our Offering. The founders’ warrants are identical
to the warrants included in the units sold in the offering except that the founders’ warrants: (i) are not redeemable by
us and (ii) may be exercised for cash or on a cashless basis, as described in the prospectus for the Offering, so long as they
are held by the initial purchasers or any of their permitted transferees. If the founders’ warrants are held by holders
other than the initial purchasers or any of their permitted transferees, the founders’ warrants will be redeemable by us
and exercisable by the holders on the same basis as the warrants included in the units being sold in the Offering. The initial
purchasers of the founders’ warrants have agreed not to transfer, assign or sell any of the founders’ warrants, including
the common stock issuable upon exercise of the founders’ warrants (except to certain permitted transferees), until 30 days
after the completion of our initial business combination.
In
order to meet our working capital needs, our sponsors, officers and directors may loan us funds, from time to time or at any time,
in whatever amount they deem reasonable in their sole discretion. On August 11, 2016, August 12, 2016 and August 15, 2016, our
officers and directors (or their affiliates) loaned us an aggregate of $500,000. On November 9, 2016, we received new commitments
(which commitments replaced and superseded the prior commitments provided to us in May and August 2016) from our officers and
directors to provide additional loans to us of up to $767,000 in the aggregate when and if needed. On February 7, 2017, our officers
and director (or their affiliates) loaned us an aggregate of $450,000. These loans, and any future ones that may be made by our
officers and directors (or their affiliates), are, and will be, evidenced by notes and would either be repaid upon the consummation
of a business combination or up to $1,500,000 of the notes may be converted into warrants. The warrants would be identical to
the founders’ warrants. If we do not complete a business combination, the loans will be forgiven.
The
holders of our founder’s shares, as well as the holders of the founders’ warrants and any warrants our sponsors, officers,
directors or their affiliates may be issued in payment of working capital loans made to us (and all underlying securities), are
entitled to registration rights pursuant to an agreement signed on the effective date of the Offering. The holders of a majority
of these securities are entitled to make up to two demands that we register such securities. The holders of the majority of the
founder’s shares can elect to exercise these registration rights at any time commencing three months prior to the date on
which these shares of common stock are to be released from escrow. The holders of a majority of the founders’ warrants or
warrants issued in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration
rights at any time after we consummate a business combination. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to our consummation of a business combination. We
will bear the expenses incurred in connection with the filing of any such registration statements.
Leland
Investments Inc., an affiliate of Mr. Ein, advanced to us an aggregate of $200,000 to cover expenses related to the Offering.
The loan was payable without interest on the consummation of the offering. The loan was repaid from the proceeds of the Offering.
Venturehouse
Group, LLC, an affiliate of Mark D. Ein, and Dryden Capital Management, LLC, an affiliate of L. Dyson Dryden, have agreed that,
commencing on October 13, 2015 through the earlier of our consummation of our initial business combination or our liquidation,
it will make available to us certain general and administrative services, including office space, utilities and administrative
support, as we may require from time to time. We have agreed to pay these entities an aggregate of $10,000 per month for these
services. Mr. Ein is the Chief Executive Officer of Venturehouse Group, LLC and Mr. Dryden is the sole member of Dryden Capital
Management, LLC. Accordingly, they will benefit from the transaction to the extent of their interest in Venturehouse Group, LLC
and Dryden Capital Management, LLC, respectively. However, this arrangement is solely for our benefit and is not intended to provide
Messrs. Ein or Dryden compensation in lieu of a salary. We believe, based on rents and fees for similar services in the D.C. metropolitan
area, that the fee charged by these entities are at least as favorable as we could have obtained from an unaffiliated person.
Other than this $10,000 per month fee, the repayment of the $200,000 loan from Leland Investments Inc. and the payment of consulting
or success fees (none of which payments will be made from the proceeds of the Offering held in the trust account prior to the
completion of our initial business combination), no compensation or fees of any kind, including finder’s fees, consulting
fees or other similar compensation, will be paid to any of our sponsors, officers, directors or their respective affiliates, for
services rendered to us prior to, or in connection with the consummation of our initial business combination (regardless of the
type of transaction that it is). However, such individuals will receive reimbursement for any out-of-pocket expenses incurred
by them in connection with activities on our behalf, such as identifying potential target businesses, performing business due
diligence on suitable target businesses and business combinations as well as traveling to and from the offices, plants or similar
locations of prospective target businesses to examine their operations. There is no limit on the amount of out-of-pocket expenses
reimbursable by us.
