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As confidentially submitted to the Securities and Exchange Commission on August 27, 2018.

This draft registration statement has not been publicly filed with the Securities and Exchange Commission

and all information herein remains strictly confidential.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Caliburn International Corporation

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   8741   83-1604096
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer Identification No.)

10701 Parkridge Boulevard, Suite 200

Reston, Virginia 20191

(703) 261-0320

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Thomas J. Campbell

Chairman

Caliburn International Corporation

10701 Parkridge Boulevard, Suite 200

Reston, Virginia 20191

(703) 261-0320

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

 

Kenneth Suh
Colin J. Diamond
F. Holt Goddard
White & Case LLP
1221 Avenue of the Americas
New York, NY 10020
Telephone: (212) 819-8200
Facsimile: (212) 354-8113
  Michael J. Zeidel
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, NY 10036
Telephone: (212) 735-3000
Facsimile: (212) 735-2000

 

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement is declared effective.

 

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

TITLE OF EACH CLASS OF
SECURITIES TO BE REGISTERED
  PROPOSED
MAXIMUM
AGGREGATE
OFFERING PRICE (1)(2)
  AMOUNT OF
REGISTRATION FEE

Class A common stock, par value $0.01 per share

  $                   $                

 

 

(1)    Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2)    Includes shares of Class A common stock subject to the underwriters’ option to purchase additional shares of Class A common stock, if any.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED    , 2018

PRELIMINARY PROSPECTUS

                Shares

 

LOGO

Caliburn International Corporation

Class A Common Stock

We are offering                shares of our Class A common stock. This is our initial public offering and no public market currently exists for our Class A common stock. We expect the initial public offering price to be between $                and $                per share. We will apply to list our Class A common stock on the New York Stock Exchange, under the symbol “CBRN.”

We will use the net proceeds that we receive from this offering to (i) purchase from Caliburn Holdings LLC, which we refer to as “Holdings,” newly-issued common membership interests of Holdings, which we refer to as the “LLC Interests” and (ii) purchase LLC Interests from certain holders of existing membership interests in Holdings, whom we refer to as “Original Caliburn Holders.” There is no public market for the LLC Interests. The purchase price for the newly-issued LLC Interests will be equal to the public offering price of our Class A common stock less underwriting discounts and commissions. We intend to cause Holdings to use the net proceeds it receives from us in connection with this offering as described in “Use of Proceeds.”

We will have two classes of common stock outstanding after this offering: Class A common stock and Class B common stock. Each share of Class A common stock and Class B common stock entitles its holder to one vote on all matters presented to our stockholders generally. All of our Class B common stock will be held by those Original Caliburn Holders that will continue to own LLC Interests, whom we refer to as “Legacy Holders,” on a one-to-one basis with the number of LLC Interests they own. Each LLC Interest is exchangeable (with automatic cancellation of an equal number of shares of Class B common stock) for one share of Class A common stock or cash (based on the market price of the shares of Class A common stock), at our option (such determination to be made by the disinterested members of our Board of Directors). Holders of our Class B common stock do not have any right to receive dividends or any distributions upon our liquidation or winding up.

Immediately following this offering, the holders of our Class A common stock issued in this offering collectively will hold    % of our economic interests and    % of our voting power and the Legacy Holders, through their ownership of all of the outstanding Class B common stock, collectively will hold no economic interest in us and the remaining    % of the voting power in us. We will be a holding company, and upon consummation of this offering and the application of proceeds therefrom, our principal asset will be the LLC Interests we purchase from Holdings and certain Original Caliburn Holders, representing an aggregate    % economic interest in Holdings. The remaining    % economic interest in Holdings will be owned by the Legacy Holders through their ownership of LLC Interests.

Although we will have a minority economic interest in Holdings, because we will be the sole managing member of Holdings, we will operate and control all of the business and affairs of Holdings and, through Holdings and its subsidiaries, conduct our business.

Following this offering, we will be a “controlled company” within the meaning of the corporate governance rules of the NYSE. See “Our Organizational Structure” and “Management—Director Independence and Controlled Company Exception.” We are an “emerging growth company” under the federal securities laws and, as such, will be subject to reduced public company reporting requirements. See “Summary—JOBS Act.”

Investing in our Class A common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 26 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     PER SHARE      TOTAL  

Public Offering Price

   $                        $                    

Underwriting Discounts and Commissions (1)

   $        $    

Proceeds to us (before expenses) (2)

   $        $    

 

 

 

(1)

See “Underwriting” for a description of compensation payable to the underwriters.

(2)

We will use the net proceeds from the sale of our Class A common stock to purchase LLC Interests from Holdings and certain Original Caliburn Holders. The purchase price for each LLC Interest surrendered will equal the price per share of our Class A common stock in this offering, less underwriting discounts and commissions.

We have granted the underwriters an option for a period of 30 days to purchase an additional                shares of our Class A common stock. If the underwriters fully exercise the option, the total underwriting discounts and commissions payable by us will be $                , and the total proceeds to us, before expenses, will be $                .

Delivery of the shares of Class A common stock is expected to be made on or about                , 2018.

 

Jefferies   BofA Merrill Lynch   SunTrust Robinson Humphrey

Prospectus dated                , 2018


Table of Contents

TABLE OF CONTENTS

 

 

 

SUMMARY

     1  

RISK FACTORS

     26  

FORWARD-LOOKING STATEMENTS

     55  

OUR ORGANIZATIONAL STRUCTURE

     56  

USE OF PROCEEDS

     60  

DIVIDEND POLICY

     61  

CAPITALIZATION

     62  

DILUTION

     63  

SELECTED HISTORICAL COMBINED FINANCIAL DATA

     65  

UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS

     67  

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

     83  

OUR INDUSTRY

     105  

BUSINESS

     108  

MANAGEMENT

     131  

EXECUTIVE AND DIRECTOR COMPENSATION

     138  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     144  

PRINCIPAL STOCKHOLDERS

     151  

DESCRIPTION OF CAPITAL STOCK

     153  

SHARES ELIGIBLE FOR FUTURE SALE

     159  

MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S.  HOLDERS OF OUR COMMON STOCK

     161  

UNDERWRITING

     165  

LEGAL MATTERS

     173  

EXPERTS

     173  

WHERE YOU CAN FIND MORE INFORMATION

     173  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

 

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our shares of Class A common stock and the distribution of this prospectus outside the United States. See “Underwriting.”

 

(i)


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BASIS OF PRESENTATION

In connection with the closing of this offering, we will effect certain organizational transactions, which we refer to as the “Reorganization.” Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the consummation of the Reorganization, including this offering. See “Our Organizational Structure” for a description of the Reorganization and a diagram depicting our organizational structure after giving effect to the Reorganization.

As used in this prospectus, unless otherwise noted or the context otherwise requires, references to the following terms shall have the following meanings.

 

   

“Blocker Corporation” means Janus Blocker Corporation.

 

   

“Blocker Merger” means the Issuer’s acquisition of Blocker Corporation in the Blocker Merger in the course of which Issuer will issue                  shares of Class A common stock to the Blocker Shareholders as consideration.

 

   

“Blocker Shareholders” means the shareholders of Blocker Corporation.

 

   

“Caliburn,” “the Company,” “we,” “our,” or “us” mean: (i) following the consummation of the Reorganization, Caliburn International Corporation, and, unless otherwise stated, all of its subsidiaries, including Holdings and, unless otherwise stated, all of Holdings’ subsidiaries, and (ii) on or prior to the completion of the Reorganization, Holdings and, unless otherwise stated, all of its subsidiaries.

 

   

“CHS” means Comprehensive Health Services, Inc.

 

   

“Exchange Agreement” means the agreement pursuant to which the Exchange Agreement parties will have the right to exchange their LLC Interests (with automatic cancellation of an equal number of shares of Class B common stock) for shares of our Class A common stock on a one-for-one basis, subject to customary adjustments for stock splits, stock dividends and reclassifications, or for cash (based on the market price of the shares of Class A common stock), at our option (such determination to be made by the disinterested members of our Board of Directors). In the event that there are multiple Exchange Agreements, “Exchange Agreement” refers to all of the Exchange Agreements collectively.

 

   

“Exchange Agreement parties” means the Legacy Holders and any other holders of LLC Interests that may become parties to the Exchange Agreement from time to time.

 

   

“Exchanging Holders” means those Original Caliburn Holders who will receive from us a portion of the net proceeds from this offering in exchange for LLC Interests in connection with the consummation of this offering. See “Certain Relationships and Related Party Transactions—Reorganization Transactions—Purchase of LLC Interests.”

 

   

“Holdings” means Caliburn Holdings LLC and, unless otherwise stated, all of its subsidiaries.

 

   

“Issuer” means Caliburn International Corporation exclusive of its subsidiaries.

 

   

“Janus” means Janus Global Operations LLC.

 

   

“Legacy Holders” means those Original Caliburn Holders, including entities controlled by Thomas J. Campbell, our Chairman, and in which Mr. Campbell and certain of our directors have an economic interest that will continue to own LLC Interests, along with a corresponding number of shares of Class B common stock, after the Reorganization.

 

   

“LLC Interests” means the single class of newly-issued common membership interests of Holdings.

 

   

“New Credit Facilities” means the Term Loan Facility and the Revolving Credit Facility.

 

   

“Original Caliburn Holders” means the owners of Holdings prior to the Reorganization, including Intermediate Janus Holdings LLC, Michael Baker International, LLC, and Gladiator OpCo, LLC. These entities are controlled by Thomas J. Campbell, our Chairman, through his control of entities affiliated with DC Capital Partners, LLC. Mr. Campbell and certain of our directors have an economic interest in certain of the Original Caliburn Holders.

 

   

“Prior Membership Interests” means the prior equity interests of Holdings, consisting of five different classes of limited liability company membership interests: Class A, Class C, Class E, Class G and Class AA.

 

   

“PT&C” means Project Time & Cost LLC.

 

(ii)


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“Reorganization” means the series of transactions pursuant to which, among other things:

 

   

Holdings exchanges all the Prior Membership Interests for LLC Interests;

 

   

the Issuer creates two classes of its common stock, Class A common stock, which carries full voting and economic rights, and Class B common stock, which carries full voting rights but no economic rights;

 

   

the Issuer issues shares of Class B common stock to holders of LLC Interests on a one-to-one basis;

 

   

the Issuer issues shares of Class A common stock in this offering and uses the proceeds therefrom to acquire existing LLC Interests from the Exchanging Holders and newly issued LLC Interests from Holdings;

 

   

the Issuer enters into the Exchange Agreement, the Tax Receivable Agreement and the Registration Rights Agreement; and

 

   

the Issuer acquires Blocker Corporation in the Blocker Merger.

all as described in greater detail in “Our Organizational Structure — The Reorganization.”

 

   

“Sallyport” means Sallyport Logistics and Security LLC.

 

   

“Sponsor” means certain investment funds affiliated with DC Capital Partners, LLC.

 

   

“Tax Receivable Agreement” means the agreement between Caliburn, Holdings and the TRA Parties, pursuant to which Caliburn will agree to pay those parties 85% of certain cash tax savings, if any, in United States federal, state and local taxes that Caliburn realizes or is deemed to realize in connection with the Reorganization, the offering-related transactions and any future exchanges of LLC Interests for our Class A common stock pursuant to the Exchange Agreement.

 

   

“TRA Parties” means the Original Caliburn Holders, the Exchanging Holders, the Legacy Holders, Blocker Corporation, the Blocker Shareholders, and any other parties receiving benefits under the Tax Receivable Agreement.

We will be a holding company and the sole managing member of Holdings, and upon completion of this offering and the application of the proceeds therefrom, our principal asset will be LLC Interests of Holdings. Holdings is the predecessor of the issuer, Caliburn International Corporation, for financial reporting purposes. Caliburn International Corporation will be the audited financial reporting entity following this offering. Accordingly, this prospectus contains the following historical financial statements.

 

   

Caliburn International Corporation. Other than the inception balance sheet, dated as of August 10, 2018, historical financial information of Caliburn International Corporation has not been included in this prospectus as it is a newly incorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this prospectus.

 

   

Holdings. As we will have no other interest in any operations other than those of Holdings and its subsidiaries, the historical combined financial information included in this prospectus is that of Caliburn Holdings LLC and its subsidiaries.

We have derived the unaudited pro forma financial information of Caliburn International Corporation presented in this prospectus by the application of pro forma adjustments to the historical combined financial statements of Holdings and its subsidiaries included elsewhere in this prospectus. These pro forma adjustments give effect to the acquisitions of certain subsidiaries of Holdings, the combination of Sallyport, Janus, CHS and PT&C as a reorganization of entities under common control, our entering into our New Credit Facilities, the transactions as described in “The Reorganization,” this offering and the use of proceeds therefrom, and certain other transactions, as if all such transactions had occurred on January 1, 2017, in the case of the unaudited pro forma combined statement of operations data, and as of June 30, 2018, in the case of the unaudited pro forma combined balance sheet. See “Unaudited Combined Pro Forma Financial Information” for a complete description of the adjustments and assumptions underlying the pro forma financial information included in this prospectus.

 

(iii)


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MARKET AND INDUSTRY DATA

Certain of the market data and other statistical information contained in this prospectus, such as the size, growth and share of the government services industry, are based on information from independent industry organizations and other third-party sources, industry publications, surveys and forecasts. Some market data and statistical information contained in this prospectus are also based on our management’s estimates and calculations, which we derived from our review and interpretation of the independent sources, our internal market and brand research and our knowledge of the industries in which we operate. While we believe that each of these studies and publications is reliable, neither we nor the underwriters have independently verified market or industry data from third-party sources. We also believe our internal company research is reliable and the definitions of our market and industry are appropriate, though neither this research nor these definitions have been verified by any independent source. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information.

When we refer to our Peer Group in this prospectus, we refer to Booz Allen Hamilton, CACI, Engility, Leidos, ManTech and SAIC. We consider this to be our Peer Group as they offer comprehensive services to U.S. federal government clients, including the Department of Defense (“DoD”) and federal civilian agencies, and to commercial clients, as well as their similar margin profiles and relative contract and customer mix. When we provide information regarding our Peer Group in this prospectus, we include information derived from the sources described above, as well as the public filings of the companies in our Peer Group.

Although we are not aware of any misstatements regarding the industry data that we present in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors,” “Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

TRADEMARKS AND TRADE NAMES

This prospectus contains some of our trademarks and trade names, such as Sallyport and Janus Global Operations LLC. Each one of these trademarks or trade names is either (i) our registered trademark, (ii) a trademark for which we have a pending application, (iii) a trade name for which we claim common law rights, or (iv) a registered trademark or application for registration which we have been licensed by a third party to use.

Solely for convenience, the trademarks and trade names referred to in this prospectus are without the ® and TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks and trade names. This prospectus contains additional trademarks and trade names of others, which are the property of their respective owners. All trademarks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners.

 

(iv)


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SUMMARY

This summary highlights certain significant aspects of our business and this offering. This is a summary of information contained elsewhere in this prospectus, is not complete, and does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, including the information presented under the section entitled “Risk Factors,” our pro forma financial statements and our combined financial statements and the notes thereto, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of certain factors such as those set forth in “Risk Factors” and “Forward-Looking Statements.” When making an investment decision, you should also read the discussion under “Basis of Presentation” for the definition of certain terms used in this prospectus and other matters described in this prospectus.

Our Company

We are a leading provider of professional services and solutions to U.S. federal government agencies and commercial clients. We provide consulting, engineering, medical, and environmental services as well as large scale program management in support of our core markets of national defense, international diplomacy, and homeland security client readiness. We leverage our technical capabilities, our intimate knowledge of clients’ requirements, and our experience providing a wide array of services and solutions to help our clients meet some of their greatest challenges and succeed in their most important endeavors. We provide services that support programs of national significance such as domestic and international infrastructure development, medical services, environmental and munitions remediation, humanitarian assistance, border protection, and domestic and international military operational support. Our corporate culture is built on a relentless focus on client service, maintaining the highest standards of safety and personal conduct and fostering an entrepreneurial mindset.

We believe our services and solutions cover the spectrum of our clients’ most critical requirements. From consulting and engineering to operations and maintenance, our comprehensive service offerings have provided us with long-standing, entrenched relationships with our clients and a platform for sustained, profitable growth. Our scale, breadth and expertise enable us to perform substantially all client requirements with only a limited need for subcontractors. As a result, we are the prime contractor on approximately 92% of our existing contracts on a dollar value basis. Our position as an end-to-end service provider allows us to understand our clients’ requirements, develop and maintain client intimacy, provide client-centric technology innovations, focus our resources in high growth areas and generate industry leading margins. Since January 1, 2017, our win-rate on recompete contracts, which are contracts for which we are the incumbent service provider, has exceeded 90% on a dollar value basis. We believe we are well positioned to benefit from growth in our core markets, driven by approved U.S. federal government budgets through fiscal year end 2019.

We operate and manage our business as an integrated, capabilities-focused service provider and offer the following types of services to our clients.

 

   

Engineering, Environmental & Technical Solutions (pro forma revenue of $219 million for 2017 and $                million for the six months ended June 30, 2018): Our engineering, environmental, and technical solutions provide project and construction management services to the U.S. federal government and commercial clients. We provide cost and schedule management and technology solutions for large, complex capital projects, as well as environmental and munitions remediation. Additionally, we provide engineering, technical and professional services at U.S. federal government facilities and classified sites globally. Key clients include the Department of Defense (“DoD”), Department of State (“DoS”), U.S. Army Corps of Engineers (“USACE”), Department of Energy (“DOE”), and National Nuclear Security Administration (“NNSA”).

 

   

Medical & Humanitarian Services (pro forma revenue of $187 million for 2017 and $                million for the six months ended June 30, 2018): Our medical and humanitarian services provide tailored



 

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solutions via our core medical exam management, global medical services, and medical readiness and response services. We provide a broad range of service delivery options including locally through the Company’s nationwide provider network, on-site at specific client-designated locations or on the ground internationally on a long-term or rapid, as-needed basis. Key clients include the DoD, DoS, Department of Homeland Security (“DHS”), Department of Health and Human Services (“HHS”), and many of the largest U.S. railway companies.

 

   

Logistics & Support Services (pro forma revenue of $302 million for 2017 and $                million for the six months ended June 30, 2018): Our logistics and support services enable key agencies at the DoD, DoS, and other U.S. federal government and commercial clients to effectively execute their complex requirements. These services facilitate client operations in challenging, remote, and austere environments during times of conflict, unrest, natural disasters and stability. Our services include, but are not limited to, initial and on-going sourcing, procurement and logistics, base operations, global rapid response / expeditionary facility construction services, operations, maintenance and repair, and fire and emergency services.

 

   

Risk Management Solutions (pro forma revenue of $77 million for 2017 and $                million for the six months ended June 30, 2018): Our risk management solutions include technical and physical assessments, vulnerability and infrastructure evaluation, diplomatic protection services, threat identification and risk mitigation analysis, static and mobile support, integrated technology and electronic surveillance, preventative training and specialized emergency services. Key clients include the DoD, DoS, and commercial clients.

On a pro forma basis, we generated revenue of $785 million in 2017 and $                 million for the six months ended June 30, 2018, net loss attributable to Caliburn Holdings LLC of $15 million in 2017 and $                 million for the six months ended June 30, 2018, and Adjusted EBITDA of $99 million in 2017 and $                 million for the six months ended June 30, 2018. As of December 31, 2017, we had a total backlog of $2.2 billion. We use the non-GAAP measure Adjusted EBITDA as a measure of our performance. For a reconciliation of this non- GAAP financial measure to the most directly comparable U.S. GAAP measure, see “Summary Pro Forma and Historical Combined Financial Data—Non- GAAP Financial Measures.” The charts below demonstrate our revenue and gross profit for the year ended December 31, 2017 by service offering.

 

 

 

LOGO

Our History

We were founded by DC Capital Partners, LLC (“DC Capital”), a private investment firm with a strategic vision to create an end-to-end services platform with the ability and scale to support national defense, international diplomacy, and homeland security client readiness. The foundation of our current operations began with DC Capital’s acquisition of Kaseman LLC (“Kaseman”) in 2008, which established our capabilities in engineering,



 

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professional services, and training applications, while building a strong foundation of long-term relationships with the DoS and the DHS.

Over the last decade, we have grown and diversified our business through organic growth and four strategic acquisitions. We targeted these acquisitions to increase our addressable market by expanding our service offerings, our geographic reach and our client relationships. In 2011, our acquisition of Sallyport Global Holdings, Inc. (“Sallyport”) augmented our existing capabilities in logistics support and technical services to expand our addressable market with our existing clients. Kaseman is now consolidated into Sallyport. In 2017, we acquired Janus Global Operations LLC (“Janus”) for complementary environmental and munitions remediation and risk management services and an introduction to new U.S. federal government and commercial clients. In 2018, we acquired Comprehensive Health Services, Inc. (“CHS”), which provided us with a new set of capabilities in global medical services and exam management and Project Time & Cost, LLC (“PT&C”), which further expanded our capabilities in consulting, engineering, cost estimating, and project and construction management. Each of these acquisitions has also brought decades of deep client relationships and past performance that combined with our expanded service offerings has improved our competitive position and allowed us to drive organic growth.

Our Strengths

The following core strengths have resulted in a long history of successful performance on programs of national importance and favorably position us as a leading provider of value-add services across the full continuum of our clients’ requirements.

Well-aligned with U.S. federal government budget priorities

Current growth trends in U.S. federal government funding levels and priorities have resulted in favorable conditions in our core markets. Competing budgetary requirements and growing operational commitments have resulted in an effort by the U.S. federal government to seek efficiencies and cost savings through increased outsourcing of ancillary services. The DoD, which represented 50% of our pro forma revenue for 2017, has an approved top-line budget of $655 billion in the Government Fiscal Year (“GFY”) ended September 30, 2018 and $686 billion in GFY2019, which is an increase of 13% and 18%, respectively, over GFY2016 funding levels. The Operations and Maintenance (“O&M”) portion of the defense budget funds engineering and construction services and healthcare programs as well as maintenance and protection of key facilities, vehicles and personnel. It is the funding source for most of our DoD revenue and will increase from $245 billion in GFY2016 to $285 billion in GFY2019, representing a 16% increase.

We believe we are well positioned to benefit from a wide range of national priorities as the aggregate addressable market for engineering, healthcare and risk management services exceeds $57 billion. This addressable market consists of over $19 billion of USACE spending capacity, over $9 billion in healthcare opportunities and over $7 billion in risk management opportunities. We believe we are favorably positioned to capitalize on these opportunities due to our defensible position in a limited provider universe, as well as our demonstrated track record of providing services essential to the continued operation and success of U.S. federal government programs domestically and abroad.

Scalable Global Platform with Highly Differentiated Capabilities in Diverse and Growing End Markets

Our capabilities as a comprehensive, end-to-end services provider allow us to offer our clients a highly-differentiated value proposition, which we believe allows us to “protect and grow the core”—retain and grow our business with existing clients and win additional business in our existing geographies, markets, and service offerings. We are diversified across our $2.2 billion of backlog, which comprises over 180 contracts and task orders from a wide range of U.S. federal government and commercial clients. We are diversified across many of the underlying bureaus and departments that comprise the DoD and DoS including, but not limited to USACE, U.S. Army, U.S. Air Force, Bureau of Overseas Building Operations and the Bureau of Diplomatic Security, among many others. The charts below demonstrate our existing client and contract breakdown by revenue on a pro forma basis for the year ended December 31, 2017.



 

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LOGO

We are diversified across our “x, y, and z axes”—geographies, markets and capabilities—which we believe provides us with “pistons on the engine” or multiple avenues for growth. There are positive demand drivers in each of our value-added service offerings. As a result, we believe that we will continue to capture new contract awards to drive earnings and cash flow growth to create value for our shareholders.

Significant contract backlog enhances revenue, earnings and cash flow visibility

As of December 31, 2017, our total contract backlog was $2.2 billion, representing 2.7x our 2017 pro forma revenue, which we believe compares favorably to our Peer Group’s median backlog multiple of 2.4x. Our ability to provide tailored, end-to-end services has led to our win-rate on recompete contracts exceeding 90% on a dollar value basis since 2017 and has positioned us to execute on our robust pipeline of new business opportunities. We believe our contract backlog, proven ability to procure multi-year contracts, and record of recompete wins, combined with a growing addressable market of new business opportunities, provide us with significant revenue, earnings, and cash flow visibility.



 

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Attractive financial profile with industry leading margins and significant cash flow generation

Our diversified platform provides a wide array of global, end-to-end services and has enabled us to achieve superior profitability when compared with our Peer Group, as our pro forma Adjusted EBITDA margin of 12.6% for 2017 exceeds our Peer Group’s Adjusted EBITDA margin of 8.9% for the same period. Our full continuum of capabilities reduces our need to subcontract to potential competitors, thereby creating a compelling solution for our clients and barriers to entry for our competitors, while enhancing our profitability. As we continue to scale our business we believe we can continue to generate superior profitability as our business model features a disciplined cost structure and favorable mix of contract types. We believe our cost structure is scalable, requiring limited incremental investment in corporate overhead costs to support new business efforts. This provides us with a high degree of operating leverage that has driven, and we expect will continue to drive, significant cash flow generation.

 

 

LOGO

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(1)   Adjusted EBITDA margin is Adjusted EBITDA as a percentage of revenue.

 

(2)   Adjusted EBITDA less CapEx Conversion is Adjusted EBITDA less CapEx as a percentage of Adjusted EBITDA.

The professional services nature of our work and the fact that our employees typically work at our client facilities results in an asset-light business model with low capital expenditure requirements, averaging less than 1% of pro forma revenue over the last three years. Additionally, the terms and scheduled payments in our contracts with our U.S. federal government clients generally reduce our working capital requirements. Our allowance for doubtful accounts is less than 1% of total accounts receivable. As a result, we have historically demonstrated a higher Adjusted EBITDA less CapEx Conversion rate as compared to our Peer Group.

Long standing client relationships driven by focus on integrity and performance

One of the primary drivers of our success has been our deep industry experience and ability to understand and apply direct knowledge of our clients’ requirements to create a comprehensive solution tailored to each client’s specific objectives. Through this approach we have built long-standing, entrenched client relationships. Our average tenure with our ten longest-standing clients is over 17 years, which we believe is a strong testament to our focus on client satisfaction. We have a track record of converting initial engagements into long-term, contracted relationships, as demonstrated by our recompete win rate of over 90% on a dollar value basis since 2017. Decades-long relationships with our key clients, including the DoD, DoS, DHS and USACE have established defensible positions on multi-year contracts with significant revenue visibility. The longevity and depth of these client relationships generate significant recurring revenue, in addition to important sole-source opportunities and unique insights into client requirements, which are key drivers of future growth.

We monitor key performance indicators and safety and regulatory standards, favorably positioning us to deliver best-in-class service tailored specifically to our clients’ requirements. We have consistently been recognized by a variety of industry trade groups and publications as an industry leader in the quality and scope of our projects. Key recognitions include numerous awards from The National Safety Council (“NSC”) and the National Defense Industrial Association’s 2016 Dwight D. Eisenhower Award for contributions to national



 

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security. We have repeatedly been ranked by Engineering News-Record (“ENR”) among the top program management and construction management firms, and we are recognized as a leading commercial environmental and munitions remediation provider.

Experienced leadership team with deep industry experience

Our leadership team is an important competitive asset. The members of our Board of Directors and management team have distinguished backgrounds in the U.S. federal government and the private sector, as well as extensive experience, access, market insight, and financial discipline. Our leadership team has a demonstrated ability of executing on key growth strategies in our core markets, both organically and through acquisitions. Our management team has a clear vision to leverage our capabilities and client relationships to grow in our core markets and a track record of solving some of the most difficult challenges for our clients. Additionally, many of these executives have successfully executed similar strategies in the U.S. federal government services sector in their prior work with our majority owner, DC Capital.

Demonstrated mergers & acquisitions and integration capabilities

Our leadership team has a track record of acquiring platform companies in the U.S. federal government services sector and systematically developing them via organic growth into diversified strategic assets with scale. Further, our leadership team has proven capable at integrating acquisitions to leverage cross-selling opportunities and to realize cost synergies. We have identified potential acquisition targets in areas such as information technology (“IT”), the U.S. intelligence community, and healthcare IT services that we anticipate will increase our addressable market and complement our capabilities-focused platform. Additionally, our majority shareholder, DC Capital, alongside members of our management team, has previous experience building U.S. federal government services companies including National Interest Security Company, Michael Baker International, LLC (“Michael Baker”) and SC3, LLC. Our leadership team has successfully integrated numerous acquisitions at these companies, generating synergies in areas including, but not limited to (i) rationalization of duplicative positions, back-office functions and systems, (ii) office consolidation and real estate rationalization, (iii) rationalization of third party consulting expenses, and (iv) consolidation of benefits and insurance plans with limited impact to our employees given that most provide services at client sites. Our leadership team’s strong track record of executing operational efficiency enhancements across an extensive portfolio of acquisition investments in the U.S. federal government services sector favorably positions us to deliver value to our clients and shareholders moving forward.

Our Market Opportunity

Robust funding levels under the current administration have resulted in highly favorable market conditions in our core markets. On March 23, 2018 the Omnibus Appropriations bill was signed, providing two years of funding and strong support for defense spending. GFY2018 defense funding of $655 billion represents a $56 billion, or 9% increase over the GFY2017 enacted levels, which includes budgetary increases in the government services sectors in which we operate. As a best-in-class U.S. federal government services provider, we believe we are positioned favorably to win future business under the current funding levels described above.

 

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Our growth opportunities are well-aligned with U.S. federal government priorities

The O&M portion of the defense budget funds construction services, engineering and healthcare programs as well as maintenance and protection of key facilities, vehicles and personnel. It is the funding source for most of our DoD revenue and will increase from $245 billion in GFY2016 to $285 billion in GFY2019, representing a 16% increase. The aggregate market for engineering, healthcare and risk management services exceeds $57 billion. This addressable market consists of over $19 billion of USACE spending capacity, over $9 billion in healthcare opportunities and over $7 billion in risk management opportunities.

Our engineering and technical services operate in a limited provider universe and offer critically important solutions to well-funded U.S. federal government clients who have shown a willingness to pay for high quality and reliability. In GFY2017 the USACE-Civil Works (“CW”), our primary source of engineering and technical services revenue, received $27.8 billion of funding, of which only $8.0 billion was expended. This represents over $19 billion of near-term market opportunities. Additionally, the DOE received $32.0 billion of funding, of which approximately $28.8 billion was contracted out. Robust funding levels and a continued emphasis on outsourcing engineering and technical services favorably positions us to win business moving forward.

Healthcare funding is a priority within the DoD O&M and other U.S. federal government budgets. Programs such as the Defense Health Agency Medical Q-Coded Services (“DHA MQS”), Reserve Health Readiness Program (“RHRP-3”), U.S. Central Command Logistics Civil Augmentation Program V (“LOGCAP”), and Tri-CARE Overseas Program represent a near-term market opportunity of over $9 billion. These programs reflect long-term government objectives that require significant deployments of medical support. Another area of increasing focus is border enforcement and immigration policy, which is driving significant growth with the DHS, U.S. Customs and Border Protection (“CBP”), Transportation Security Administration (“TSA”), U.S. Immigration and Customs Enforcement (“ICE”), and HHS. We believe our medical exam management and medical services are essential to the continued operation and success of many government programs in the U.S. and abroad.

Within the DoS budget, the Embassy Security, Construction, and Maintenance (“ESCM”) and the Worldwide Security Protection (“WSP”) budgets are most relevant to our business and have received strong funding due to the increased focus on protecting personnel, embassy and consulate security. For GFY2018, the combined ESCM and WSP budgets of $7.6 billion represent a 36% increase over the enacted 2016 budget of $5.6 billion. Additionally, we play an active role in the DoS Bureau of Overseas Building Operations’ (“OBO’s”) $17.5 billion Capital Security Cost Sharing program that directly responds to the significant near-term growth in demand for modern, safe and secure Embassy and Consulate Compounds, of which there are 267 facilities globally. We are well positioned to benefit from these national priorities, which represent growth areas within U.S. federal government spending.

Growing budgets have resulted in an increase in large procurements and industry consolidation

After years of sequestration threats, budget uncertainty, and a Lowest Price Technically Acceptable (“LPTA”) environment, the market has improved under the current administration. U.S. federal government agencies have clear visibility on robust future spending levels. In conjunction with these positive budget developments, the U.S. federal government has been consolidating smaller contract opportunities into larger contract vehicles. As a result of this shift in the contracting environment, the U.S. federal government services sector has seen a wave of consolidation as companies look to build scale and pursue these larger opportunities. We believe that our position as a large-scale, end-to-end provider of consulting, engineering, medical and environmental services provides us with a competitive advantage in this positive procurement environment.

Our business model sits at the center of a complex geopolitical environment

A diverse set of threats and ongoing global instability have driven a dramatic increase in national security challenges and created a consistent demand for the U.S. federal government to maintain strategic positioning globally. Strategic priorities for the U.S. federal government include fostering stability in Iraq and Afghanistan, addressing the refugee crisis in the Middle East, maintaining border security to reduce illegal immigration, preventing the spread of drugs and gang violence in the U.S., and other challenges. Our services support many



 

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of these strategic priorities and we continue to consult with our U.S. federal government clients to help solve other strategic challenges. The current administration has reinforced the DoD’s enduring objective to provide combat ready military forces to deter war and protect the security of the U.S. in order to reinforce America’s traditional tools of diplomacy. These operations represent long-term U.S. federal government objectives that require significant deployments of personnel and international support, which will continue to drive demand for our services.

Our Strategy

We believe we are well positioned to leverage our comprehensive capabilities, long-standing client relationships, deep industry expertise, and scale of operations to expand our market position and drive earnings and cash flow to create value for shareholders through the following initiatives.

Protect the core, grow the core, new markets, new capabilities and select add-on acquisitions

 

   

Protect the core: Our backlog of $2.2 billion comprises contracts with well-funded U.S. federal government agencies and commercial clients. Our contracts provide us with visibility into forward revenue, earnings, and cash flow generation, with the vast majority of our projected revenue derived from existing and follow-on contracts. We have a meaningful opportunity to drive earnings and cash flow through a continued focus on cost efficiencies and disciplined cash management.

 

   

Lean management practices drive continued efficiencies: We have integrated our shared services functions and will continue to execute on incremental savings – reinvesting the savings into strategic hires, client intimacy, technological innovations, training, and continuous improvement programs. We remain focused on our indirect infrastructure and have instilled a culture of continuous improvement to drive industry best-practices and efficiencies.

 

   

Focus on cash generation: We continue to focus on cash flow generation as a key driver of shareholder value. We maintain modest capital expenditure requirements (less than 1% of our 2017 pro forma revenue) and have limited working capital requirements, allowing us to convert a high percentage of EBITDA to cash flow. We believe that our strong cash flow profile will provide the financial flexibility needed to further reduce our leverage (which as of June 30, 2018 was          of our pro forma Adjusted EBITDA for the four preceding fiscal quarters), pursue strategic acquisitions and drive equity value appreciation to shareholders.

 

   

Grow the core: We have a focused, strategic plan to deliver growth into the future, driven by a combination of core contract growth, scope increases on existing contracts, and the full year-effect of new contracts recently awarded.

 

   

Disciplined bid strategy focused on high margin opportunities: Given our strong contract backlog of $2.2 billion as of December 31, 2017, which is 2.7x our 2017 pro forma revenue, we are selective in our new business pursuits, focusing on higher margin opportunities in the areas of consulting, engineering, medical and environmental services. We do not intend to pursue lower margin logistics support and risk management opportunities that lack strategic importance, but we will bid these contracts selectively where there is an opportunity to realize higher margins by self-performing or providing as a component of a larger, comprehensive solution to our clients.

 

   

Pursue large indefinite delivery / indefinite quantity (“IDIQ”) contracts: We have the scale and resources to effectively bid on large U.S. federal government IDIQ contract vehicles on which we do not currently have a position as a prime contractor. We believe our full continuum of complementary capabilities, past performance, qualifications and scale will enhance our ability to win large IDIQ contracts. Furthermore, our end-to-end services reduce our need to subcontract to potential competitors, thereby furthering barriers to entry and enhancing our profitability.

 

   

New markets: We have focused along the “x, y, and z axes” and have identified opportunities to expand into adjacent new markets by utilizing the strong past performance of our existing service



 

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portfolio. Our full continuum of capabilities provides numerous avenues to target critically important, higher margin opportunities in new markets and in adjacent geographies.

 

   

Expand medical exam management and global medical services client base: Our medical exam management and global medical services offer highly scalable business models that are supported by proprietary technology and provide us with a significant growth opportunity. We intend to strategically pursue medical exam management opportunities with additional U.S. federal government clients and large commercial clients in industries including, but not limited to, aviation, logistics, construction, and manufacturing. We plan to develop additional technological innovations such as data analytics and electronic health records (“EHRs”) solutions to aid existing and new clients. Within our global medical services offering, we intend to expand our relationship with the DoS by pursuing other clinical support opportunities at additional U.S. embassies and consulates. Additionally, we are investing in targeted growth pursuits with the DoD (e.g., LOGCAP V and U.S. Foreign Military Sales (“FMS”) participants). We believe we are well positioned to win significant new business in the form of complex, large scale contracts due to our past performance and demonstrated track record.

 

   

Develop intelligence unit: We intend to bring our existing capabilities to clients in the U.S. intelligence community. We established an intelligence unit in January 2017 comprised of former officials with experience in this sector and have recently won several small contracts to perform training services for a difficult to penetrate classified client. Our leadership team has a track record of building businesses that serve intelligence clients, and we see a significant opportunity to organically grow our intelligence unit while also cross selling our broader capabilities and the geographic reach of our platform.

 

   

New capabilities: As part of our strategy, we seek to identify core capabilities that can be improved through new hires or intellectual property development. Our growth strategy focuses on pursuing new contract awards, but is defensive in nature as market share on existing contracts can be insulated by offering existing clients a wider range of capabilities.

 

   

Engineering & environmental services growth strategy: We have a successful track record of providing engineering and environmental consulting services globally in support of the DoS, USACE, DOE, and other U.S. federal government agencies. We are focused on growing our high margin engineering and environmental service offering with existing clients through our cross-selling efforts into adjacent geographies and by further penetrating the environmental consulting market via organic growth and acquisitions.

 

   

Select add-on acquisitions: We intend to pursue select strategic acquisitions to expand our geographic coverage, market opportunity and service offering.

 

   

Increase our addressable market: We are targeting acquisitions in areas such as information technology, the U.S. intelligence community, and healthcare IT services to augment our core, high-margin consulting, engineering, medical, environmental and program management services. We focus on expanding our addressable market by targeting acquisitions that will grow our geographic footprint, provide entry to new markets and expand our service offerings. We believe there are significant opportunities to target highly-fragmented growth markets with significant fragmentation. Acquisition targets in these markets trade at a discounted valuation compared to our Peer Group.

 

   

Cost rationalization opportunity: We have made strategic acquisitions in the past and intend to pursue additional disciplined acquisitions as a means of driving shareholder value. We have a demonstrated ability in executing operational enhancements to deliver cost savings and increased profitability. We have targeted and realized savings in the areas of reductions in workforce related to redundant back-office positions, office consolidation, consolidation of benefits and insurance plans, and applying best practices across our contract portfolio.



 

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Our Majority Shareholder

DC Capital, our majority shareholder, is a private investment firm focused on investing in sectors that are critical to the execution of U.S. federal government objectives, including, but not limited to, engineering services, intelligence, information technology, O&M, and risk management. DC Capital’s principals have institutionalized a successful and repeatable investment approach that centers on five core strategic principles—vision, people, communication, differentiation and ethics. The principals of DC Capital have a long and successful track record of acquiring platform companies in the Target Sectors and growing these companies both organically and through the integration of strategic add-on acquisitions into diversified strategic assets with scale.

The principals of DC Capital have been investing in the Target Sectors over the past 25 years, and their resulting expertise, relationships, access, insight, high-level security clearances and exposure to investment opportunities provide DC Capital with a significant and distinct competitive advantage. DC Capital has demonstrated an ability to invest in and build strategic assets in the Target Sectors through various economic cycles and market conditions while generating superior investment returns.

DC Capital’s principals own indirectly through investment vehicles     % of our equity interests prior to the offering, and will continue to own indirectly through investment vehicles     % of our equity interests after the completion of this offering.

Our Organizational Structure

Organizational Structure Following this Offering

Immediately following this offering, Caliburn International Corporation (the “Issuer”) will be a holding company and its sole material asset will be common membership interests (“LLC Interests”) in Holdings. The Issuer has not engaged in any business or other activities, except in connection with the Reorganization described below and this offering.

The Issuer will also be the sole managing member of Holdings, and will operate and control all of the business and affairs of Holdings and, through Holdings and its subsidiaries, conduct our business. As a result, although the Issuer will hold only a minority of the LLC Interests in Holdings, it will have the sole voting interest in, and control the management of, Holdings. In addition, the Issuer will consolidate Holdings in its combined financial statements and will report a non-controlling interest related to the LLC Interests held by the Legacy Holders on its combined financial statements. The Issuer will have a Board of Directors and executive officers, but will have no employees. We expect the functions of all of our employees to reside at Holdings.



 

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The following diagram shows our organizational structure after giving effect to the Reorganization and this offering, assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock.

 

 

LOGO

 

(1)    Receive shares of common stock from the Issuer in connection with the Issuer’s acquisition of Janus Blocker Corporation, which indirectly holds a portion of the membership interests in Holdings.

Summary of the Combination

Our business was formed from the combination in August 2018 of four companies under the control of DC Capital:

 

   

Sallyport, which was a subsidiary of Michael Baker, a DC Capital portfolio company that acquired Sallyport in 2011;

 

   

Janus, which DC Capital acquired in December 2017;

 

   

CHS, which DC Capital acquired in March 2018; and

 

   

PT&C, which DC Capital acquired in March 2018.

In this transaction, which we refer to as the “Combination,” each of these companies became wholly-owned subsidiaries of Holdings pursuant to a reorganization of companies under common control.

Existing Structure

Prior to the consummation of this offering and the Reorganization described below, the Original Caliburn Holders were the only members of Holdings, and the equity interests of Holdings consisted of five different classes of limited liability company membership interests: Class A, Class C, Class E, Class G, and Class AA (collectively, the “Prior Membership Interests”). Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to any U.S. federal entity-level income taxes. Rather, taxable income or loss is included in the U.S. federal income tax returns of Holdings’ members. Janus Blocker Corporation (“Blocker Corporation”) holds an indirect interest in a portion of these membership interests.



 

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Incorporation of the Issuer

Caliburn International Corporation was incorporated in Delaware in August 2018. The Issuer has not engaged in any business or other activities except in connection with its incorporation and this offering. Caliburn International Corporation’s amended and restated certificate of incorporation will authorize two classes of common stock, Class A common stock and Class B common stock, each having the terms described in the section titled “Description of Capital Stock.” Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to the Issuer’s stockholders for their vote or approval, except as otherwise required by applicable law.

The Reorganization

Because U.S. tax law generally makes it impractical for a limited liability company that is taxed as a partnership to sell membership interests publicly, Holdings will undertake a series of transactions in connection with the closing of this offering (collectively, the “Reorganization”) designed to create a corporate holding company. These transactions will include the following.