After
our initial business combination, members of our management team who remain with us may be paid consulting, management or other
fees from the combined company with any and all amounts being fully disclosed to stockholders, to the extent then known, in the
proxy solicitation materials furnished to our stockholders. It is unlikely the amount of such compensation will be known at the
time of a stockholder meeting held to consider an initial business combination, as it will be up to the directors of the post-combination
business to determine executive and director compensation. In this event, such compensation will be publicly disclosed at the
time of its determination in a Current Report on Form 8-K, as required by the SEC.
All
ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms
believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions will require
prior approval by a majority of our uninterested “independent” directors or the members of our board who do not have
an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel.
We will not enter into any such transaction unless our disinterested “independent” directors determine that the terms
of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from
unaffiliated third parties.
Related
Party Policy
In
October 2015, we adopted a Code of Ethics, which requires us to avoid, wherever possible, all related party transactions that
could result in actual or potential conflicts of interests, except under guidelines approved by the board of directors (or the
audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may
be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive
officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our ordinary shares, or (c) immediate
family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other
than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation
can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively.
Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result
of his or her position.
We
will also require each of our directors and executive officers to annually complete a directors’ and officers’ questionnaire
that elicits information about related party transactions. All ongoing and future transactions between us and any of our officers
and directors or their respective affiliates will be on terms believed by us to be no less favorable to us than are available
from unaffiliated third parties. Such transactions will require prior approval by a majority of our uninterested “independent”
directors (to the extent we have any) or the members of our board who do not have an interest in the transaction, in either case
who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless
our disinterested “independent” directors (or, if there are no “independent” directors, our disinterested
directors) determine that the terms of such transaction are no less favorable to us than those that would be available to us with
respect to such a transaction from unaffiliated third parties.
These
procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents
a conflict of interest on the part of a director, employee or officer.
To
further minimize potential conflicts of interest, we have agreed not to consummate a business combination with an entity which
is affiliated with any of our initial shareholders unless we obtain an opinion from an independent investment banking firm that
the business combination is fair to our unaffiliated shareholders from a financial point of view. We currently do not anticipate
entering into a business combination with an entity affiliated with any of our initial shareholders. We do not intend to pursue
a business combination with any company that is a portfolio company of, or otherwise affiliated with, or has received financial
investment from, an entity with which our existing shareholders, executive officers or directors are affiliated. However, if circumstances
change and we decide to acquire such an entity, we are required to obtain an opinion from an independent investment banking firm
that is a member of FINRA that the business combination is fair to our unaffiliated shareholders from a financial point of view.
Furthermore, in no event will any of our sponsors, existing officers, directors or any entity with which they are affiliated,
be paid any finder’s fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate,
the consummation of a business combination, other than the $10,000 office space and administrative services fee, consulting or
success fees in connection with consummating a business combination (none of which payments will be made from the proceeds of
the Offering held in the trust account prior to the completion of our initial business combination) and reimbursement of any out-of-pocket
expenses.
Director
Independence
Currently,
Messrs. Calcano, Donaldson and Sodha would each be considered an “independent director” under the listing rules of
the NASDAQ Stock Market LLC, which is defined generally as a person other than an officer or employee of the company or its subsidiaries
or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere
with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our independent
directors will have regularly scheduled meetings at which only independent directors are present.
Any
affiliated transactions will be on terms no less favorable to us than could be obtained from independent parties. Any affiliated
transactions must be approved by a majority of our independent and disinterested directors.
Item 14.
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Principal Accounting Fees and Services.
|
The
firm of Marcum LLP acts as our independent registered public accounting firm. The following is a summary of fees paid to Marcum
LLP for services rendered.
Audit
Fees
During
the fiscal years ended December 31, 2015 and 2016, audit fees for our independent registered public accounting firm were $73,648
and $58,195, respectively.
Audit-Related
Fees
During
the fiscal years ended December 31, 2015 and 2016, audit-related fees for our independent registered public accounting firm were
$0 and $0, respectively.
Tax
Fees
During the fiscal years
ended December 31, 2015 and 2016, fees for tax services were $0 and $0, respectively.
All
Other Fees
During
the fiscal years ended December 31, 2015 and 2016, fees for other services were $0 and $0
,
respectively.