 

   

Holdings will amend its limited liability company agreement to, among other things, (i) provide that the equity interests in Holdings will consist of a single class of common membership interests (the “LLC Interests”), (ii) exchange all of the Prior Membership Interests in Holdings for LLC Interests and, in the case of the Class AA membership interests, a cash payment equal to the accrued yield on the Class AA membership interests and (iii) appoint the Issuer as the sole managing member of Holdings.

 

   

The Issuer will amend and restate its certificate of incorporation to, among other things, (i) provide for Class A common stock and Class B common stock and (ii) issue shares of Class B common stock to the Legacy Holders, on a one-to-one basis with the number of LLC Interests they own, for nominal consideration.

 

   

The Issuer will acquire Blocker Corporation, which holds an indirect interest in a portion of the LLC Interests. In connection with that acquisition, which the Issuer will issue                  shares of Class A common stock as consideration to the Blocker Shareholders (the “Blocker Merger”).

 

   

The Issuer will issue                shares of our Class A common stock to the purchasers in this offering (or                shares if the underwriters fully exercise their option to purchase additional shares of Class A common stock).

 

   

The Issuer will use the net proceeds from this offering (including any net proceeds received upon exercise of the underwriters’ option to purchase additional shares of Class A common stock) to acquire LLC Interests both from the Exchanging Holders and directly from Holdings, in each case at a purchase price per LLC Interest equal to the initial public offering price of Class A common stock, less underwriting discounts and commissions. The LLC Interests that the Issuer purchases will collectively represent     % of Holdings’ outstanding LLC Interests (or     %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock).

 

   

The Issuer will cause Holdings to use the proceeds from its sale of LLC Interests to the Issuer as follows: (i) to pay to the holders of Class AA membership interests the accrued preferred yield for those membership interests and (ii) for general corporate purposes. See “Use of Proceeds” for additional details regarding Holdings’ use of the proceeds from this offering.

 

   

The Legacy Holders will continue to own the LLC Interests they received in exchange for their existing membership interests in Holdings and will have no economic interests in the Issuer despite their ownership of Class B common stock (where “economic interests” means the right to receive any distributions or dividends, whether cash or stock, in connection with common stock).

 

   

The Issuer will enter into the following agreements.

 

   

The Exchange Agreement with the Legacy Holders, pursuant to which each Legacy Holder will have the right to exchange its LLC Interests for shares of Class A common stock on a one-for-one basis, with an automatic cancellation of an equal number of shares of such holder’s Class B common stock, provided that the Issuer may, at its option, instead make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each LLC Interest exchanged (subject to customary adjustments, including for stock splits, stock dividends



 

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and reclassifications) in accordance with the terms of the Holdings LLC Agreement. The Issuer’s determination to make such a cash payment would be made by the disinterested members of its Board of Directors. The Issuer’s Board of Directors will include directors who hold LLC Interests or are affiliated with holders of LLC Interests and may include such directors in the future.

 

   

The Tax Receivable Agreement with the TRA Parties, which is designed to provide the TRA Parties and the Blocker Shareholders with 85% of the cash savings, if any, in United States federal, state and local taxes that the Issuer realizes or is deemed to realize as a result of increases in tax basis resulting from its purchase of LLC Interests from the Exchanging Holders using a portion of the net proceeds from this offering, its acquisition of existing tax attributes from the original Caliburn Holdings, any future exchanges of LLC Interests for our Class A common stock pursuant to the Exchange Agreement, and certain acquired net operating losses and other tax attributes relating to the Blocker Merger, and certain other benefits.

 

   

The Registration Rights Agreement with the Legacy Holders, pursuant to which the Legacy Holders may require us to register under the Securities Act their sales of Class A common stock issued upon the exchange of their LLC Interests.

For a more detailed description of the terms of these agreements, see “Certain Relationships and Related Party Transactions—Reorganization Transactions.”

Corporate Information

Our principal executive office is located at 10701 Parkridge Boulevard, Suite 200, Reston, Virginia 20191. Our main telephone number is (703) 261-0320.

JOBS Act

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we are choosing to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We will take advantage of these exemptions for so long as we are an emerging growth company. Our status as an “emerging growth company” will end on the earliest to occur of (i) the last day of the fiscal year in which we have $1.07 billion or more in annual revenue, (ii) the date that we become a “large accelerated filer” (which would occur if, among other things, as of the end of any fiscal year, the market value of our common equity securities held by non-affiliates equals or exceeds $700 million, measured as of the last business day of our most recently completed second fiscal quarter), (iii) the date on which we have issued more than $1 billion in nonconvertible debt securities during the preceding three-year period or (iv) the last day of the fifth fiscal year after the completion of this offering. However, if we achieve the $1.07 billion revenue threshold prior to the completion of this offering, we will continue to be treated as an “emerging growth company” for certain purposes until the earlier of the date on which we complete this offering or the end of the one-year period beginning on the date we ceased to be an “emerging growth company.” Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period and, as a result, our timeline to comply will in many cases be delayed as compared to other public companies that are not eligible to take advantage of this election or have not made this election. Therefore, our financial statements may not be comparable to those of companies that comply with the public company effective dates for these standards.

Controlled Company

Upon the completion of this offering, we expect to be considered a “controlled company” under NYSE rules. These rules allow a “controlled company” to elect not to comply with certain corporate governance requirements, including the requirement to have a board that is composed of a majority of independent



 

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directors. We intend to take advantage of these exemptions following the completion of this offering. These exemptions do not modify the independence requirements for our audit committee, and we intend to comply with the applicable requirements of the Sarbanes-Oxley Act of 2002 and rules with respect to our audit committee within the required time frame applicable to us. See “Management— Director Independence and Controlled Company Exception.”

Risks Related to Our Business

Investing in our stock involves a high degree of risk. You should carefully consider the risks described in “Risk Factors” before making a decision to invest in our Class A common stock. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected. In such case, the trading price of our Class A common stock would likely decline and you may lose part or all of your investment. Below is a summary of some of the principal risks we face:

 

   

our revenue will be adversely affected if we fail to receive renewal or follow-on contracts or if our U.S. federal government clients cancel our existing contracts;

 

   

we derive a substantial portion of our revenue from contracts with U.S. federal government clients, and if our reputation or relationships with our U.S. federal government clients were to be harmed, our business, future revenue and growth prospects could be adversely affected;

 

   

our U.S. federal government contracts and subcontracts contain provisions giving our U.S. federal government clients a variety of rights that are unfavorable to us, including the ability to terminate a contract at any time for convenience;

 

   

our earnings and profitability may vary based on the mix of the type of contracts we perform and may be adversely affected if we do not accurately estimate or record the expenses, time and resources necessary to satisfy our contractual obligations;

 

   

U.S. federal government spending levels for programs supported by us may change or be delayed in a manner that adversely affects our business and future results of operations and limits our growth prospects;

 

   

our provision of services at the Balad Air Base in Iraq accounts for a substantial portion of our revenue, and accordingly, a substantial decrease in or elimination of our revenue from those services would adversely affect our business and results of operations;

 

   

as a holding company with no operations of our own, we depend on our subsidiaries for cash to fund all of our operations and expenses, including future dividend payments, if any;

 

   

our business plan depends on the successful integration of the four separate businesses that have been combined to form our company, and if we are unsuccessful at implementing our integration plan, our business and results from operations could be materially adversely affected;

 

   

because our majority shareholder will control the majority of our common stock, they will control all major corporate decisions and their interests may conflict with your interests as an owner of our Class A common stock and those of the Company;

 

   

if we are unable to successfully integrate companies we acquire into our operations on a timely basis, our profitability could be negatively affected;

 

   

we face aggressive competition that can impact our ability to obtain contracts and therefore affect our future revenue and growth prospects;

 

   

the nature of our business exposes us to potential liability claims and contract disputes, and we may be involved in claims or litigation in domestic and foreign courts that exceed our coverage or may not be covered by insurance and consequently could negatively impact our business, results of operations and financial condition; and

 

   

we may not receive the full amount authorized under our contracts, and we may not accurately estimate our contract backlog, either of which could adversely affect our future revenue and growth.



 

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The Offering

 

Issuer

Caliburn International Corporation.

 

Class A common stock offered by us

                shares.

 

Underwriters’ option to purchase additional shares of Class A common stock

The underwriters have an option to purchase up to                additional shares of our Class A common stock. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

 

Class A common stock to be outstanding after giving effect to this offering

                shares (or                shares if the underwriters fully exercise their option to purchase additional shares of Class A common stock). If all outstanding LLC Interests held by the Legacy Holders were exchanged (with automatic cancellation of an equal number of shares of Class B common stock) for newly-issued shares of Class A common stock on a one-for-one basis, and all outstanding options were exercised, we would have                 shares of our Class A common stock outstanding (or                shares if the underwriters fully exercise their option to purchase additional shares of Class A common stock).

 

Class B common stock to be outstanding after this offering

                shares, equal to one share per LLC Interest (other than any LLC Interests owned by Caliburn).

 

Voting rights

Holders of our Class A common stock and Class B common stock will vote together as a single class on all matters presented to stockholders for their vote or approval, except as otherwise required by law. Each share of Class A common stock and Class B common stock will entitle its holder to one vote per share on all such matters. See “Description of Capital Stock.”

 

Voting power after this offering

Holders of Class A common stock:     % (or     %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock).

 

  Holders of Class B common stock:     % (or     %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock).

 

Ratio of shares of common stock to LLC Interests

The Issuer’s amended and restated certificate of incorporation and the Holdings LLC Agreement will require that (i) the Issuer at all times maintain a ratio of one LLC Interest it owns for each share of Class A common stock it issues (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities), and (ii) Holdings at all times maintains (x) a one-to-one ratio between the number of shares of Class A



 

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common stock the Issuer issues and the number of LLC Interests the Issuer owns and (y) a one-to-one ratio between the number of shares of Class B common stock owned by the Legacy Holders and the number of LLC Interests owned by the Legacy Holders. This construct is intended to result in the Legacy Holders having a voting interest in us that is identical to the Legacy Holders’ percentage economic interest in Holdings. The Legacy Holders will own all of our outstanding Class B common stock.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be $                million (or $                million if the underwriters fully exercise their option to purchase additional shares of Class A common stock). We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions, but before deducting estimated offering expenses payable by us, which we refer to as “redemption proceeds” will be $                million (or $                million if the underwriters fully exercise their option to purchase additional shares of Class A common stock). We based the foregoing estimates on an assumed initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Each increase or decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease, as applicable, the net proceeds to us by $                million, assuming the initial public offering price of $                per share remains the same, after deducting estimated underwriting discounts and commissions.

 

  The Issuer intends to use $                million of the redemption proceeds to purchase an aggregate of                LLC Interests from the Exchanging Holders and $                million of the redemption proceeds to purchase                newly issued LLC Interests from Holdings. See “Certain Relationships and Related Party Transactions—Purchase of LLC Interests” for the number of LLC Interests to be purchased from each of the Exchanging Holders. The per share purchase price for each LLC Interest the Issuer purchases will be equal to the price per share of our Class A common stock in this offering, less underwriting discounts and commissions.

 

  If the underwriters fully exercise their option to purchase additional shares of Class A common stock, in addition to the use of proceeds described above, we intend to use additional redemption proceeds of $                million to purchase an additional                newly issued LLC Interests from Holdings.

 

  The Issuer intends to cause Holdings to use the proceeds it receives from the Issuer’s purchase of LLC Interests to pay the Issuer’s expenses incurred in relation to this offering and for general corporate purposes. See “Use of Proceeds.”


 

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Exchange rights of holders of LLC Interests

Prior to the consummation of this offering, we will complete the transactions described in the section entitled, “The Reorganization.” Pursuant to the Exchange Agreement, each Legacy Holder, and any other Exchange Agreement parties, will have the right to exchange their LLC Interests (with automatic cancellation of an equal number of shares of Class B common stock) for shares of Class A common stock of the Issuer on a one-for-one basis, subject to customary adjustment for stock splits, stock dividends and reclassifications, or for cash (based on the market price of the Class A common stock), at our option (such determination to be made by the disinterested members of our Board of Directors). We have reserved for issuance shares of Class A common stock in respect of the aggregate number of shares of Class A common stock that may be issued upon exchange of LLC Interests. See “Certain Relationships and Related Party Transactions—Exchange Agreement.”

 

Registration Rights Agreement

Pursuant to the Registration Rights Agreement, we will agree to register the resale of the shares of our Class A common stock that are issuable to the Legacy Holders upon redemption or exchange of their LLC Interests, subject to the terms and conditions therein. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

 

Tax Receivable Agreement

Our purchase of LLC Interests from the Exchanging Holders using a portion of the net proceeds from this offering and any future exchanges of LLC Interests for our Class A common stock pursuant to the exchange rights described above are expected to result in increases in Caliburn’s allocable tax basis in the assets of Holdings. In addition, the Blocker Merger will entitle us to certain existing net operating losses and other tax attributes. We and Holdings will enter into a tax receivable agreement with the TRA Parties, whereby Caliburn will agree to pay those parties 85% of the amount of cash tax savings, if any, in United States federal, state and local taxes that Caliburn realizes or is deemed to realize as a result of these increases in tax basis, increases in basis from such payments, acquisition of such existing net operating losses and other tax attributes, and deemed interest deductions arising from such payments. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

 

Controlled company

Following this offering we will be a “controlled company” within the meaning of the corporate governance rules of the NYSE. See “Management—Corporate Governance Guidelines.”

 

Dividend policy

We currently intend to retain all available funds and any future earnings for use in the operation of our business, and therefore we do not currently expect to pay any cash dividends on our Class A common stock. Any future determination to pay dividends to holders of Class A common stock will be at the discretion of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, capital requirements, restrictions in



 

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Holdings’ debt agreements and other factors that our Board of Directors deems relevant. We are a holding company, and substantially all of our operations are carried out by Holdings and its subsidiaries. Accordingly, we cannot pay dividends on our common stock without receiving distributions from Holdings in respect of the LLC Interests we own. To the extent that Holdings pays distributions on its LLC Interests, the Legacy Holders will receive a portion of that distribution that corresponds to their percentage ownership of LLC Interests. Our ability to pay dividends may also be restricted by the terms of any future credit agreement or any future debt or preferred equity securities of us or of our subsidiaries. See “Dividend Policy.”

 

Risk factors

See “Risk Factors” beginning on page 26 for a discussion of risks you should carefully consider before deciding to invest in our Class A common stock.

 

Proposed NYSE trading symbol

“CBRN.”

The number of shares of our Class A common stock to be outstanding immediately after the consummation of this offering is based on the membership interests of Holdings as of                , 2018 and does not give effect to                shares of Class A common stock reserved for issuance under the Caliburn International Corporation 2018 Equity Incentive Plan (as described in “Executive Compensation—New Employment Agreements and Incentive Plans”), consisting of (i)                shares of Class A common stock underlying restricted stock units that we intend to grant to our directors and certain employees, including the named executive officers, shortly following this offering as described in “Executive Compensation—Director Compensation” and “Executive Compensation—New Equity Awards,” and (ii)                 additional shares of Class A common stock reserved for future issuance.

Unless we indicate otherwise or the context otherwise requires, all information in this prospectus assumes:

 

the underwriters do not exercise their option to purchase additional shares of Class A common stock; and

 

an initial public offering price of $                per share, which is the mid-point of the range set forth on the cover page of this prospectus.



 

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Summary Combined Pro Forma and Historical Combined Financial Data

The following tables set forth the summary combined pro forma and historical combined financial data for Caliburn Holdings LLC (“Holdings”) and its subsidiaries for the periods and as of the dates indicated. Holdings is the predecessor of Caliburn International Corporation (the “Issuer”) for financial reporting purposes. We do not present summary financial data for the Issuer as it is a newly incorporated entity that has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this section.

We derived the summary unaudited combined pro forma financial data for the year ended December 31, 2017, for the six months ended June 30, 2017 and 2018 and as of June 30, 2018 from the unaudited combined pro forma financial statements included elsewhere in this prospectus. The combined pro forma statement of income data include adjustments to the historical financial statements of Holdings that give effect to the acquisitions of Janus, CHS and PT&C, the Combination, the Reorganization, our entering into our New Credit Facilities and this offering and the intended use of proceeds therefrom as if they had occurred on January 1, 2017. The combined pro forma balance sheet data give effect to the Combination, the Reorganization, our entering into our New Credit Facilities and this offering and the intended use of proceeds therefrom as if they had occurred on June 30, 2018. You should read these combined pro forma financial data in conjunction with the information set forth under “Unaudited Combined Pro Forma Financial Information,” which describes these transactions and their related adjustments in greater detail.

We derived the summary historical combined statement of operations data and summary historical combined statement of cash flows data for the years ended December 31, 2016 and 2017 from the audited combined financial statements of Holdings included elsewhere in this prospectus. We derived the summary historical combined statement of operations data and summary historical combined statement of cash flows data for the six months ended June 30, 2017 and 2018 and the historical summary combined balance sheet data as of June 30, 2018 from the unaudited combined financial statements of Holdings included elsewhere in this prospectus. We prepared those unaudited combined financial statements on the same basis as the audited combined financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to fairly state the financial information set forth in those statements.

Our historical results are not necessarily indicative of the results expected for any future period. You should read the unaudited combined pro forma and summary historical combined financial data set forth below in conjunction with “Capitalization,” “Unaudited Combined Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the combined financial statements and the notes thereto included elsewhere in this prospectus.



 

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     COMBINED PRO FORMA  
     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
(in thousands, except per share data and percentages)    2017     2017      2018  

Statement of Operations Data:

       

Revenue

   $ 784,894     $                        $                    

Cost of revenue

     594,830       
  

 

 

   

 

 

    

 

 

 

Gross profit

     190,064       

Operating expenses

       

Indirect expenses

     133,016       

Depreciation and amortization

     39,074       
  

 

 

   

 

 

    

 

 

 

Income from operations

     17,974       

Other expenses

       

Interest expense, net

     (31,695     

Loss on extinguishment of debt

     (725     

Other income/(expense), net

     1,474       
  

 

 

   

 

 

    

 

 

 

Income (loss) before provision for income taxes

     (12,972     

Provision for income taxes

     2,431       

Net income (loss)

     (15,403     

Less: Income (loss) attributable to non-controlling interest

   $ (88   $        $    
  

 

 

   

 

 

    

 

 

 

Net income (loss) attributable to Caliburn Holdings LLC

   $ (15,315   $        $    
  

 

 

   

 

 

    

 

 

 

Per Share Data:

       

Net income (loss) per common share:

       

Basic

   $       $        $    

Diluted

   $       $        $    

Weighted average shares outstanding:

       

Basic

       

Diluted

       

Other Data (1):

       

Adjusted EBITDA

   $ 98,607     $        $    

Adjusted EBITDA margin

     13     %        %  

Adjusted EBITDA less CapEx

   $ 93,312     $        $    

Adjusted EBITDA less CapEx Conversion (2)

     95     %        %  

 

 

(1)   Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA less CapEx and Adjusted EBITDA less CapEx Conversion are financial measures that are not calculated in accordance with U.S. GAAP. See the section titled “—Non-GAAP Financial Measures” below.

 

(2)    Calculated as Adjusted EBITDA less CapEx as a percentage of Adjusted EBITDA.


 

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     HOLDINGS HISTORICAL  
     YEAR ENDED
DECEMBER 31,
    SIX MONTHS
ENDED JUNE 30,
 
(in thousands, except per share data and percentages)    2016     2017     2017      2018  

Statement of Operations Data:

         

Revenue

   $ 513,143     $ 381,592     $                        $                    

Cost of revenue

     436,780       324,232       
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     76,363       57,360       

Operating expenses

         

Indirect expenses

     47,956       47,137       

Depreciation and amortization

     3,471       4,526       
  

 

 

   

 

 

   

 

 

    

 

 

 

Income from operations

     24,936       5,697       

Other expenses

         

Interest expense, net

     (8,398     (9,502     

Loss on extinguishment of debt

           (725     

Other (income)/expense, net

     (1,355     (9     
  

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before provision for income taxes

     15,183       (4,539     

Provision for income taxes

     9,734       (452     
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

     5,449       (4,087     
  

 

 

   

 

 

   

 

 

    

 

 

 

Less: Income attributable to non-controlling interest

     103       15       
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) attributable to Caliburn Holdings LLC

   $ 5,346     $ (4,102   $        $    
  

 

 

   

 

 

   

 

 

    

 

 

 

Per Share Data:

         

Net income (loss) per common share:

         

Basic

   $       $       $        $    

Diluted

       `       

Weighted average shares outstanding:

         

Basic

         

Diluted

         

Other Data: (1)

         

Adjusted EBITDA

   $ 37,059     $ 40,211     $        $    

Adjusted EBITDA margin

     7     11     %        %  

 

 

(1)    Adjusted EBITDA and adjusted EBITDA margin are financial measures that are not calculated in accordance with U.S. GAAP. See the section titled “—Non-GAAP Financial Measures” below.


 

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     HOLDINGS HISTORICAL  
     YEAR ENDED
DECEMBER 31,
    SIX MONTHS
ENDED JUNE 30,
 
(in thousands)    2016     2017     2017      2018  

Statement of Cash Flow Data:

         

Net cash provided by (used in):

         

Operating activities

   $ 3,964     $ (53,556   $                        $                    

Investing activities

     (2,557     (176,637     

Financing activities

   $ 3,951     $ 233,939     $        $    

 

 

 

 

 

     AS OF JUNE 30, 2018  
(in thousands)    HISTORICAL      PRO FORMA  

Balance Sheet Data:

     

Cash

   $                    $                

Net working capital

     

Total assets

     

Total debt

     

Total liabilities

     

Total shareholders’ equity

     

 

 



 

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Non-GAAP Financial Measures

In addition to the financial information prepared in conformity with U.S. GAAP, we provide the following “non-GAAP financial measures” as defined under SEC rules:

 

   

Adjusted EBITDA (EBITDA plus or minus certain non-cash and other adjusting items);

 

   

Adjusted EBITDA margin (Adjusted EBITDA as a percentage of revenue);

 

   

Adjusted EBITDA less CapEx; and

 

   

Adjusted EBITDA less CapEx Conversion (Adjusted EBITDA less CapEx as a percentage of Adjusted EBITDA).

We believe that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our U.S. GAAP results, provide a more complete understanding of factors and trends affecting our business.

We believe that investors regularly rely on non-GAAP financial measures, such as Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA less CapEx and Adjusted EBITDA less CapEx Conversion, to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with U.S. GAAP. In addition, we believe that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these income or expense items. In addition, we believe that Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA less CapEx and Adjusted EBITDA less CapEx Conversion are frequently used by securities analysts, investors and other interested parties in the evaluation of public companies in our industry, many of which present these measures when reporting their results.

We provide non-GAAP financial information for informational purposes and to enhance understanding of our U.S. GAAP combined financial statements. You should not consider Adjusted EBITDA and Adjusted EBITDA margin to be alternatives to income from continuing operations or any other performance measure derived in accordance with U.S. GAAP. Rather, you should consider these measures in addition to results prepared in accordance with U.S. GAAP, but not as a substitute for, or superior to, U.S. GAAP results. You should consider the information in addition to, but not instead of or superior to, our financial statements prepared in accordance with U.S. GAAP. It is important to understand that other companies may determine or calculate this non-GAAP financial information differently than we do, limiting the usefulness of those measures for comparative purposes.

Adjusted EBITDA, adjusted EBITDA margin, Adjusted EBITDA less CapEx and Adjusted EBITDA less CapEx Conversion have limitations as analytical tools and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations include:

 

   

they do not reflect every expenditure, future requirements for capital expenditures or contractual commitments;

 

   

they do not reflect changes in our working capital needs;

 

   

they do not reflect the interest expense, or the amounts necessary to service interest or principal payments on our outstanding debt;

 

   

depreciation and amortization are non-cash expense items reported in our statements of cash flows; and

 

   

other companies in our industry may calculate these measures differently, limiting their usefulness as comparative measures.

We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA, adjusted EBITDA margin, Adjusted EBITDA less CapEx and Adjusted EBITDA less CapEx Conversion only as supplemental information.



 

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The following table sets forth, on a pro forma basis, a reconciliation from net income to Adjusted EBITDA and then to Adjusted EBITDA less CapEx Conversion for the periods presented.

 

 

 

     COMBINED PRO FORMA  
     YEAR ENDED
DECEMBER 31,
    SIX MONTHS
ENDED JUNE 30,
 
(in thousands, except percentages)    2017     2017      2018  

Reconciliation:

       

Net income

   $ (15,315   $                             $                         

Interest expense

     31,695       

Tax

     2,431       

Depreciation and amortization

     39,074       
  

 

 

   

 

 

    

 

 

 

EBITDA

     57,885       

Management and director fees (a)

     1,484       

Non-cash charges (b)

           

Acquisition and transaction costs (c)

     95       

Debt extinguishment costs (d)

     712       

Non-recurring professional and legal fees (e)

     7,495       

Non-recurring severance, retention, indirect taxes and other (f)

     17,395       

Michael Baker allocations (g)

     3,297       

Costs relating to closed facility (h)

     7,125       

Duplicative services in connection with WPS Contract (i)

     1,644       

Costs eliminated in transfer of business unit (j)

     1,475       

Losses on legacy contracts (k)

           
  

 

 

   

 

 

    

 

 

 

Adjusted EBITDA (l)

   $ 98,607     $        $    
  

 

 

   

 

 

    

 

 

 

Adjusted EBITDA Margin

     13     %        %  
  

 

 

   

 

 

    

 

 

 

Less: capital expenditures

   $ (5,295   $        $    
  

 

 

   

 

 

    

 

 

 

Adjusted EBITDA less CapEx

   $         93,312     $        $    

Adjusted EBITDA less CapEx Conversion (m)

     95     %        %  

 

 

(a)    Represents management fees paid to DC Capital pursuant to our Management Agreement with DC Capital, which will terminate prior to the closing of this offering and management fees paid to the owner of PT&C prior to our acquisition of PT&C.

 

(b)    Consists of non-cash stock based compensation expense.

 

(c)   Represents costs and expenses incurred in connection with acquisitions and financing events.

 

(d)    Consists of costs incurred in connection with retiring indebtedness that is being repaid or refinanced.

 

(e)    Represents legal and professional fees incurred in connection with certain non-ordinary course legal and regulatory matters.
(f)    Consists of costs incurred in connection with personnel reductions and other non-recurring costs.

 

(g)    Represents overhead costs allocated to Sallyport. Prior to the Combination, Sallyport was a subsidiary of Michael Baker, and Sallyport’s statement of operations for those periods includes an allocation of Michael Baker’s selling, general and administrative expenses.

 

(h)    Consists of costs incurred in connection with closing our Al Mansour facility and carrying costs incurred during the period when the facility was unoccupied prior to closure.

 

(i)    Consists of costs relating to Sallyport’s servicing of the Worldwide Protective Services contract, which became duplicative with the services of Janus following the acquisition of Janus.

 

(j)    Consists of costs of senior management of Professional Services Group, which costs were eliminated upon the transfer of that business unit from Michael Baker to Sallyport in October 2017.

 

(k)    Represents losses incurred in relation to a contract that has been terminated and a contract loss incurred under prior management.

 

(l)    Does not include $15.0 million of expected cost savings arising from the Consolidation. This includes cost savings from identified personnel reductions, renegotiation of professional services contracts, including for insurance and benefits, and reduced occupancy requirements. To date, we have taken definitive measures in respect of $                million of these costs.

 

(m)    Calculated as Adjusted EBITDA less CapEx as a percentage of Adjusted EBITDA.


 

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The following table sets forth, on an historical basis, a reconciliation from net income to Adjusted EBITDA for the periods presented.

 

 

 

     HOLDINGS HISTORICAL  
     YEAR ENDED
DECEMBER 31,
    SIX MONTHS
ENDED JUNE 30,
 
(in thousands, except percentages)    2016     2017     2017     2018  

Adjusted EBITDA Reconciliation:

        

Net income (loss) attributable to Caliburn Holdings LLC

   $ 5,346     $ (4,102   $                  $               

Interest expense

     8,398       9,502      

Tax

     9,734       (452    

Depreciation and amortization

     3,471       4,526      
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     26,949       9,474      

Management and director fees (a)

     1,076       1,173      

Non- cash charges (b)

     —         —        

Acquisition and transaction costs (c)

     —         3,300      

Debt extinguishment costs (d)

     —         712      

Non-recurring professional and legal fees (e)

     3,363       7,495      

Non-recurring severance, retention and other (f)

     1,434       4,516      

Michael Baker allocations (g)

     4,237       3,297      

Costs relating to closed facility (h)

     —         7,125      

Duplicative services in connection with WPS Contract (i)

     —         1,644      

Costs eliminated in transfer of business unit (j)

     —         1,475      

Losses on legacy contracts (k)

     —         —        
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 37,590     $ 40,211     $       $    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin

     7     11                  

 

 

(a)    Represents management fees paid to DC Capital pursuant to our Management Agreement with DC Capital, which will terminate prior to the closing of this offering, our management fees paid to the owner of PT&C prior to our acquisition of PT&C and fees paid to members of our Board of Directors prior to our becoming a public company.

 

(b)    Consists of non-cash stock based compensation expense.

 

(c)    Represents costs and expenses incurred in connection with acquisitions and financing events.

 

(d)    Consists of costs incurred in connection with retiring indebtedness that is being repaid or refinanced.

 

(e)    Represents legal and professional fees incurred in connection with specific non-ordinary course legal and regulatory matters.

 

(f)    Consists of costs incurred in connection with personnel reductions and other non-recurring costs.

 

(g)    Represents overhead costs allocated to Sallyport. Prior to the Combination, Sallyport was a subsidiary of Michael Baker, and Sallyport’s statement of operations for those periods includes an allocation of Michael Baker’s selling, general and administrative expenses.

 

(h)    Consists of costs incurred in connection with closing our Al Mansour facility and carrying costs incurred during the period when the facility was unoccupied prior to closure.

 

(i)    Consists of costs relating to Sallyport’s servicing of the Worldwide Protective Services contract, which became duplicative with the services of Janus following the acquisition of Janus.

 

(j)    Consists of costs of senior management of Professional Services Group, which costs were eliminated upon the transfer of that business unit from Michael Baker to Sallyport in October 2017.

 

(k)    Represents losses incurred in relation to a contract that has been terminated and a contract loss incurred under prior management.


 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider each of the following risk factors, as well as the other information in this prospectus, including our combined financial statements and the related notes and “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” before deciding whether to invest in shares of our Class A common stock. If any of the following risks actually occurs, our business, results of operations and financial condition may be materially and adversely affected. In that event, the trading price of our Class A common stock could decline and you could lose all or part of your investment.

Risks Related to Our Business

Our revenue will be adversely affected if we fail to receive renewal or follow-on contracts or if our clients cancel our existing contracts.

Our contracts are generally for fixed terms, which vary from shorter than one year to greater than five years. Further, many of these contracts include an option to renew such contract at the discretion of the client and also allow the client to terminate the contract for its convenience and without penalty. Our business plan depends in large part on our ability to renew contracts, have clients exercise extension options, or be awarded the replacement contract at the time a given contract terminates. A client may decide not to renew or extend our contract or award us a replacement contract, or decide to terminate an existing contract, for many reasons, including changes in the U.S. federal government budget or spending priorities, concerns about our performance, changes in the scope of the work, and others. There is also a risk that the U.S. federal government has a change in priorities away from our areas of expertise which could reduce the demand for our services. If we fail to renew a contract upon its termination, or if our clients fail to exercise extension options, future revenue and backlog will suffer. If a client elects to terminate a contract for convenience, our revenue and backlog will suffer, and we may not be fully compensated for the expenses we already incurred in performing that contract. Any of the foregoing could have a material adverse effect on our business, revenue, backlog and results of operations.

We derive substantially all of our revenue from contracts with U.S. federal government clients. If our reputation or relationships with U.S. federal government clients were harmed, our business, future revenue and growth prospects could be adversely affected.

We derived 88% and    % of our pro forma revenue during fiscal year 2017 and the six months ended June 30, 2018, respectively, from contracts with U.S. federal government clients. We expect that U.S. federal government contracts will continue to be the primary source of our revenue for the foreseeable future. Our business, prospects, financial condition or results of operations could be materially harmed if:

 

   

we are suspended or debarred from contracting with the U.S. federal government or a significant government agency;

 

   

our reputation or relationship with U.S. federal government agencies is impaired; or

 

   

these U.S. federal government agencies cease to do business with us or significantly decrease the amount of business they do with us.

Among the key factors in maintaining our relationships with U.S. federal government agencies is our performance on individual contracts and task orders and the strength of the professional relationships our senior management has with clients. If our performance is rated negatively on a government contract, the negative performance may impact our award of future contracts. Further, our reputation and relationship with the U.S. federal government, and in particular with the agencies of the DoD and the DoS, are key factors in maintaining and growing our revenue. Negative press reports or publicity, which could pertain to employee misconduct, conflicts of interest, termination of a contract or task order, poor contract performance, deficiencies in services, reports, products or other deliverables, information security breaches or other aspects of our business or criticisms of the missions that we are supporting, regardless of accuracy, could harm our reputation, particularly with these agencies.

U.S. federal government contracts and subcontracts contain provisions giving U.S. federal government clients a variety of rights that are unfavorable to us, including the ability to terminate a contract at any time for convenience.

U.S. federal government contracts and subcontracts, through flow-down requirements, contain provisions that are unfavorable to us, and these agreements are also subject to laws and regulations that give the U.S. federal

 

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government rights and remedies not typically found in commercial contracts. These provisions may allow the U.S. federal government to:

 

   

unilaterally terminate existing contracts for convenience as well as for default;

 

   

reduce orders under, or otherwise modify, contracts or subcontracts;

 

   

cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;

 

   

decline to exercise an option to renew multi-year contracts or issue task orders in connection with multiple award contracts;

 

   

suspend or debar us from doing business with the U.S. federal government or with a government agency;

 

   

prohibit future procurement awards with a particular agency as a result of a finding of an organizational conflict of interest based upon prior related work performed for the agency that would give a contractor an unfair advantage over competing contractors;

 

   

subject the award of newly awarded contracts to protest by competitors, which may require the contracting U.S. federal government agency or department to suspend our performance pending the outcome of the protest and may also result in a requirement to resubmit offers for the contract or in the termination, reduction or modification of the awarded contract;

 

   

terminate our facility security clearances and thereby prevent us from receiving classified contracts and/or contracts that require security clearances;

 

   

claim rights in services and systems produced, developed and/or delivered by us; and

 

   

prohibit or otherwise restrict the export and/or re-export of our products and services.

If the U.S. federal government terminates a contract for convenience, we may recover only our incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If the U.S. federal government terminates a contract for default, we may not even recover those amounts and instead may be liable for excess costs incurred by the government in procuring undelivered items and services from another source. If one of our U.S. federal government clients were to unexpectedly terminate, cancel or decline to exercise an option to renew one or more of our significant contracts or programs, or a contract with one or more of our prime contractor clients, our financial condition, revenue and results of operations would be materially harmed.

Our earnings and profitability may vary based on the mix of the type of contracts we perform and may be adversely affected if we do not accurately estimate or record the expenses, time and resources necessary to satisfy our contractual obligations.

We enter into three types of contracts with our U.S. federal government clients: fixed-price, time-and-material and cost-plus. Each of these types of contracts, to varying degrees, involves the risk that we could underestimate our cost of fulfilling the contract, which could reduce the profit we earn or lead to a financial loss on the contract.

 

   

Fixed-Price Contracts, which represented 32% and    % of our pro forma revenue during fiscal year 2017 and the six months ended June 30, 2018, respectively. Under fixed-price contracts, we perform specific tasks for a fixed price. Compared to cost-plus contracts, fixed-price contracts generally offer higher margin opportunities, but involve greater financial risk because we bear the impact of cost overruns. If costs and expenses in connection with a project exceed our estimates, including for reasons beyond our control, we are generally unable to recover any reimbursement for the increased amounts. When making proposals on these types of contracts, we rely heavily on our estimates of costs and timing to complete the associated projects, as well as assumptions regarding technical issues. In each case, our failure to accurately estimate costs or the resources and technology required to perform our contracts or to effectively manage and control our costs during performance could result, and in some instances has resulted, in reduced profits or in losses. Because we assume that risk, an increase in the percentage of fixed-price contracts in our contract mix, whether caused by a shift by U.S. federal government clients toward a preference for fixed-price contracts or otherwise, could increase the risk that we suffer losses if we underestimate the level of effort required to perform the contractual obligations.

 

   

Time-and-Material Contracts, which represented 21% and    % of our pro forma revenue during fiscal year 2017 and the six months ended June 30, 2018, respectively. Under time-and-material contracts, we are

 

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reimbursed for labor and other expenses at negotiated billing rates. We may be unable to engage workers for the project at or below the agreed rates, in which case we may pay our workers more than the amount we are reimbursed, or fail to hire enough people to perform the agreed services, either of which would adversely affect our financial performance and results of operations.

 

   

Cost-Plus Contracts, which represented 47% and    % of our pro forma revenue during fiscal year 2017 and the six months ended June 30, 2018, respectively. Under cost-plus contracts, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance-based. To the extent that the actual costs incurred in performing a cost-reimbursable contract are within the maximum allowable payments under the contract and are allowable under the terms of the contract and applicable regulations, we are entitled to reimbursement of our costs, plus a profit. However, we may not be able to recover costs that exceed the ceiling or are not allowable under the terms of the contract or applicable regulations.

Our profits could be adversely affected if our costs under any of these contracts exceed the assumptions we used in bidding for the contract. Additionally, a change in the type of contract favored by the government could impact our financial results.

In addition, if we improperly record the time, expenses and resources used under our U.S. federal government contracts, we may be subject to audit and any costs definitively found to be improperly allocated to a specific contract may not be reimbursed, while such costs already reimbursed may have to be refunded.

U.S. federal government spending levels for programs supported by us may change or be delayed in a manner that adversely affects our business and future results of operations and limits our growth prospects.

Our business depends upon continued U.S. federal government expenditures on defense, security and support services and other programs that our services help sustain. These expenditures have not remained constant over time. Future levels or timing of expenditures are subject to the legislative process and could place pressure on operating margins in our industry. Congress may also shift authorizations to programs in areas where we do not currently provide services, thereby adversely impacting our future results of operations. Further, our U.S. federal government contracts typically grant the client the right to terminate at will, which may occur if the government does not appropriate funds to pay for our services. A reduction in the amount of services that we are contracted to provide, the incorporation of less favorable terms in existing or future contracts, or the cancelation of existing contracts could adversely affect our business and future results of operations and limit our growth prospects.

Our provision of services under base support contracts at the Balad Air Base in Iraq accounts for a substantial portion of our revenue, and accordingly, a substantial decrease in or elimination of our revenue from those services would adversely affect our business and results of operations.

We received 38% and    % of our pro forma revenue during fiscal year 2017 and the six months ended June 30, 2018, respectively, for base support services we performed at Balad Air Base in Iraq. These services include intelligence and surveillance services, logistics and procurement, facilities management, risk management and others to support the Iraqi government’s purchase and operation of F-16 aircraft. We have been providing services at Balad since 2014. We initially provided base support services under a three-year contract that was extended through January 2018. We are currently working under a one-year sole source contract that runs through January 2019. We have received a sole-source request for proposal (“RFP”) on a new contract that will initially run for one year through January 2020, with two six-month options extending performance through January 2021. However, we cannot assure you that we will be successful in extending our arrangements at Balad Air Base on similar terms or at all.

Our provision of base support services at Balad Air Base is subject to the same risks that affect our provision of services to other clients; however, because we depend on this relationship for a substantial portion of our revenue, factors that harm our relationship with the U.S. Air Force (“USAF”) or the Government of Iraq or that reduce or eliminate our revenue from providing these services would adversely affect our business and results of operations. Factors that could lead to a decrease in our revenue from Balad include the following: a deterioration in our relationship with the USAF or the Government of Iraq, serious instability or increased insurgent activity in Iraq, a decision by the U.S. federal government to decrease or eliminate its support for the F-16 program in Iraq, a decision to increase the use of local contractors to provide some or all the services we provide, pricing pressure from competitive bidding for future contracts, the awarding of some or all of the services we perform under the current contract to other providers, and other factors.

 

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The Balad Base Support Contract is subject to definitization, which presents risks to us if our estimates of the fees on that contract are more than what we are ultimately able to realize or if the definitization process takes longer to complete than we currently anticipate.

In January 2018, we were awarded a new contract by the USAF to support the Iraqi Air Force F-16 fleet at Balad Air Base (the “Balad Base Support Contract”). This contract was awarded as an “undefinitized contract action,” which requires us to “definitize” the contract after we begin to provide services. This means we have not agreed with the USAF upon certain contract terms, including the fee associated with the services we provide. Prior to the definitization of the Balad Base Support Contract, we are required to perform the contract work, make deliveries and receive payments reimbursing us for the costs associated with executing the contract, less applicable withholding, from the USAF. For this reason, we are currently only invoicing the USAF for the direct and indirect costs of servicing this contract, less applicable cost withholdings, until such time that we reach an agreement on the terms of the contract, including the applicable fee. To date, we have been recording our revenue associated with the Balad Base Support Contract at an estimated fee that we anticipate realizing upon definitization. While we believe that our current estimated fee is a reasonable approximation of what we will realize upon definitization, when definitization occurs, we will adjust our revenue to date based upon the actual fee negotiated with the USAF, which may be more or less than our current estimate. Accordingly, there can be no assurance that the actual definitized contract fees and allowable costs that we receive under the Balad Base Support Contract will not be substantially less than our current estimates or costs, which could adversely affect our financial condition and results of operations.

We anticipate that the Balad Base Support Contract will be definitized in the fourth quarter of 2018 or the first quarter of 2019. However, the definitization process can be time-consuming and completion can take an extensive period of time. As a result, there can be no assurance that the Balad Base Support Contract will be definitized within this time period, which could adversely affect our financial condition and results of operations.

Failure to comply with the U.S. federal government’s compliance regulations and procurement laws could result in a loss of business, liability for various penalties or sanctions and the results of our operations could be materially and adversely affected.

The business owned and operated by Holdings was formed from the combination in August 2018 of four companies:

 

   

Sallyport, which was a subsidiary of Michael Baker, a DC Capital portfolio company that acquired Sallyport in 2011;

 

   

Janus, which DC Capital acquired on December 15, 2017;

 

   

CHS, which DC Capital acquired on March 22, 2018; and

 

   

PT&C, which DC Capital acquired on March 22, 2018.

As a result, our combined business operations have been under common control for less than one year and under Holdings’ ownership for a shorter period. Our efforts to integrate their operations and key functions are ongoing. At present, each of the four entities has different compliance functions, including different policies, that individually cover a range of compliance requirements, but do so in different ways with different reporting mechanics. We are in the process of integrating the compliance functions of the entities under a unified, comprehensive compliance program with a unified reporting function. We cannot assure you when this unification process will be completed. Prior to the completion of that project, we are exposed to the risk of having different approaches to compliance among the four entities, including that the lack of a uniform and centralized compliance function may adversely impact our efforts to ensure compliance with applicable laws and regulations.