Audit
Committee Approval
Since
our audit committee was not formed until October 2015, the audit committee did not pre-approve any of the foregoing services prior
to such date, although any services rendered prior to the formation of our audit committee were reviewed and ratified by our board
of directors. Our audit committee pre-approved all the foregoing services subsequent to such date. In accordance with Section
10A(i) of the Securities Exchange Act of 1934, before we engage our independent accountant to render audit or non-audit services
on a going-forward basis, the engagement will be approved by our audit committee.
Upon the closing of the Offering, $325,000,000
($10.00 per Unit sold in the Offering), including the proceeds of the private placement of the Founders’ Warrants was placed
in a trust account (“Trust Account”) and may be invested in U.S. “government securities” within the meaning
of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity
of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company
Act until the earlier of (i) the consummation of the Company’s first Business Combination and (ii) the Company’s failure
to consummate a Business Combination within the prescribed time. Placing funds in the Trust Account may not protect those funds
from third party claims against the Company. Although the Company will seek to have all vendors, service providers, prospective
target businesses or other entities it engages, execute agreements with the Company waiving any claim of any kind in or to any
monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. The Company’s executive
officers have agreed that they will be liable under certain circumstances to ensure that the proceeds in the Trust Account are
not reduced by the claims of target businesses or vendors or other entities that are owed money by the Company for services rendered,
contracted for or products sold to the Company. However, there can be no assurance that they will be able to satisfy those obligations
should they arise.
The Company has experienced recurring
net operating losses as well as negative cash flows from operations. The Company’s main source of liquidity was from the
Offering and the Private Placement proceeds, from which amounts have been used to fund the search for a prospective target business.
On August 11, 2016, August 12, 2016 and August 15, 2016, the Company’s officers and directors (or their affiliates) loaned
the Company an aggregate of $500,000. The Company currently has a cash position of approximately $96,000. The Company also received
new commitments (which commitments replaced and superseded certain prior commitments) from its Chief Executive Officer, Mark D.
Ein, its President and Chief Financial Officer, L. Dyson Dryden, and its independent board members, Lawrence Calcano, Richard C.
Donaldson and Piyush Sodha, to provide additional loans to the Company of up to $767,000 in the aggregate. On February 7, 2017,
our officers and directors (or their affiliates) loaned us an aggregate of $450,000. The August 2016 loans and the February 2017
loans, as well as any future ones that may be made by the Company’s officers and directors (or their affiliates), are, and
will be, evidenced by notes and would either be repaid upon the consummation of a Business Combination or up to $1,500,000 of the
notes may be converted into warrants. Based on the foregoing, the Company believes it has sufficient cash to meet its needs for
the next twelve months.
The Initial Stockholders and the holders of the Founders’
Warrants (or underlying shares of common stock) will be entitled to registration rights with respect to their initial shares and
the Founders’ Warrants (or underlying shares of common stock) pursuant to an agreement signed on the effective date of the
Offering. The holders of the majority of the initial shares are entitled to demand that the Company register these shares at any
time commencing three months prior to the first anniversary of the consummation of a Business Combination. The holders of the Founders’
Warrants (or underlying shares of common stock) are entitled to demand that the Company register these securities at any time after
the Company consummates a Business Combination. In addition, the Initial Stockholders and holders of the Founders’ Warrants
(or underlying shares of common stock) have certain “piggy-back” registration rights on registration statements filed
after the Company’s consummation of a Business Combination.
On October 13, 2015, the Company entered into an agreement
with the underwriters of the Offering (“Underwriting Agreement”). Pursuant to the Underwriting Agreement, the Company
paid an underwriting discount of 2.0% of the gross proceeds of the Offering as an underwriting discount. The Company also agreed
to pay the underwriters in the Offering a deferred underwriting discount of 3.5% of the gross proceeds of the Offering (“Deferred
Commissions”) which was placed in the Trust Account and is only payable upon completion of a Business Combination.
The Company entered into three consulting arrangements
for services to help identify and introduce the Company to potential targets and provide assistance with due diligence, deal structuring,
documentation and obtaining stockholder approval for a business combination. These agreements provide for an aggregate annual fee
of $550,000 and success fee of $1,125,000 upon the consummation of a business combination.
Deferred income tax assets of $260,000 (2016) and $40,000 (2015) are primarily comprised of net operating
loss carryforwards. The deferred tax benefits recorded in each year of $220,000 (2016) and $40,000 (2015) were offset by corresponding
equal amounts of changes in the valuation allowance.