Failure to comply with certain control regimes, such as the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), could lead to severe penalties, both civil and criminal, and could include debarment from contracting with the U.S. federal government and serious reputational damage. During the course of and post-Reorganization, as part of a unified, comprehensive compliance program, we will integrate our existing policies and develop a comprehensive and inclusive set of policies to ensure compliance with the broad range of U.S. federal government laws and regulations, including, for example:

 

   

laws and regulations that affect how we procure and conduct business under our U.S. federal government contracts;

 

   

the FCPA and any applicable sanctions laws and regulations;

 

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the False Claims Act;

 

   

the U.S. federal government’s internal audit and investigative agencies’ regulations; and

 

   

the anti-corruption laws and regulations of other jurisdictions in which we do business.

There can be no assurance that we will be able to integrate those policies and procedures on our intended timeline or that such actions will not be more costly than expected. We may also need to hire additional personnel to effectuate such changes. Failure to complete these tasks could impair our ability to obtain or retain our U.S. government contracts.

We operate in a number of challenging and politically charged environments, and have been subject to public scrutiny as a result of operating in these areas. Allegations regarding our activities, even when conducted in full compliance with applicable laws, could harm our reputation and adversely impact our share price.

We have been the target of claims, some of them high profile, of wrongdoing and malfeasance. For example, in May 2017 two terminated employees alleged in the press that we had disregarded wrongdoing at the Balad Air Base, and had ultimately terminated those employees for raising concerns about these matters. In May 2017, the House Oversight and Government Reform Committee (the “Committee”) sought information about these allegations, and we cooperated in their inquiry. We retained independent counsel and a human rights consultant to review the allegations, each of whom completed reports concluding that the allegations of wrongdoing were unfounded. While we will not receive formal notice that the Committee is not proceeding with an inquiry, we currently do not believe that any hearings by the Committee will be held on these matters and are pursuing a defamation claim against the two employees who raised these allegations. Our operations expose us to the risk of significant reputational harm, and allegations of impropriety like this, even if they are found to be baseless, have the potential of adversely affecting our business and share price.

In addition, through our medical and humanitarian services business, we are involved in providing medical and daily living services for children who are stopped and taken into custody at the U.S. border. We expect these operations to be a part of our business in the future and our levels of operations in these areas may increase. Our services are currently provided through the Office of Refugee Resettlement (the “ORR”), an office within the Department of Health and Human Services (“HHS”). Historically, ORR cared for unaccompanied minors who illegally crossed the U.S. border while families crossing the border together were placed into custody of the U.S. Immigration and Customs Enforcement (“ICE”), an agency within the Department of Homeland Security (“DHS”). More recently, ORR has provided care for children who were separated from their families pursuant to policies of the current Administration. Pursuant to our contracts with the ORR, we have provided services to care for certain of these separated children. We have not been involved in the separation of children from their families and do not currently provide services to ICE, although we have sought opportunities and may do so in the future. In the past, we have received negative publicity for this work with ORR, and it is possible that we may be subject to such negative publicity in the future as well.

Allegations of impropriety or reports mischaracterizing our activities or criticism of the missions that we are supporting have the potential to cause us reputational harm, which could harm our business and our relationships with suppliers, customers and investors. Any of these could adversely impact our share price.

Our international operations require us to comply with anti-corruption laws and regulations of the United States and various other jurisdictions in which we do business, and violations of these laws and regulations could materially adversely affect our reputation, business, financial condition and results of operations.

Doing business on a worldwide basis requires us to comply with the laws and regulations of the United States and various other jurisdictions, and the failure to successfully comply with these rules and regulations may expose us to various kinds of liability, including but not limited to fines, penalties and reputational damage. These laws and regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the FCPA. The FCPA prohibits us, and our agents, from providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment.

As part of our business, we may deal with foreign governments or state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. In addition, we operate in

 

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Iraq, Afghanistan and other international locations that have less developed legal systems and/or have elevated levels of corruption as compared to the United States. In such locations, certain U.S. or global companies have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies. We maintain, and are in the process of updating, policies and procedures designed to assist us and our respective employees all over the world in complying with our code of conduct and applicable laws and regulations. Such policies are not yet uniform across our organization. However, we cannot assure you that our policies and procedures have been or will be effective to prevent us, our subsidiaries or our respective employees and agents from violating any laws and regulations. For example, in November 2016, we voluntarily disclosed to the U.S. Department of Justice (the “DoJ”) a potential violation of the FCPA and potentially other U.S. laws related to Afaq Umm Qasr Marine Services Company (“Afaq”), Sallyport’s partner on several USAF contracts at several bases in Iraq, including the Balad Air Base. See “Business—Legal Proceedings—Afaq Matter.”

In addition, from time to time, we may retain or otherwise engage a sales representative, consultant or other form of intermediary to provide some sort of professional services in the promotion of our business in a particular country. Under the terms of our contracts or pursuant to local law, we may also be required to work with foreign suppliers or contractors. We have procedures in place for vetting international agents, partnerships, pursuits and joint venture agreements designed to ensure we comply with applicable anti-corruption laws. However, if we are not in compliance with laws and regulations that apply to our international operations, we may be subject to civil or criminal penalties and other remedial measures, which could adversely affect our business, financial condition and results of operations.

We are exposed to the risk and consequences of violations of anti-corruption laws. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions and/or suspension or debarment from U.S. federal government contracts as well as other remedial measures, and could materially adversely affect our reputation, business, financial condition and results of operations. In addition, investigations of any actual or alleged violations of such laws or policies related to us could materially harm our business.

Our international operations are subject to laws and regulations concerning U.S. economic sanctions and export restrictions, the violation of which could subject us to civil or criminal penalties and other remedial measures that could adversely affect our business, financial condition and results of operations.

Our business, and in particular our international operations and activities, are subject to various export controls and trade and economic sanctions laws and regulations, including, but not limited to, the DoS’s International Traffic in Arms Regulations (“ITAR”), the U.S. Commerce Department’s Export Administration Regulations, the U.S. Treasury Department’s Office of Foreign Assets Control’s trade and economic sanctions programs, the DoS’s Nonproliferation Sanctions and similar laws and regulations of other jurisdictions applicable to our business (collectively, the “Trade Controls”). The Trade Controls may prohibit or restrict our ability to, directly or indirectly: (i) export, re-export or provide certain hardware, technical data, technology, software or services to certain countries or persons; or (ii) conduct activities or dealings in or with certain countries that are the subject of comprehensive embargoes (as of the date of this prospectus, Cuba, Iran, North Korea, Syria and the Crimea region of Ukraine) and/or with individuals or entities that are the subject of Trade Controls-related prohibitions and restrictions. Further, certain of our export activities may require licensing or other authorization, including certain registration and/or reporting requirements, from relevant regulatory authorities. If considered serious by the relevant enforcement agency, violations can potentially result in significant financial penalties and have a material adverse effect on our financial condition and results of operations. We have pending voluntary self-disclosures to the DoS’s Directorate of Defense Trade Controls (“DDTC”) pertaining to the failure to comply with certain reporting requirements under Part 130 of the ITAR, the failure to include a subsidiary on the Company’s ITAR registration, and possible inadvertent dealings with an unauthorized broker. For further detail, see “Business—Legal Proceedings—Voluntary Disclosure and Related Claims.” The outcome of these disclosures will depend on many factors and is challenging to predict.

Our failure to comply with applicable Trade Controls, as well as with other applicable laws and regulations of a similar nature, may expose us to potentially significant negative legal and business consequences, including civil or criminal penalties, government investigations, and financial and reputational harm.

 

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Political destabilization or insurgency in the regions in which we operate may have a material adverse effect on our business and results of operations.

Our business depends in large part on our ability to operate in countries that are either highly unstable or face the risk of substantial future instability, including Iraq, Afghanistan, Libya, and Somalia, among others. During 2017 and the six months ended June 30, 2018, we received 62% and    %, respectively, of our pro forma revenue from operations we performed in Iraq and 8% and    %, respectively, of our pro forma revenue from operations that we performed in Afghanistan.

The level of stability in the countries in which we operate is influenced by the degree of civil unrest in the country, activities taking place within neighboring countries and the actions of their governments, the level of insurgent activity in the region and other factors. There can be no assurance that the countries in which we operate will continue to be stable enough to allow us to operate profitably or at all. Further, the fact that we provide services and products in support of U.S. federal government clients in such countries increases the risk of an incident resulting in injury or loss of life, or damage or destruction of property or an inability to meet our contractual obligations. Unstable conditions or the perception of instability, in a particular country could impair our ability to attract and deploy personnel to perform services there. Insurgent activity in Iraq and Afghanistan has affected installations where we have personnel. For example, in 2014, we evacuated over 1,500 employees from the Balad Air Base during the 2014 ISIS insurgency in Iraq. We were able to leave behind a sufficient staff of security and support services personnel to maintain base operations during that period, but the evacuation and slowdown of operations delayed our ability to provide certain services. In addition, we may be required to increase compensation to our personnel as an incentive to deploy them to unstable regions, be forced to bear increased security costs, or suffer other cost increases, and we may not be able to recover these amounts through our contracts. If we suffer an increase in costs due to instability and are unable to transfer these costs to our clients, our operating margins and results from operations would be adversely affected.

If the U.S. federal government were to change its policy and curtail operations in one or more regions where we operate, our business could be adversely affected.

We provide services in Iraq, Afghanistan and other unstable regions. We depend upon the U.S. federal government to provide financial and other support, including local security, for the service we provide. If the U.S. federal government were to change its policy regarding support for these regions, whether due to increased insurgent activities or destabilization, including civil unrest or a civil war in Iraq or Afghanistan, or deteriorating relationships between the United States and these countries, we may be unable to provide services or our contracts to provide services could be terminated. The U.S. federal government may instead choose to perform the services using military personnel or curtail the services altogether, including our operations under U.S. federal government contracts in a particular location, country or region and to withdraw all or a substantial number of military personnel. Congressional pressure to reduce, if not eliminate, the number of U.S. troops in Iraq and Afghanistan may also lead to U.S. federal government procurement actions that reduce or terminate the services and support we provide in that theater of conflict. Any of the foregoing could adversely affect our operating performance and may result in additional costs and loss of revenue.

If we fail to comply with complex procurement laws and regulations, we could lose business and be liable for various penalties or sanctions.

We must comply with laws and regulations relating to the formation, administration and performance of U.S. federal government contracts, which affect how we conduct business with the U.S. federal government. In complying with these laws and regulations, we may incur additional costs. Any non-compliance could result in the imposition of significant fines and penalties, including contractual damages, and impact our ability to obtain additional business in the future. Among the more significant laws and regulations affecting our business are the following (collectively, the “Procurement Laws”):

 

   

the Procurement Integrity Act, which requires evaluation of ethical conflicts surrounding procurement activity and establishing certain employment restrictions for individuals who participate in the procurement process;

 

   

the Federal Acquisition Regulation (the “FAR”) and agency supplements to the FAR, which regulate the formation, administration and performance of U.S. federal government contracts;

 

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the Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations;

 

   

the Cost Accounting Standards and Cost Principles, which impose accounting requirements that govern our right to reimbursement under certain cost-based U.S. federal government contracts;

 

   

U.S. export controls, including ITAR and Export Administration Regulations;

 

   

the U.S. Treasury Department’s Office of Foreign Assets Control’s various trade and economic sanctions and programs; and

 

   

the FCPA and similar worldwide anti-corruption laws, such as the U.K. Bribery Act.

Failure to comply with these laws and regulations can lead to severe penalties, both civil and criminal, which penalties can include suspension or debarment from contracting with the U.S. federal government.

Our U.S. federal government agency clients regularly review our compliance with Procurement Laws and regulations as well as our performance under the terms of our U.S. federal government contracts and subcontracts. In certain of our operations, we have representatives of the federal government on site monitoring our operations. If a government review or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties or administrative sanctions, including (i) termination of contracts, (ii) forfeiture of profits, (iii) cost associated with triggering of price reduction clauses, (iv) suspension of payments, (v) fines and (vi) suspension or debarment from doing business with U.S. federal government agencies.

If we fail to comply with these laws and regulations, we may also suffer harm to our reputation, which could impair our ability to win awards of contracts and subcontracts in the future or receive renewals of existing contracts and subcontracts. If we are subject to civil and criminal penalties and administrative sanctions or suffer harm to our reputation, our current business, future prospects, financial condition or results of operations could be materially harmed.

If we provide a false or fraudulent claim to the U.S. federal government related to our performance of U.S. federal government contracts we may face investigation or prosecution under the civil False Claims Act which can result in lost business, treble damages, civil penalties, and sanctions.

The civil False Claims Act of 1863, as amended (“FCA”), could present substantial risk to our business if we fail to operate in compliance with the FCA. Actions under the FCA may be brought by the U.S. federal government or by other persons on behalf of the government known as “whistleblowers” or relators (who may then share a portion of any recovery).

The FCA provides for treble damages and potentially substantial civil penalties where a contractor presents, or causes to be presented, a false or fraudulent claim to the U.S. federal government for payment or approval. Actions under the FCA frequently assert that a contractor has filed a “false claim” based on either (i) an alleged misrepresentation by the contractor in a representation or certification to the government or (ii) an alleged breach of a contractual requirement by the contractor. Actions under the FCA, in some instances, allege that a contractor committed fraud in the inducement and claim that the entire value of the contract is the measure of damages to the government—an amount that can then be trebled.

In FCA cases, whistleblowers are frequently current or former employees. Private enforcement of fraud claims against contractors on behalf of the U.S. federal government has increased due in part to amendments to the FCA that encourage private individuals to sue on behalf of the government. The FCA also contains anti-retaliation provisions, and it is possible for current or former employees to file an FCA retaliation claim without filing claims in the name of the U.S. federal government.

FCA actions filed by whistleblowers are typically filed under seal to allow the U.S. federal government the opportunity to investigate the allegations and determine whether to intervene in the case. If the government intervenes, it takes over prosecution of the allegations, and if the government declines to intervene, the whistleblower may prosecute the case in the government’s name. The U.S. federal government investigations used to make the intervention determination typically use either administrative subpoenas or civil investigative demands to require contractors to produce documents or make witnesses available. Because the cases are filed under seal, it is possible for FCA complaints to be filed and pending in court and for the contractors involved to have no formal

 

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notice or indication that the claim has been filed until the seal is lifted—typically when the U.S. federal government makes its intervention decision. Intervention decisions can in some instances be months or years after the original complaint is filed. It is possible that FCA claims have been filed by whistleblowers and remain under seal at this time.

If we fail to comply with the FCA, we may also suffer harm to our reputation, which could impair our ability to win awards of contracts and subcontracts in the future or receive renewals of existing contracts and subcontracts. In addition, investigations of any actual or alleged violations of the FCA could have a material adverse effect on our financial condition and results of operations. See “Business—Legal Proceedings—Qui Tam Claims.”

Our employees or subcontractors may engage in misconduct or other improper activities, which could cause us to lose clients or lead to our suspension or debarment from contracting with the U.S. federal government.

Should an employee, subcontractor or agent commit fraud or should other misconduct occur, such an occurrence could have an adverse impact on our business and reputation. Misconduct by employees, subcontractors or joint venture partners could involve security breaches or intentional failures to comply with applicable laws, including U.S. federal government procurement regulations, legislation regarding the pricing of labor and other costs in government contracts, laws and regulations relating to environmental, health or safety matters, regulatory or internal policy requirements for handling of sensitive, classified or otherwise protected information, or anti-corruption laws, including the Anti-Kickback Act. Employee misconduct could also involve improper release or use of our clients’ sensitive or classified information, which could result in regulatory sanctions against us and serious harm to our reputation. These actions could lead to civil, criminal and/or administrative penalties (including fines, imprisonment, suspension and/or debarment from performing U.S. federal government contracts) and harm our reputation. The precautions we take to prevent and detect such activity may not be effective in controlling unknown or unmanaged risks or losses. We have voluntarily disclosed to the DoJ a potential violation of the FCPA and other U.S. laws by Afaq, our former subcontractor, relating to alleged promises made by Afaq to pay Iraqi government officials in exchange for those officials naming Sallyport as a provider of services at the Balad Air Base, see “Business—Legal Proceedings—Afaq Matter.” Investigations into these matters are ongoing and it is too early to know whether there were any violations and, if so, what the consequences may be.

Our business operations involve considerable risks and hazards. An accident or incident involving our employees or third parties could harm our reputation, affect our ability to compete for business and, if we are not adequately insured or indemnified, could adversely affect our results of operations and financial condition.

Our business involves providing services that require some of our employees to operate in countries that may be experiencing political unrest, war or terrorism. As a result, during the course of such deployments we are exposed to liabilities arising from accidents or incidents involving our employees or third parties and in the past, incidents related to these risks have caused injury to our employees. Any of these types of accidents or incidents could involve significant potential injury or other claims by employees and/or third parties. It is also possible that we will encounter unexpected costs in connection with additional risks inherent in sending our employees to dangerous locations, such as increased insurance costs, as well as the unexpected repatriation of our employees or executives for reasons beyond our control. We maintain insurance policies that mitigate risk and potential liabilities related to our operations. Our insurance coverage may not be adequate to cover those claims or liabilities, and we may be forced to bear substantial costs from an accident or incident. Substantial claims in excess of our related insurance coverage could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.

Furthermore, any accident or incident for which we are liable, even if fully insured, may result in negative publicity that could adversely affect our reputation among our employees, clients and the public, which could result in our losing existing and future contracts, make it more difficult to compete effectively for future contracts or make it more difficult or more expensive to hire the people needed to service our contracts. This could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.

 

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The competitive bidding process can impose substantial constraints and costs upon us and may lead to lower revenue and profitability or result in delays caused by protests or challenges of contract awards.

We derive significant revenue from U.S. federal government contracts that are awarded through competitive bidding processes. We expect that a significant portion of our future business will also be awarded through competitive bidding. Competitive bidding presents a number of risks, including:

 

   

bidding on programs in advance of the completion of their design, which may result in unforeseen difficulties in execution or cost overruns;

 

   

substantial cost and managerial time and effort to prepare bids and proposals for contracts that may not be awarded to us, which may result in reduced profitability;

 

   

failing to accurately estimate the resources and cost structure that will be required to service any contract we are awarded;

 

   

changes to client bidding practices or U.S. federal government reform of its procurement practices, which may alter the prescribed contract requirements relating to contract vehicles, contract types and consolidations;

 

   

changes in policy and goals by the U.S. federal government providing set-aside funds to small businesses, disadvantaged businesses and businesses that satisfy certain other socio-economic requirements in the allocation of contracts; and

 

   

incurring expenses and delays due to a competitor’s protest or challenge of contract awards made to us, including the risk that any such protest or challenge could result in the resubmission of bids on modified specifications or in the termination, reduction or modification of the awarded contract, which may result in reduced profitability.

In addition, the U.S. federal government budget environment has at times led an increasing number of our clients to focus on cost as a key component of the procurement evaluation process. This focus has increased competitive pricing pressures, which could result in a reduction to the profits we could potentially earn on our U.S. federal government contracts. A constrained budgetary environment for our clients may lead to additional pricing pressures, which may require us to further reduce our prices in order to successfully bid for contracts, thereby adversely affecting our earnings and profitability.

Budgetary pressures and reforms in the procurement process have caused many U.S. federal government clients to purchase goods and services through multiple award IDIQ contracts and other multiple award and/or government -wide acquisition contract vehicles. These contract vehicles require that we make sustained post-award efforts to obtain task orders under the relevant contract. There can be no assurance that we will obtain revenue or otherwise sell successfully under these contract vehicles.

If we are unable to win particular contracts that are awarded through the competitive bidding processes, in addition to the risk that our financial condition and results of operations may be adversely affected, we may be unable to operate in the market for services that are provided under those contracts for a number of years. Even if we win a particular contract through competitive bidding, our profit margins may be reduced due to the costs incurred as a result of the procurement process. Furthermore, the competitive bidding process may require us to decrease the margin by which we expect our bid price to exceed our costs.

The failure by the U.S. Congress to approve budgets on a timely basis for the U.S. federal government agencies we support could delay procurement of our services and cause us to lose future revenue.

On an annual basis, the U.S. Congress must approve budgets that govern spending by the federal agencies that are our clients. In years when the U.S. Congress is not able to complete its budget process before the end of the U.S. federal government’s fiscal year on September 30, the U.S. Congress typically funds government operations pursuant to a continuing resolution, which allows U.S. federal government agencies to operate at spending levels approved in the previous budget cycle. When the U.S. federal government operates under a continuing resolution, it may delay funding we expect to receive from clients on work we are already performing and often results in new initiatives being delayed or, in some cases, canceled. The U.S. federal government’s failure to complete its budget process or to fund government operations pursuant to a continuing resolution may result in a U.S. federal government shutdown. U.S. federal government shutdowns may also occur, and have been threatened, in connection with other

 

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disputes and impasses in government policy. A shutdown of the U.S. federal government could cause us to have to delay work or limit the scope of our work, could lead to us being paid more slowly, and could result in fewer contracts being available to us.

In addition, under the Budget Control Act of 2011, as amended, an automatic sequestration process, or across-the-board budget cuts (a large portion of which was defense-related), was triggered when the Joint Select Committee on Deficit Reduction, a committee of twelve members of the U.S. Congress, failed to agree on a deficit reduction plan for the U.S. federal government budget. Although the Bipartisan Budget Act of 2013, as amended, provided some sequester relief until the end of 2017, absent additional legislative or other remedial action, the sequestration requires reduced U.S. federal government spending from 2017 through 2025. A significant reduction in U.S. federal government spending or a change in budgetary priorities could reduce demand for our services, cancel or delay federal projects and result in the closure of federal facilities and significant personnel reductions, any or all of which could have a material adverse effect on our results of operations and financial condition.

Unfavorable U.S. federal government audits or results of other investigations could subject us to penalties or sanctions, adversely affect our profitability, harm our reputation and relationships with our clients or impair our ability to win new contracts.

The Defense Contract Audit Agency (“DCAA”), Defense Contract Management Agency (“DCMA”) and other U.S. federal government agencies routinely audit and investigate government contracts and contractor systems. These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards on an annual basis. Additionally, beginning in the third quarter of 2018, because a substantial part of our revenue comes from the U.S. federal government, we expect the DCAA to establish a presence in our Company to facilitate regular reviews and audits of our Company. The DCAA and DCMA also review the adequacy of, and compliance with, internal control systems and policies, including accounting, purchasing, estimating, compensation and management information systems. Allegations of impropriety or deficient controls could harm our reputation or influence the award of new contracts. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If any of our internal control systems or policies is found to be non-compliant or inadequate, payments may be withheld or suspended under our contracts, or we may be subject to increased U.S. federal government scrutiny and approval requirements that could delay or adversely affect our ability to invoice and receive timely payment for services we perform on our contracts. Adverse findings by DCAA or DCMA may also impair our ability to compete for and win new contracts with the U.S. federal government. As a result, a DCAA or DCMA audit could materially affect our competitive position and result in a substantial adjustment to our revenue and adversely affect our profitability.

We may not receive the full amount authorized under our contracts, and we may not accurately estimate our contract backlog, either of which could adversely affect our future revenue and growth prospects.

Contract backlog consists of that portion of uncompleted work represented by signed contracts and/or approved task orders, and for which the procuring agency has appropriated and allocated the funds to pay for the work and incrementally, that portion of contract value for which options have not yet been exercised or task orders have not been approved. Our backlog was $2.2 billion as of December 31, 2017 and $             billion as of June 30, 2018. U.S. federal government agencies operate under annual fiscal appropriations and fund various contracts only on an incremental basis. In addition, our clients may terminate contracts at will or not exercise option years. Our ability to realize revenues from our backlog depends on the availability of funding from various U.S. federal government agencies; therefore, no assurance can be given that all backlog will be realized. Our estimates are based on our experience on similar contracts; however, there can be no assurance that we will recognize all, or any, of this estimated contract revenue.

We historically have not realized all of the revenue included in our total contract backlog, and expect this to continue in the future. There is a somewhat higher degree of risk in this regard with respect to unfunded contract backlog (which represents the significant majority of our backlog), since it contains management’s estimate of amounts expected to be realized on unfunded contract work that the U.S. federal government may never fund or complete. In addition, there can be no assurance that our contract backlog will result in actual revenue in any particular period, or at all, because the actual receipt, timing and amount of revenue under contracts included in the contract backlog are subject to numerous uncertainties, such as congressional appropriations, many of which are beyond our control. In particular, delays in the completion of the U.S. federal government’s budgeting process and the use of continuing resolutions could adversely affect our ability to timely recognize revenue under our contracts included in the contract

 

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backlog. Furthermore, the actual receipt of revenue from contracts included in the contract backlog may never occur or may be delayed because a program schedule could change or the program could be canceled and/or a contract’s funding or scope could be reduced, modified, delayed or terminated early, including as a result of a lack of appropriated funds or as a result of cost cutting initiatives and other efforts to reduce U.S. federal government spending. If we fail to realize as revenue those amounts included in our contract backlog, our future revenue and growth prospects may be adversely affected.

Our IDIQ contracts are not firm orders for services, and we may generate limited or no revenue from these contracts which could adversely affect our operating performance.

Revenues from IDIQ contracts were     % and    % of our pro forma revenues in 2017 and our revenues in the six months ended June 30, 2018, respectively. IDIQ contracts are typically awarded to multiple contractors and the award of an IDIQ contract does not represent a firm order for services. Generally, under an IDIQ contract, the U.S. federal government is not obligated to order a minimum of services or supplies from its contractor, irrespective of the total estimated contract value. Furthermore, under a multi-award IDIQ program, the client develops requirements for task orders that are competitively bid against all of the contract awardees. However, many contracts also permit the U.S. federal government client to direct work to a specific contractor. We may not win new task orders under these contracts for various reasons, including price, past performance and responsiveness, among others, which would have an adverse effect on our operating performance and may result in additional expenses and loss of revenue. There can be no assurance that our existing IDIQ contracts will result in actual revenue during any particular period or at all.

The U.S. federal government may change its procurement or other practices in a manner adverse to us.

The U.S. federal government may change its procurement practices or adopt new contracting laws, rules or regulations and cost accounting standards. For example, it could change its preference for procurement methods and/or contract type in a manner that is unfavorable to contractors in our industry generally. Any such change could potentially place greater pressure on our profit margins and could materially harm our financial condition and results of operations. In addition, aspects of the U.S. federal government’s procurement system, such as the number of acquisition personnel available to support the workload imposed by protests, could exacerbate delays in the procurement decision-making process, thus delaying our ability to generate revenue from proposals and awards. The U.S. federal government could also adopt new socio-economic and other acquisition requirements, which could restrict our ability to bid on certain contracts and reduce our revenue opportunities. Any new contracting methods could be costly or administratively difficult for us to satisfy and, as a result, could cause actual results to differ materially and adversely from those anticipated.

If we are unable to successfully identify suitable acquisition candidates and integrate companies we acquire into our operations on a timely basis, our profitability could be negatively affected.

One of our key operating strategies is to selectively pursue acquisitions, and we expect that acquisitions will result in certain business opportunities and growth prospects. We have made a number of acquisitions in the past, continue to evaluate potential acquisitions on an ongoing basis and expect that a significant portion of our future revenue growth will continue to come from such transactions. However, we may never realize these expected business opportunities and growth prospects because we may experience increased competition that limits our ability to expand our business, our assumptions underlying estimates of expected cost savings may be inaccurate or general industry and business conditions may deteriorate.

Acquisitions involve numerous risks, including, but not limited to:

 

   

we may not be able to identify suitable acquisition candidates at prices we consider attractive;

 

   

we may not be able to compete successfully for identified acquisition candidates, complete future acquisitions or accurately estimate the financial effect of acquisitions on our business;

 

   

future acquisitions may require us to spend significant cash and incur additional debt, resulting in additional leverage;

 

   

we may have difficulty retaining an acquired company’s key employees or clients;

 

   

we may have difficulty integrating acquired businesses, resulting in unforeseen difficulties, such as incompatible accounting, information management or other control systems, or the need to significantly update and improve the acquired business’s systems and internal controls;

 

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we may assume potential liabilities for actions of the target before the acquisition, including as a result of a failure to comply with applicable laws;

 

   

we may be unable to maintain or renew any of the U.S. federal government contracts of businesses we acquire;

 

   

acquisitions may disrupt our business or divert our management from other responsibilities;

 

   

current operating and financial systems and controls may be inadequate to deal with our growth; and

 

   

as a result of an acquisition, we may need to record write-downs from future impairments of intangible assets, which could reduce our future reported earnings.

If these factors limit our ability to integrate the operations of our acquisitions successfully or on a timely basis, we may not meet our expectations for future results of operations. In addition, our growth and operating strategies for businesses we acquire may be different from the strategies that such target businesses currently are pursuing. If our strategies are not the proper strategies for a company we acquire, it could have a material adverse effect on our business, financial condition and results of operations. Further, there can be no assurance that we will be able to maintain or enhance the profitability of any acquired business or consolidate the operations of any acquired business to achieve cost savings.

In addition, there may be liabilities that we fail, or are unable, to discover in the course of performing due diligence investigations on each company or business we have already acquired or may acquire in the future. Such liabilities could include those arising from employee benefits contribution obligations of a prior owner or non-compliance with, or liability pursuant to, applicable federal, state or local environmental requirements by prior owners for which we, as a successor owner, may be responsible. In addition, there may be additional costs relating to acquisitions including, but not limited to, possible purchase price adjustments. There can be no assurance that rights to indemnification by sellers of assets to us, even if obtained, will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business.

Goodwill represents a significant asset on our balance sheet, and changes in future business conditions could cause these investments to become impaired, requiring substantial write-downs that would reduce our operating income.

As of June 30, 2018, our goodwill was $            million. The amount of our recorded goodwill may substantially increase in the future as a result of any acquisitions that we make. We evaluate the recoverability of recorded goodwill amounts annually, or when evidence of potential impairment exists. Impairment analysis is based on several factors requiring judgment and the use of estimates, which are inherently uncertain and based on assumptions that may prove to be inaccurate. Additionally, material changes in our financial outlook, as well as events outside of our control, such as deteriorating market conditions for companies in our industry, may indicate a potential impairment. When there is an impairment, we are required to write down the recorded amount of goodwill, which is reflected as a charge against operating income.

Failure to properly manage projects may result in additional costs or claims.

Our engagements often involve large scale, highly complex projects. The quality of our performance on such projects depends in large part upon our ability to manage relationships with our clients and to effectively manage the project and deploy appropriate resources, including third-party contractors and our own personnel in a timely manner. Any failure to meet clients’ expectations could result in claims for substantial damages against us or the termination of our contracts. Our contracts generally limit our indemnification obligations to our clients to damages that arise from negligent acts, error, mistakes or omissions in rendering services to our clients. However, we cannot be sure that these contractual provisions will protect us from all liability for damages in the event we are sued. In addition, in certain instances, we guarantee clients that we will complete a project by a scheduled date. If the project experiences a performance problem, we may not be able to recover the additional costs we may incur, which could exceed revenue realized from a project. Finally, if we underestimate the resources or time we need to complete a project with capped or fixed fees, our financial condition and results of operations could be materially adversely affected.

 

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Many of our contracts require us to maintain minimum insurance coverage levels. The unavailability or cancellation of these third-party insurance coverages could increase our overall risk exposure as well as disrupt the management of our business operations.

We maintain insurance coverage with third-party insurers as part of our overall risk management strategy and because some of our contracts require us to maintain specific insurance coverage limits. However, not every risk or liability is or can be protected by insurance, and, for those risks we insure, insurance is expensive and the limits of coverage we purchase or that are reasonably obtainable in the market may not be sufficient to cover all actual losses or liabilities incurred. If any of the third-party insurers fail, suddenly cancel our coverage or otherwise are unable to provide adequate insurance coverage, then our overall risk exposure could increase and the management of our business operations could be disrupted. If liability claims or losses exceed our current or available insurance coverage, our business, financial position, operating results and prospects may be harmed. Regardless of the adequacy of our liability insurance coverages, any significant claim could have a material adverse effect on our business, industry reputation, prospects, financial condition and results of operations. In addition, there can be no assurance that any of our insurance coverage will be renewable or obtainable on commercially reasonable terms or at all upon the expiration of the applicable coverage period.

The nature of our business exposes us to potential liability claims and contract disputes, and we may be involved in claims or litigation in domestic and foreign courts that exceed our coverage or may not be covered by insurance and consequently could negatively impact our business, results of operations and financial condition.

We engage in large-scale program management at facilities where accidents or systems failures have in the past or may in the future result in substantial injury, damage, and other significant consequences, exposing us to legal proceedings, investigations and disputes. Our business involves professional judgments regarding rapid response for operations, maintenance and repair, classified engineering, fire and emergency services, risk management and environmental services. Because our projects are often large and complicated and may involve the use and handling of hazardous chemicals and wastes, our failure to make judgments and recommendations in accordance with applicable laws and professional standards could result in large damages. Any such accident or failure at a site where we provide services could result in significant liability, warranty and other claims against us, regardless of whether our services caused the incident. Further, the services we provide and projects we work on expose us to additional risks, including, but not limited to, personal injuries, property damage, permitting delays, work stoppages, labor disputes, weather problems and unforeseen engineering, architectural, environmental and geological problems, each of which could significantly impact our business, results of operations and financial condition.

In the event of a dispute arising internationally, we may be subject to the exclusive jurisdiction of a foreign court or panel or may not be successful in subjecting foreign persons to the jurisdiction of the courts in the U.S. We may also be hindered or prevented from enforcing our rights with respect to a government entity or instrumentality because of the doctrine of sovereign immunity. In addition, in the event that a foreign court decides against us, and we are unable to obtain indemnification from the U.S. federal government, we may incur substantial costs, which could have a material adverse effect on our business, prospects, financial condition and results of operations. For instance, as described under “Business—Legal Proceedings—Afaq Matter,” we are currently engaged in litigation in Iraqi national courts regarding our contractual relationship with a former subcontractor.

We are, and may from time to time become, involved in litigation and other legal proceedings. Claims have in the past and may in the future include those by former disgruntled employees, contract disputes, injury and other matters. Any such claims could be costly, subject us to negative publicity or divert management attention. See “Business – Legal Proceedings.”

We face aggressive competition that can impact our ability to obtain contracts and therefore affect our future revenue and growth prospects.

We operate in highly competitive markets and generally encounter significant competition to win contracts. Many of our competitors are larger companies, or divisions of larger companies, that have greater name recognition, financial resources and larger technical staffs than we do. We also compete with smaller, more specialized companies that are able to concentrate their resources on particular areas. To remain competitive, we must provide superior service and performance on a cost-effective basis. Our competitors may be able to provide our clients with different or greater capabilities or more favorable contract terms than that we can provide, including technical qualifications, past contract experience, geographic presence, price and the availability of qualified professional personnel. In particular,

 

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increased efforts by our competitors to meet U.S. federal government requirements for efficiency and cost reduction may necessitate that we become more competitive with respect to price, and thereby potentially reduce our profit margins, in order to win or maintain contracts. In addition, our competitors may consolidate or establish teaming or other relationships among themselves or with third parties to increase their ability to address clients’ requirements.

Our success depends on our ability to retain key personnel, including our management team, and recruit and retain employees with the necessary skill sets, and in certain circumstances, the ability to obtain security clearances.

Our future success significantly depends on the continued services, experience and performance of our key management personnel as well as key employees. The loss of any key members of management or employees could negatively affect our ability to execute our business strategy. In addition, our future success also depends on our continuing ability to identify, hire, train and retain qualified business development personnel, engineers, architects, subject matter experts and other professional services and managerial personnel as well as employees who have advanced engineering, IT and technical services skills and who work well with our clients in a U.S. federal government or defense-related environment. Competition for skilled personnel is intense and competitors aggressively recruit key employees, which can result in a longer hiring process for key personnel. In addition, many U.S. federal government programs require contractors to have security clearances. Depending on the level of required clearance, security clearances can be difficult and time-consuming to obtain and personnel with security clearances are in great demand.

We provide services in a number of different jurisdictions with different legal, regulatory and language requirements. This requires us to seek out and engage personnel in these jurisdictions that have the necessary legal, regulatory and language expertise. Identifying qualified personnel may be very difficult, and such personnel may not be readily available or may not be cost effective. Should we be unable to find properly trained and experienced personnel, we will be unable to provide services in such jurisdictions, which could adversely affect our business, financial condition and results of operations. Our international transactions can also involve increased financial and legal risks arising from foreign exchange rate variability, imposition of tariffs or additional taxes, restrictive trade policies, any delay or failure to collect amounts due to us and differing legal systems.

Our ability to maintain and grow our business and financial performance could be adversely affected if we cannot recruit and retain, or if we are required to substantially increase our labor costs to recruit and retain, such qualified personnel and employees. Furthermore, to the extent that we are unable to hire sufficient qualified employees to staff our contracts, we may be required to engage larger numbers of contracted personnel, which could reduce our profit margins. In addition, some of our contracts contain provisions requiring us to commit to staff a program with certain personnel the client considers key to our successful performance under the contract. In the event we are unable to provide such key personnel or acceptable substitutions, the client may terminate the contract and we may not be able to recover certain incurred costs.

We may not be able to obtain or maintain the licenses, authorizations and permits necessary for the successful operation of our business.

We operate in a highly regulated environment and are required under various federal and state laws of the U.S. and certain foreign jurisdictions to obtain and maintain licenses, authorizations and permits for the conduct of our business. For example, we maintain a business license with the Iraqi Ministry of Trade and security licenses with the Iraqi Ministry of Interior and similar licenses in Libya and Afghanistan. Our licenses, authorizations and permits contain various requirements that we must comply with in order to maintain such licenses, authorizations and permits. If we do not maintain the licenses, authorizations and permits necessary to provide our services, our operations may be suspended or terminated in the relevant jurisdictions, which could have a material adverse effect on our business, financial condition and results of operations.

In addition, there can be no assurance that any given license, authorization or permit will be deemed sufficient by the relevant government authorities to fully cover our current activities conducted in reliance on such license, authorization or permit. Changes in the requirements imposed by various government authorities may lead us to expend significant resources in order to achieve and maintain compliance with our licenses, authorizations and permits. Additionally, we may face delays in having a license, authorization or permit that we require for the conduct of our business renewed, including for reasons beyond our control. Any failure to abide by regulations relating to our business may result in the termination or non-renewal of contracts, civil fines or criminal penalties, and any

 

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suspension or termination of operations or civil or criminal actions could have a material adverse effect on our business, financial condition and results of operations.

Changes in our effective tax rate and tax positions may vary.

We are subject to income taxes in the U.S. and several foreign jurisdictions. A change in tax laws, treaties or regulations, or their interpretation, in any country in which we operate could result in a higher tax rate on our revenue, which could have a material impact on our net income and cash flows from operations. In addition, significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Our tax estimates and tax positions could be materially affected by many factors including the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, the realizability of deferred tax assets and changes in uncertain tax positions. A significant increase in our tax rate could have a material adverse effect on our business, results of operations and financial condition.

The Revolving Credit Facility and Term Loan Facility impose significant operating and financial restrictions on us and our subsidiaries that may prevent us from pursuing certain business opportunities and restrict our ability to operate our business.

The credit agreement governing our Revolving Credit Facility and Term Loan Facility contains covenants that restrict our and our subsidiaries’ ability to take various actions, such as:

 

   

incur or guarantee additional indebtedness or issue certain disqualified or preferred stock;

 

   

pay dividends or make other distributions on, or redeem or purchase, any equity interests or make other restricted payments;

 

   

make certain acquisitions or investments;

 

   

create or incur liens;

 

   

transfer or sell assets;

 

   

incur restrictions on the payments of dividends or other distributions from our restricted subsidiaries;

 

   

alter the business that we conduct;

 

   

enter into transactions with affiliates; and

 

   

consummate a merger or consolidation or sell, assign, transfer, lease or otherwise dispose of all or substantially all of our assets.

The restrictions in the credit agreement governing our Revolving Credit Facility and Term Loan Facility also limit our ability to plan for or react to market conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect our ability to finance our operations, enter into acquisitions or to engage in other business activities that could be in our interest.

We use estimates in recognizing revenue, and if we make changes to these estimates, our profitability may be adversely affected.

Revenue from our fixed-price contracts is primarily recognized using the percentage-of-completion method or on the basis of partial performance towards completion. These methodologies require estimates of total costs at completion, fees earned on the contract, or both. This estimation process, particularly due to the technical nature of the services performed and the long-term nature of certain contracts, is complex and involves significant judgment. Adjustments to original estimates are often required as work progresses, experience is gained and additional information becomes known, even though the scope of the work required under the contract may not change. Any adjustment as a result of a change in estimate is recognized as events become known. Changes in the underlying assumptions, circumstances or estimates could result in adjustments that may adversely affect our future financial results.

If we cannot collect our receivables or if payment is delayed, our business may be adversely affected by our inability to generate cash flow, provide working capital or continue our business operations.

We depend on the timely collection of our receivables to generate cash flow, provide working capital and continue our business operations. If the U.S. federal government fails to pay or delays the payment of invoices for any reason, our business and financial condition may be materially and adversely affected. The U.S. federal government may delay or fail to pay invoices for a number of reasons, including lack of appropriated funds, lack of an approved budget, or as a result of audit findings by U.S. federal government regulatory agencies.

 

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We may be harmed by intellectual property infringement claims and our failure to protect our intellectual property could enable competitors to market products and services with similar features.

Our business operations rely principally on trade secrets to protect our intellectual property. We attempt to protect our trade secrets by entering into confidentiality and intellectual property assignment agreements with third parties, our employees and consultants. However, these agreements can be breached and, if they are, there may not be an adequate remedy available to us. In addition, others may independently discover our trade secrets and proprietary information and in such cases we could not assert any trade secret rights against such party. Enforcing a claim that a party illegally obtained and is using our trade secret is difficult, expensive and time consuming, and the outcome is unpredictable. If we are unable to protect our intellectual property, our competitors could market services or products similar to our services and products, which could reduce demand for our offerings. Any litigation to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others could result in substantial costs and diversion of resources, with no assurance of success.

In addition, U.S. federal government contracts typically contain provisions that allow the U.S. federal government to claim rights, including intellectual property rights, in products and data developed and/or delivered under such agreements. We may not have the right to prohibit the U.S. federal government from using or disclosing certain technologies developed by us, and we may not be able to prohibit third party companies, including our competitors, from using those technologies commercially or in providing products and services to the U.S. federal government. The U.S. federal government generally takes the position that it has an unlimited right to royalty-free use of technologies that are developed under U.S. federal government contracts.

We may become subject to claims from our employees or third parties who assert that software and other forms of intellectual property that we use in delivering services and solutions to our clients infringe upon intellectual property rights of such employees or third parties. Our employees develop some of the software and other forms of intellectual property that we use to provide our services and solutions to our clients, but we also license technology from other vendors. If our employees, vendors or other third parties assert claims that we or our clients are infringing on their intellectual property rights, we could incur substantial costs to defend against those claims. If any of these infringement claims are ultimately successful, we could be required to cease selling or using products or services that incorporate the challenged software or technology, obtain a license or additional licenses from our employees, vendors or other third parties or redesign our products and services that rely on the challenged software or technology.

We have contracts with the U.S. federal government that are classified, which may limit investor insight into portions of our business.

We currently derive and expect to continue to derive a small portion of our revenue from programs with the U.S. federal government that are subject to security restrictions (classified programs), which preclude the dissemination of information that is classified for national security purposes. We are limited in our ability to provide information about these classified programs, their risks or any disputes or claims relating to such programs. As a result, investors have less insight into our classified programs than our other businesses and therefore less ability to fully evaluate the risks related to our classified business.

The U.S. federal government may prefer minority-owned, small and small disadvantaged businesses; therefore, we may have fewer opportunities for which to bid.

As part of the Small Business Administration set-aside program, the U.S. federal government may decide to limit certain procurements only to bidders that qualify as minority-owned, small, or small disadvantaged businesses. This would cause us to be ineligible to perform as a prime contractor on those programs and would restrict us to a maximum of 49% of the work as a subcontractor. An increase in the amount of procurements under the Small Business Administration set-aside program may impact our ability to bid on new procurements as a prime contractor or restrict our ability to recompete on incumbent work that is placed in the set-aside program. An increase in set-aside work, even when we are successful in teaming with a small business, could result in less revenue and profit for us.

Our business could be negatively impacted by cybersecurity threats and other security threats and disruptions.

As a commercial and U.S. federal government contractor, we face certain security threats, including threats to our IT infrastructure, attempts to gain access to our proprietary or classified information, threats to physical security and

 

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possible terrorism events. Our IT networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. We also rely upon third party IT systems for certain clients, which generally face similar security threats. Cybersecurity threats in particular are persistent, evolve quickly and include, but are not limited to, computer viruses, attempts to access, alter, or destroy information, denial of service and other information technology security events, and can include both insider and external threats, and result from unintentional or intentional acts. We believe we have implemented reasonable measures to mitigate potential material risks, but there can be no assurance that such actions will be sufficient to prevent disruptions to mission critical systems, the unauthorized release of confidential information or corruption of data. The theft, loss, or misuse of personal data by us could result in significantly increased security costs or costs related to breach response, breach notification, and defending legal claims and government inquiries. Costs to comply with and implement privacy-related and data protection measures could be significant, and our failure to comply with privacy-related or data protection laws and regulations, within an increasingly complex and evolving global compliance environment, could result in proceedings against us by government entities or others.

Although we have in the past and likely will in the future be the subject of cybersecurity events, to date none has had a material impact on our financial condition, results of operations or liquidity. Nonetheless, these types of events could disrupt our operations or client and other third party IT systems in which we are involved, and could result in the termination of our contracts and/or prevent us from being eligible for further work involving access to confidential, sensitive or classified information for commercial and U.S. federal government clients. They also could require significant management attention and resources and could negatively impact our reputation among our clients and the public, which could have a negative impact on our financial condition, results of operations or liquidity. We may also need to expend significant time and resources improving the IT infrastructure of the companies that we have acquired or may acquire in the future.

If we experience systems or service failures or delays, our reputation could be harmed and our clients could assert claims against us for damages or refunds.

We create, implement and maintain IT solutions that are often critical to our clients’ operations. We may in the future experience some systems and service failures, schedule or delivery delays and other problems in connection with our work. If we experience these problems, we may:

 

   

lose revenue due to adverse reaction from clients;

 

   

be required to provide additional services to a client at no charge;

 

   

receive negative publicity, which could damage our reputation and adversely affect our ability to attract or retain clients; and

 

   

suffer claims for substantial damages.

We also rely heavily on computer, information and communications technology and related systems in order to properly operate and control our business. If we are unable to effectively integrate new software and hardware, effectively upgrade our systems and network infrastructure, and take other steps to improve the efficiency and protection of our systems, systems operation could be interrupted or delayed.

These failures could materially and adversely affect our business and we may be required to pay contractual damages or face suspension or loss of a client’s business as a result. In addition, our insurance coverage may not be adequate, may not continue to be available on reasonable terms or in sufficient amounts to cover one or more large claims, or the insurer may disclaim coverage as to some types of future claims. Even if not successful, these claims could result in significant legal and other costs, may be a distraction to our management and may harm our reputation.

Business disruptions caused by natural disasters and other crises could adversely affect our profitability and our overall financial position.

We have significant operations located in regions of the United States and internationally that may be exposed to damaging storms and other natural disasters, such as hurricanes, tornadoes, blizzards, flooding, wildfires or earthquakes. Our business could also be disrupted by pandemics and other national or international crises, including terrorist attacks. Although preventative measures may help mitigate the damage from such occurrences, the damage and disruption to our business resulting from any of these events may be significant. If our insurance and other risk

 

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mitigation mechanisms are not sufficient to recover all costs, including loss of revenue from sales to clients, we could experience a material adverse effect on our financial position and results of operations.

Risks Related to the Combination and our Organizational Structure

We are a holding company with no operations of our own and, as such, depend on our subsidiaries for cash to fund all of our operations and expenses, including future dividend payments, if any.

We are a holding company and have no material assets other than our ownership interest in Holdings. As such, we will have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses or declare and pay any dividends in the future will be dependent upon the financial results and cash flows of Holdings and distributions we receive from Holdings. There can be no assurance that Holdings or affiliates will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions, including negative covenants in our debt instruments, will permit such distributions. Holdings will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to its members, including us. Accordingly, we will incur income taxes on our allocable share of any net taxable income of Holdings. Under the terms of the Holdings LLC Agreement, Holdings is obligated to make tax distributions to its members, including us. In addition to tax expenses, we will also incur expenses related to our operations, including payments under the TRA, which we expect could be significant. We intend, as its managing member, to cause Holdings to make cash distributions to its members in an amount sufficient to (i) fund all or part of their tax obligations in respect of taxable income allocated to them and (ii) cover our operating expenses, including payments under the TRA. However, Holdings’ ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would either violate any contract or agreement to which Holdings is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering Holdings insolvent. If we do not have sufficient funds to pay tax or other liabilities or to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore accelerate payments due under the TRA. In addition, if Holdings does not have sufficient funds to make distributions, our ability to declare and pay cash dividends will also be restricted or impaired.

We may be required to pay additional taxes as a result of the new partnership audit rules.

The Bipartisan Budget Act of 2015 changed the rules applicable to U.S. federal income tax audits of partnerships, including entities such as Holdings that are taxed as partnerships. Under these rules (which generally are effective for taxable years beginning after December 31, 2017), subject to certain exceptions, audit adjustments to items of income, gain, loss, deduction, or credit of an entity (and any member’s share thereof) is determined, and taxes, interest, and penalties attributable thereto, are assessed and collected, at the entity level. Although it is uncertain how these rules will be implemented, it is possible that they could result in Holdings being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a member of Holdings, could be required to indirectly bear the economic burden of those taxes, interest, and penalties even though we may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment.

Under certain circumstances, Holdings may be eligible to make an election to cause members (including us) to take into account the amount of any understatement, including any interest and penalties, in accordance with their interests in Holdings in the year under audit. We cannot provide any assurance that Holdings will be able to make this election, in which case current members (including us) would economically bear the burden of the understatement even if they had a different percentage interest in Holdings during the year under audit, unless, and only to the extent, Holdings is able to recover such amounts from current or former impacted members. If the election is made, members would be required to take the adjustment into account in the taxable year in which the adjusted K-1s are issued.

The changes created by these new rules are sweeping and in many respects dependent on the promulgation of future regulations or other guidance by the U.S. Department of the Treasury.

 

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The disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention.

If and when we generate taxable income, Holdings is expected to make quarterly tax distributions to each of its members, including us, based on each member’s allocable share of net taxable income (calculated under certain assumptions) multiplied by an assumed tax rate. The assumed tax rate for this purpose will be a fixed percentage that is intended to estimate the effective marginal combined federal, state, and local income tax rate that may apply to any member for the applicable fiscal year. The Tax Act recently significantly reduced the highest marginal federal income tax rate applicable to corporations such as us, relative to non-corporate taxpayers. As a result of this disparity, we expect to receive tax distributions from Holdings significantly in excess of our actual tax liability and our obligations under the TRA, which could result in our accumulating a significant amount of cash. This would complicate our ability to maintain certain aspects of our capital structure. Such cash, if retained, could cause the value of an LLC Interest to deviate from the value of a share of Class A common stock, contrary to the one-to-one relationship described in the section titled “Certain Relationships and Related Party Transactions—Amended and Restated LLC Agreement of Holdings.” In addition, such cash, if used to purchase additional LLC Interests, could result in deviation from the one-to-one relationship between Class A common stock outstanding and LLC Interests of Holdings held by us unless a corresponding number of additional shares of Class A common stock are distributed as a stock dividend. We may, if permitted under our debt agreements, choose to pay dividends to all holders of Class A common stock with any excess cash. These considerations could have unintended impacts on the pricing of our Class A common stock and may impose transaction costs and require management efforts to address on a recurring basis. To the extent that we do not distribute such excess cash as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to Holdings, the Legacy Holders during a period in which we hold such cash balances could benefit from the value attributable to such cash balances as a result of redeeming or exchanging their LLC Interests and obtaining ownership of Class A common stock (or a cash payment based on the value of Class A common stock). In such case, these Legacy Holders could receive disproportionate value for their LLC Interests exchanged during this time frame.

The TRA with the TRA Parties requires us to make cash payments to them in respect of certain tax benefits to which we may become entitled, and we expect that the payments we will be required to make will be substantial.

Under the TRA we have entered into with Holdings and the TRA Parties, we are required to make cash payments to the TRA Parties equal to 85 % of the tax benefits, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) having directly purchased LLC Interests from the Original Caliburn Holders in this Offering, (ii) the increases in the tax basis of assets of Holdings resulting from any future redemptions or exchanges of LLC Interests from the Original Caliburn Holders as described under “Certain Relationships and Related Party Transactions—Reorganization Transactions—Exchange Agreement,” (iii) any existing tax attributes associated with the Original Caliburn Holders’ LLC Interests the benefit of which is available to us following our acquisition of such LLC Interests, (iv) any existing net operating losses or other tax attributes available as a result of the Blocker Merger, and (v) certain other tax benefits related to our making payments under the TRA. Although the actual timing and amount of any payments that we make to the Original Caliburn Holders and the Blocker Shareholders under the TRA will vary, we expect those payments will be significant. Any payments made by us to the Original Caliburn Holders and the Blocker Shareholders under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us. Furthermore, our future obligation to make payments under the TRA could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that are the subject of the TRA. For more information, see “Certain Relationships and Related Party Transactions—Reorganization Transactions—Tax Receivable Agreement.” Payments under the TRA are not conditioned on any Original Caliburn Holder’s continued ownership of LLC Interests or our Class A common stock after this offering.

The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the timing of redemptions or exchanges by the holders of LLC Interests, the amount of gain recognized by such holders of LLC Interests, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable.

 

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In certain cases, payments under the TRA to the Original Caliburn Holders and the Blocker Shareholders may be accelerated or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the TRA.

The TRA provides that, upon certain mergers, asset sales, other forms of business combinations or other changes of control or if, at any time, we elect an early termination of the TRA, then our obligations, or our successor’s obligations, under the TRA to make payments thereunder would be based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA.

As a result of the foregoing, (i) we could be required to make payments under the TRA that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the TRA and (ii) if we elect to terminate the TRA early, we would be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the TRA, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. There can be no assurance that we will be able to fund or finance our obligations under the TRA.

Generally, we will not be reimbursed for any payments made to Original Caliburn Holders and the Blocker Shareholders under the TRA in the event that any tax benefits are disallowed.

If the Internal Revenue Service (“IRS”) challenges the tax basis or other tax attributes that give rise to payments under the TRA and the tax basis or other tax attributes are subsequently required to be adjusted, generally the recipients of payments under the TRA will not reimburse us for any payments we previously made to them. Instead, any excess cash payments made by us to an Original Caliburn Holder or a Blocker Shareholder will be netted against any future cash payments that we might otherwise be required to make under the terms of the TRA. However, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the TRA and, as a result, there might not be future cash payments to net against. The applicable U.S. federal income tax rules are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, it is possible that we could make cash payments under the TRA that are substantially greater than our actual cash tax savings. See the section titled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), as a result of our ownership of Holdings, applicable restrictions could make it impractical for us to continue our business as currently contemplated and could have an adverse effect on our business.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.

Because we are the managing member of Holdings, we indirectly operate and control all of the business and affairs of Holdings. On that basis, we believe that our interest in Holdings is not an “investment security,” as that term is used in the 1940 Act. However, if we were to cease participation in the management of Holdings, our interest in such entities could be deemed an “investment security” for purposes of the 1940 Act.

We and Holdings intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

 

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Our business plan depends on the successful integration of the four separate businesses that have been combined to form our company, and if we are unsuccessful at implementing our integration plan, our business and results from operations could be materially adversely affected.

Caliburn was formed from the combination in August 2018 of the separate businesses of Sallyport, Janus, CHS and PT&C (the “Combination”). These businesses had previously been under common control for less than one year, and had not been operated as a single business.

Our business plan depends on successfully integrating these four entities into a single company, including achieving certain cost savings and expected synergies. However, there are substantial risks associated with the Combination that could prevent us from achieving the expected cost savings and synergies or that could harm the operation of our business. These risks include the following.

 

   

Integrating the four entities’ business operations, systems, employees, compensation philosophies, services, technologies and sales channels into our existing business will be complex, time-consuming and expensive. The integration could also lead to morale issues, increased employee turnover and lower productivity than anticipated.

 

   

We will need to establish single sets of consistent policies across the four businesses, including in such areas as disclosure controls and procedures, regulatory and legal compliance, accounting systems and software and others. We plan to integrate such policies within the next year. Delays in implementing consistent policies or the failure to do so, could adversely affect our business, including by making it more difficult to prevent or identify potential legal violations.

 

   

The diversion of our management’s attention from our day-to-day operations, as integrating the operations and assets of the acquired businesses will require a substantial amount of our management’s time.

 

   

The integration process may disrupt our ongoing business, divert resources and cause us to incur substantial expenses.

 

   

We may not be able to achieve the operating and financial synergies we expect to result from the Combination.

 

   

The costs of integration may exceed our expectations.

The integration process following a combination such as this is inherently unpredictable and subject to delay and unexpected costs. We cannot assure you that we will successfully overcome these risks or any other problems we encounter as a result of the Combination. Our inability to deal effectively with these risks and successfully integrate the business and operations of the four entities into one business could materially adversely affect our business, operations and financial position.

We have a limited operating history as a combined company, which may make it difficult for you to evaluate our business and prospects.

Because we are a newly formed company with a limited operating history, our historical financial and operating data may not be representative of our future results and it may be difficult to evaluate our business and prospects. The historical combined financial statements of Caliburn included in this prospectus reflect only the results of Sallyport for periods prior to the date the other businesses were acquired by DC Capital. Further, the Combination provides additional uncertainty as we have only recently begun to integrate these four businesses. We cannot provide any assurance that we will be profitable in any given period, if at all. In view of the rapidly evolving nature of our business, our limited operating history as a combined company, and the risks discussed elsewhere in these risk factors and throughout this prospectus, we believe that period to period comparisons of historical operating results are not meaningful and should not be relied upon as an indication of future performance. Accordingly, to assist investors in evaluating our results, we are including additional comparisons, as set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. Holdings has no obligation to provide such supplemental information in the future.

 

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Risks Related to the Offering

Because DC Capital will control the majority of our common stock following this offering, they will control all major corporate decisions and their interests may conflict with your interests as an owner of our Class A common stock and those of the Company.

We are controlled by DC Capital, which will indirectly own     % of our Class A common stock (or     % if the underwriters fully exercise their option to purchase additional shares of Class A common stock) after the consummation of this offering. Accordingly, DC Capital will control the election of the majority of our directors and will exercise a controlling interest over our business, affairs and policies, including the appointment of our management and the entering into of business combinations or dispositions and other corporate transactions. The directors DC Capital elects will have the authority to make decisions that will allow the Company to incur additional debt, issue or repurchase stock, declare dividends and make other decisions that could be detrimental to stockholders.

DC Capital may have interests that are different from yours and may vote in a way with which you disagree and that may be adverse to your interests. For example, the principals of DC Capital may have different tax positions from us, especially in light of the TRA, that could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, and whether and when the Issuer should terminate the TRA and accelerate its obligations thereunder. In addition, the determination of future tax reporting positions, the structuring of future transactions and the handling of any future challenges by any taxing authority to our tax reporting positions may take into consideration DC Capital’s tax or other considerations, which may differ from the considerations of the Issuer or our other stockholders. In addition, DC Capital’s concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our Class A common stock to decline or prevent our stockholders from realizing a premium over the market price for their Class A common stock.

Additionally, DC Capital is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or supply us with goods or services. DC Capital may thus have conflicts of interest in determining to which entity a particular business opportunity should be presented—to us or to another entity. DC Capital may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law and subject to certain exceptions, none of DC Capital or its affiliates will have any duty to (i) forgo engaging in a corporate opportunity in the same or similar lines of business in which we now engage or propose to engage, (ii) disclose or offer any such opportunity to us or (iii) refrain from otherwise competing with us. For more information, see “Description of Capital Stock—Conflicts of Interest.” Thus, stockholders should consider that the interests of DC Capital may differ from their interests in material respects.

We are a “controlled company” within the meaning of the NYSE rules and, as a result, will qualify for, and may rely on, exemptions from certain corporate governance requirements.

Following the consummation of this offering, DC Capital will continue to control a majority of the voting power of our outstanding common stock. As a result, we expect to be a “controlled company” within the meaning of the NYSE corporate governance standards. A company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” within the meaning of the NYSE rules and may elect not to comply with certain corporate governance requirements of the NYSE, including:

 

   

the requirement that a majority of our Board of Directors consist of independent directors;

 

   

the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the compensation committee.

Following this offering, we intend to rely on all of the exemptions listed above. See “Management.” If we do utilize the exemptions, we will not have a majority of independent directors, we will not maintain a nominating and

 

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corporate governance committee and our compensation committee will not be independent. As a result, our Board of Directors and the compensation committee may have more directors who do not meet the NYSE’s independence standards than they would if those standards were to apply. The independence standards are intended to ensure that directors who meet such standards are free of any conflicting interest that could influence their actions as directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

There may not be an active trading market for shares of our Class A common stock, which may cause shares of our Class A common stock to trade at a discount from the initial public offering price and make it difficult to sell the shares of Class A common stock you purchase.

Prior to this offering, there has not been a public trading market for shares of our Class A common stock. It is possible that after this offering an active trading market will not develop or continue. If an active trading market is developed, it may not be sustained, which would make it difficult for you to sell your shares of Class A common stock at an attractive price, or at all. The initial public offering price per share of Class A common stock was determined by agreement among us and the representatives of the underwriters and may not be indicative of the price at which shares of our Class A common stock will trade in the public market after this offering. The market price of our Class A common stock may decline below the initial public offering price, and you may not be able to sell your shares of our Class A common stock at or above the price you paid in this offering, or at all.

The market price of shares of our Class A common stock may be volatile, which could cause the value of your investment to decline.

Even if a trading market develops, the market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. Securities markets often experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our Class A common stock in spite of our operating performance. In addition, our results of operations could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly results of operations, additions or departures of key management personnel, changes in U.S. federal government budget allocations or procurement requirements, announcements of new services or significant price reductions by our competitors, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about our industry, and any harm to our reputation due to problems, issues or controversies involving our services. The market price of shares of our Class A common stock could decrease significantly in response to any of these. You may therefore be unable to resell your shares of Class A common stock at or above the initial public offering price.

In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

You will suffer immediate and substantial dilution in the net tangible book value of the Class A common stock you purchase.

The initial public offering price of our Class A common stock is substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding common stock immediately after the completion of this offering. Purchasers of Class A common stock in this offering will experience immediate dilution of approximately $        per share at the initial public offering price of $        per share. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.”

If our operating and financial performance in any given period does not meet the guidance that we provide to the public, our stock price may decline.

We may, but are not obligated to, provide public guidance on our expected operating and financial results for future periods. Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in this prospectus and in our other public filings and public statements. Our actual results may not always be in line with or exceed any guidance we have provided, especially in times of economic uncertainty. If, in the

 

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future, our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts or if we reduce our guidance for future periods, the market price of our Class A common stock may decline as well. Even if we do issue public guidance, there can be no assurance that we will continue to do so in the future.

If securities analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. Analyst reports about our competitors and industry generally may also impact the trading price of our stock.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. If there are substantial sales of our Class A common stock or the perception that these sales could occur, the price of our Class A common stock could decline.

Sales of substantial amounts of our Class A common stock in the public market after this offering, or the perception that these sales could occur, could adversely affect the price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. Upon completion of this offering, and the application of the proceeds therefrom, we will have outstanding                shares of Class A common stock and                 shares of Class B common stock. Of these shares, the                 shares of Class A common stock sold in this offering will be freely tradable, without restriction, in the public market. After the lockup agreements pertaining to this offering expire 180 days from the date of this prospectus, an additional                shares will be available for immediate sale, and                 shares will be available for sale in                , in the event stockholders are entitled to tack their respective holding periods of limited liability company units, subject to applicable manner of sale and other limitations under Rule 144 under the Securities Act. In the event that stockholders are not entitled to tack their respective holding periods of the limited liability company units,                 shares will be available for sale approximately one year after this offering, subject to applicable manner of sale and other limitations under Rule 144 under the Securities Act. Following the expiration of the lock up period, the Legacy Holders will be entitled, subject to specified exceptions, to certain registration rights with respect to the registration of shares under the Securities Act. If this right is exercised, holders of all shares subject to the registration rights agreement will be entitled to participate in such registration. By exercising their registration rights, and selling a large number of shares, these holders could cause the price of our Class A common stock to decline. An estimated                 million shares of Class B common stock will be subject to our registration rights agreement upon completion of the offering. See “Shares Eligible for Future Sale” and “Certain Relationships and Related Party Transactions.”

Our financial results may vary significantly from period to period as a result of a number of factors many of which are outside our control, which could the market price of our Class A common stock to decline.

Our financial results may vary significantly from period to period in the future as a result of many external factors that are outside of our control. Factors that may affect our financial results include those listed in this “Risk Factors” section and others such as:

 

   

any cause of reduction or delay in U.S. federal government funding (e.g., changes in presidential administrations that delay timing of procurements);

 

   

fluctuations in revenue earned on existing contracts:

 

   

failure to realize our backlog;

 

   

commencement, completion or termination of contracts during a particular period;

 

   

a potential decline in our overall profit margins if our other direct costs and subcontract revenue grow at a faster rate than labor-related revenue;

 

   

strategic decisions by us or our competitors, such as changes to business strategy, strategic investments, acquisitions, divestitures, spin offs and joint ventures;

 

   

a change in our contract mix to less profitable contracts;

 

   

changes in policy or budgetary measures that adversely affect U.S. federal government contracts in general;

 

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variable purchasing patterns under U.S. federal government GSA schedules, blanket purchase agreements, which are agreements that fulfill repetitive needs under GSA schedules, and IDIQ contracts;

 

   

changes in demand for our services and solutions;

 

   

fluctuations in our staff utilization rates;

 

   

seasonality associated with the U.S. federal government’s fiscal year;

 

   

an inability to utilize existing or future tax benefits, including those related to our net operating losses or stock-based compensation expense, for any reason, including a change in law;

 

   

alterations to contract requirements; and

 

   

adverse judgments or settlements in legal disputes.

A decline in the price of our Class A common stock due to any one or more of these factors could cause the value of your investment to decline.

Payment of dividends on our Class A common stock is entirely subject to the discretion of our Board of Directors. Our debt instruments and external factors beyond our control may limit our ability to pay dividends.

We currently expect to retain all future earnings, if any, for use in the operation and expansion of our business and repayment of debt; therefore, we do not anticipate paying cash dividends on our Class A common stock in the foreseeable future. We are not legally or contractually required to pay dividends. The declaration and payment of all future dividends, if any, will be at the sole discretion of our Board of Directors, which retains the right to change our dividend policy at any time. Our Board of Directors may never declare a dividend, may decrease the level of dividends or may discontinue entirely the payment of dividends. Dividend payments are not mandatory or guaranteed. As a result, stockholders must rely on sales of their Class A common stock after price appreciate as the only way to realize any future gains on their investment.

In determining the amount of any future dividends, our Board of Directors may consider, among other factors it may deem relevant: (i) our financial condition and results of operations, (ii) our available cash and cash flows from operating activities, as well as anticipated cash requirements (including debt servicing), (iii) our capital requirements and the capital requirements of our subsidiaries, (iv) contractual, legal, tax and regulatory restrictions, including restrictions imposed by our outstanding indebtedness, if any, (v) general economic and business conditions and (vi) priority of preferred stock dividends, if any. In particular, the financial and restricted payment covenants in our New Credit Facilities effectively limit our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Description of Indebtedness.” Our operating cash flow and ability to pay dividends in compliance with these restricted payment covenants will depend on our future performance, which will be subject to prevailing economic conditions and to financial, business and other factors beyond our control. Future agreements governing our indebtedness may also limit or eliminate our ability to pay dividends.

As a result, your decision whether to purchase shares of our Class A common stock should allow for the possibility that no dividends will be paid. Any change in the level of our dividends or the suspension of the payment thereof could adversely affect the market price of our Class A common stock. There can be no assurance that shares of our Class A common stock will appreciate in value or even maintain the initial public offering price.

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

We estimate that net proceeds of the sale of the Class A common stock that we are offering will be approximately $            million (or $            million if the underwriters exercise their option to purchase additional shares in full). Of these proceeds, $             million (or $             million if the underwriters fully exercise their option to purchase additional shares of Class A common stock) will be advanced to Holdings in exchange for the issue and sale by Holdings of newly issued LLC Interests. Our management will have broad discretion to use these proceeds, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply the net proceeds of this offering in ways that increase the value of your investment. Our management might not be able to yield any return on the investment and use of these net proceeds. You will not have the opportunity to influence our decisions on how to use the proceeds.

 

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The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the NYSE, may strain our resources, increase our costs and divert management’s attention, and we may be unable to comply with these requirements in a timely or cost-effective manner.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the corporate governance standards of the Sarbanes-Oxley Act and the NYSE. These requirements will place a strain on our management, systems and resources and we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company, particularly after we are no longer an “emerging growth company” as defined under the JOBS Act. The Exchange Act will require us to file annual, quarterly and current reports with respect to our business and financial condition within specified time periods and to prepare a proxy statement with respect to our annual meeting of stockholders. The Sarbanes-Oxley Act will require that we maintain effective disclosure controls and procedures and internal controls over financial reporting and that, starting in the second fiscal year in which we file an annual report, that our management report on the effectiveness of such internal control over financial reporting. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules of the NYSE will also require that we comply with various corporate governance requirements. To maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting and to comply with the requirements of the Exchange Act and the NYSE will require significant resources and management oversight. This may divert management’s attention from other business concerns and lead to significant costs associated with compliance, which could materially and adversely affect our business, financial condition and results of operations and the price of our Class A common stock.

The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as our executive officers. Advocacy efforts by stockholders and third parties may also prompt even more changes in governance and reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of these costs. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions and other regulatory action and potentially civil litigation.

Failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes Oxley Act could adversely affect our business and share price of our Class A common stock.

As a privately-held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404 of the Sarbanes Oxley Act (“Section 404”). We anticipate being required to meet these standards in the course of preparing our financial statements as of and for the year ended December 31, 2019, and our management will be required to report on the effectiveness of our internal control over financial reporting for such year. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.

In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the implementation of any requested improvements and, once we cease to be an emerging growth company, receiving a favorable attestation in connection with the attestation required to be provided by our independent registered public accounting firm. In the event we are unable to receive a favorable attestation report in a timely manner, the market price of our Class A common stock could decline and we could be subject to sanctions or investigations by the NYSE, the U.S. Securities and Exchange Commission or other regulatory agencies, which could require additional financial and management resources. Furthermore, failure to achieve and maintain an effective internal control environment could adversely affect our business and share price and could limit our ability to raise capital and to report our financial results accurately and timely.

 

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Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, employees or agents, (iii) any action asserting a claim against us arising under any provisions of the DGCL or our amended and restated certificate of incorporation or our amended and restated bylaws, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. By becoming a stockholder in our Company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum. The choice of forum provision in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us and may discourage lawsuits against our directors and officers.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of the Delaware General Corporation Law (“DGCL”), could make it more difficult for a third-party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

 

   

establishing a classified Board of Directors such that not all members of the board are elected at one time;

   

allowing the total number of directors to be determined exclusively (subject to the rights of holders of any series of preferred stock to elect additional directors) by resolution of our Board of Directors;

 

   

granting to our Board of Directors the sole power (subject to the rights of holders of any series of preferred stock) to fill any vacancy or newly-created directorship on the Board of Directors if the Sponsor and its affiliates cease to own, or to have the right to direct the vote of, at least 40% of the voting power of our common stock;

 

   

limiting the ability of stockholders to remove directors without cause if the Sponsor and its affiliates cease to own, or to have the right to direct the vote of, at least 40% of the voting power of our common stock;

 

   

authorizing the issuance of “blank check” preferred stock by our Board of Directors, without further stockholder approval, to thwart a takeover attempt;

 

   

prohibiting stockholder action by written consent (and, thus, requiring that all stockholder actions be taken at a meeting of our stockholders), if the Sponsor and its affiliates cease to own, or to have the right to direct the vote of, at least 40% of the voting power of our common stock;

 

   

eliminating the ability of stockholders to call a special meeting of stockholders, except for the Sponsor and its affiliates, so long as they own, or have the right to direct the vote of, at least 40% of the voting power of our common stock;

 

   

establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon at annual stockholder meetings; and

 

   

requiring the approval of the holders of at least two-thirds of the voting power of all outstanding stock entitled to vote thereon, voting together as a single class, to amend or repeal our amended and restated certificate of incorporation or amended and restated bylaws if the Sponsor and its affiliates cease to own, or to have the right to direct the vote of, at least 40% of the voting power of our common stock.

In addition, while we have opted out of Section 203 of the DGCL, our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, unless:

 

   

prior to such time, our Board of Directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

 

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upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or

 

   

at or subsequent to that time, the business combination is approved by our Board of Directors and by the affirmative vote of holders of at least two-thirds of our outstanding voting stock that is not owned by the interested stockholder.

Generally, a “business combination” includes a merger, asset or stock sale or other transaction provided for or through our Company resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with that person’s affiliates and associates, owns 15% or more of our outstanding voting stock. For purposes of this provision, “voting stock” has the meaning given to it in Section 203 of the DGCL. Our amended and restated certificate of incorporation will provide that the Sponsor, its respective affiliates, and any of its respective direct or indirect designated transferees and any group of which such persons are a party, do not constitute “interested stockholders” for purposes of this provision.

Under certain circumstances, this provision will make it more difficult for a person who qualifies as an “interested stockholder” to effect certain business combinations with the Issuer for a three-year period. This provision may encourage companies interested in acquiring us to negotiate in advance with our Board of Directors in order to avoid the stockholder approval requirement if our Board of Directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our Board of Directors and may make it more difficult to accomplish transactions that our stockholders may otherwise deem to be in their best interests. See “Description of Capital Stock.”

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our Company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.

We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our Class A common stock may be less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We cannot predict if investors will find our Class A common stock less attractive because we will rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We could be an “emerging growth company” for up to five years, after the end of the fifth fiscal year after the date of this IPO. For additional information about the implications of qualifying as an emerging growth company, see “Summary — JOBS Act.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical facts included in this prospectus, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, industry, business outlook, business trends and other information referred to under “Summary,” “Risk Factors,” “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” are forward-looking statements. When used in this prospectus, the words “estimates,” “expects,” “predicts,” “contemplates,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “will,” “should,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates, and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that our management’s expectations, beliefs, estimates, and projections will result or be achieved, and we caution you that actual results may vary materially from what is expressed in or indicated by the forward-looking statements. The statements we make regarding the following matters are forward-looking by their nature:

 

   

our belief that we are well positioned to benefit from growth in our core markets and the ability to capture new contract awards;

 

   

our ability to drive significant cash flow generation given our high operating leverage;

 

   

the level of cost savings we expect to generate from the Consolidation and our expectation that those savings will partially offset the additional costs we will incur from being a public company;

 

   

our expectation that a significant portion of our future revenue growth will continue to come from acquisitions;

 

   

our belief that we will be able to pursue bid activity on large U.S. federal government contract vehicles for which we are not currently a prime contractor;

 

   

our belief that the characteristics of our business will enhance our ability to win complex, large scale contracts and large IDIQ contracts;

 

   

our expectation that we will be able to reduce our reduce our leverage;

 

   

our ability to realize our backlog; and

 

   

our ability to integrate the businesses of Sallyport, Janus, CHS and PT&C.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the risks provided under “Risk Factors” in this prospectus.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Any forward-looking statement that we make in this prospectus speaks only as of the date of such statement. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus, to conform these statements to actual results or to changes in our expectations.

 

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OUR ORGANIZATIONAL STRUCTURE

Organizational Structure Following this Offering

Immediately following this offering, Caliburn International Corporation (the “Issuer”) will be a holding company and its sole material asset will be common membership interests (“LLC Interests”) in Caliburn Holdings LLC (“Holdings”). The Issuer has not engaged in any business or other activities, except in connection with the Reorganization described below and this offering.

The Issuer also will be the sole managing member of Holdings, and will operate and control all of the business and affairs of Holdings and, through Holdings and its subsidiaries, conduct our business. As a result, although the Issuer will hold only a minority of the LLC Interests in Holdings, it will have the sole voting interest in, and control the management of, Holdings. In addition, we will consolidate Holdings in our combined financial statements and will report a non-controlling interest related to the LLC Interests held by the Legacy Holders on our combined financial statements. The Issuer will have a Board of Directors and executive officers, but will have no employees. We expect the functions of all of our employees to reside at Holdings.

The following diagram shows our organizational structure after giving effect to the Reorganization and this offering, assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock.

 

 

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(1)    Receive shares of common stock from the Issuer in connection with the Issuer’s acquisition of Janus Blocker Corporation, which indirectly holds a portion of the membership interests in Holdings.

Existing Structure

Prior to the consummation of this offering and the Reorganization described below, the Original Caliburn Holders were the only members of Holdings, and the equity interests of Holdings consisted of five different classes of limited liability company membership interests: Class A, Class C, Class E, Class G, and Class AA (collectively, the “Prior Membership Interests”). Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to any U.S. federal entity-level income taxes. Rather, taxable income or loss is included in the U.S. federal income tax returns of Holdings’ members. Janus Blocker Corporation (“Blocker Corporation”) holds an indirect interest in a portion of these membership interests.

 

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Incorporation of the Issuer

Caliburn International Corporation was incorporated in Delaware in August 2018. The Issuer has not engaged in any business or other activities except in connection with its incorporation and this offering. Caliburn International Corporation’s amended and restated certificate of incorporation will authorize two classes of common stock, Class A common stock and Class B common stock, each having the terms described in the section titled “Description of Capital Stock.” Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to the Issuer’s stockholders for their vote or approval, except as otherwise required by applicable law.

The Reorganization

Because U.S. tax law generally makes it impractical for a limited liability company that is taxed as a partnership to sell membership interests publicly, Holdings will undertake a series of transactions in connection with the closing of this offering (collectively, the “Reorganization”) designed to create a corporate holding company. These transactions will include the following:

 

   

Holdings will amend its limited liability company agreement to, among other things, (i) provide that the equity interests in Holdings will consist of a single class of common membership interests (the “LLC Interests”), (ii) exchange all of the Prior Membership Interests in Holdings for LLC Interests and, in the case of the Class AA membership interests, a cash payment equal to the accrued yield on the Class AA membership interests and (iii) appoint the Issuer as the sole managing member of Holdings.

 

   

The Issuer will amend and restate its certificate of incorporation to, among other things, (i) provide for Class A common stock and Class B common stock and (ii) issue shares of Class B common stock to the Legacy Holders, on a one-to-one basis with the number of LLC Interests they own, for nominal consideration.

 

   

The Issuer will acquire Blocker Corporation, which holds an indirect interest in a portion of the LLC interests. In connection with that acquisition, the Issuer will issue              shares of Class A common stock as consideration to the Blocker Shareholders (the “Blocker Merger”).

 

   

The Issuer will issue                shares of our Class A common stock to the purchasers in this offering (or                shares if the underwriters fully exercise their option to purchase additional shares of Class A common stock) in exchange for net proceeds of approximately $            million (or approximately $            million if the underwriters fully exercise their option to purchase additional shares of Class A common stock), after deducting underwriting discounts and commissions but before offering expenses.

 

   

The Issuer will use the net proceeds from this offering (including any net proceeds received upon exercise of the underwriters’ option to purchase additional shares of Class A common stock) to acquire LLC Interests both from the Exchanging Holders and directly from Holdings, in each case at a purchase price per LLC Interest equal to the initial public offering price of Class A common stock, less underwriting discounts and commissions. The LLC Interests that the Issuer purchases will collectively represent    % of Holdings’ outstanding LLC Interests (or    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock).

 

   

The Issuer will cause Holdings to use the proceeds from its sale of LLC Interests to the Issuer as follows: (i) to pay to the holders of Class AA membership interests the accrued preferred yield for those membership interests and (ii) for general corporate purposes. See “Use of Proceeds” for additional details regarding Holdings’ use of the proceeds from this offering.

 

   

The Legacy Holders will continue to own the LLC Interests they received in exchange for their existing membership interests in Holdings and will have no economic interests in the Issuer despite their ownership of Class B common stock (where “economic interests” means the right to receive any distributions or dividends, whether cash or stock, in connection with common stock).

 

   

The Issuer will enter into the following agreements:

 

   

The Exchange Agreement with the Legacy Holders, pursuant to which each Legacy Holder will have the right to exchange its LLC Interests for shares of Class A common stock on a one-for-one basis, with an automatic cancellation of an equal number of such holder’s Class B common stock, provided that the Issuer may, at its option, instead make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each LLC Interest redeemed (subject to customary

 

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adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the Holdings LLC Agreement. The Issuer’s determination to make such a cash payment would be made by the disinterested members of its Board of Directors. The Issuer’s Board of Directors will include directors who hold LLC Interests or are affiliated with holders of LLC Interests and may include such directors in the future.

 

   

The Tax Receivable Agreement with the Original Caliburn Holders and the Blocker Shareholders, which is designed to provide the Original Caliburn Holders and the Blocker Shareholders with 85% of the cash savings, if any, in United States federal, state and local taxes that the Issuer realizes or is deemed to realize as a result of increases in tax basis resulting from the Issuer’s purchase of LLC Interests from the Exchanging Holders using a portion of the net proceeds from this offering, its acquisition of the Prior Membership Interests, any future exchanges of LLC Interests for our Class A common stock pursuant to the Exchange Agreement, and certain other benefits.

 

   

The Registration Rights Agreement with the Legacy Holders, pursuant to which the Legacy Holders may require us to register under the Securities Act their sales of Class A common stock.

For a more detailed description of the terms of these agreements, see “Certain Relationships and Related Party Transactions—Reorganization Transactions.”

After the Reorganization and this Offering

Immediately following the completion of the Reorganization and this offering:

 

   

the Issuer will be a holding company and its principal asset will be LLC Interests of Holdings;

 

   

the Issuer will be the sole managing member of Holdings and will control the business and affairs of Holdings and its subsidiaries;

 

   

the Issuer’s amended and restated certificate of incorporation and the Holdings LLC Agreement will each require that (i) the Issuer at all times maintains a ratio of one LLC Interest owned by it for each share of Class A common stock it has outstanding (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities), and (ii) Holdings at all times maintains (x) a one-to-one ratio between the number of shares of Class A common stock the Issuer has outstanding and the number of LLC Interests the Issuer owns and (y) a one-to-one ratio between the number of shares of Class B common stock owned by the Legacy Holders and the number of LLC Interests owned by the Legacy Holders;

 

   

the Issuer will own LLC Interests representing    % of the economic interest in Holdings (or    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock);

 

   

the purchasers in this offering (i) will own                shares of Class A common stock, representing    % of the combined voting power of all of our common stock (or    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock), (ii) will own    % of the economic interest in the Issuer (or    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock) and (iii) through the Issuer’s ownership of LLC Interests, indirectly will hold approximately    % of the economic interest in Holdings (or    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock);

 

   

the Blocker Shareholders (i) will own                 shares of Class A common stock, representing approximately    % of the combined voting power of all of the Issuer’s common stock (or approximately    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock), (ii) will own    % of the economic interest in the Issuer (or    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock) and (iii) through the Issuer’s ownership of LLC Interests, indirectly will hold approximately    % of the economic interest in Holdings (or    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock);

 

   

the Legacy Holders will own (i)          LLC Interests, representing    % of the economic interest in Holdings (or    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock) and (ii) through their ownership of Class B common stock, approximately    % of the voting power in the Issuer (or approximately    %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock); and

 

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following the offering, each Legacy Holder may exchange the LLC Interests it holds for newly-issued shares of Class A common stock on a one-for-one basis (with a corresponding cancellation of an equal number of such holder’s Class B common stock, provided, that the Issuer may, at its option, instead make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each LLC Interest redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications)) in accordance with the terms of the Holdings LLC Agreement. The Issuer’s determination to make such a cash payment would be made by the disinterested members of its Board of Directors. The Issuer’s Board of Directors will include directors who hold LLC Interests or are affiliated with holders of LLC Interests and may include such directors in the future.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be $             million (or $             million if the underwriters fully exercise their option to purchase additional shares of Class A common stock). We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions, but before deducting estimated offering expenses payable by us, which we refer to as “redemption proceeds” will be $             million (or $             million if the underwriters fully exercise their option to purchase additional shares of Class A common stock). We based the foregoing estimates on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

Each $1.00 increase or decrease in the assumed initial public offering price per share would (i) increase or decrease, as applicable, both the net proceeds to us from this offering and the issuer proceeds by $            million (or $            million if the underwriters fully exercise their option to purchase additional shares), assuming the number of shares offered by us remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase or decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease, as applicable, the net proceeds to us by $            million, assuming the initial public offering price of $            per share remains the same, after deducting estimated underwriting discounts and commissions.

The Issuer intends to use the redemption proceeds of approximately $             million as follows:

 

   

$             million to purchase an aggregate of                 LLC Interests from the Exchanging Holders;

 

   

$             million to purchase                 newly issued LLC Interests from Holdings.

The per share purchase price for each LLC Interest the Issuer purchases will be equal to the price per share of our Class A common stock in this offering, less underwriting discounts and commissions. See “Certain Relationships and Related Party Transactions—Purchase of LLC Interests” for the number of LLC Interests to be purchased from each of the Exchanging Holders.

If the underwriters fully exercise their option to purchase additional shares of Class A common stock, in addition to the use of proceeds described above, we intend to use additional redemption proceeds of $             million to purchase an additional                 newly issued LLC Interests from Holdings.

The Issuer intends to cause Holdings to use the proceeds it receives for the purchase of LLC Interests as follows:

 

   

$             million to acquire Class AA membership interests from the holders thereof, including payment of the preferred yield accrued in connection with those interests;                

 

   

to pay our expenses incurred in relation to this offering and the other Transactions; and

 

   

for general corporate purposes.

 

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DIVIDEND POLICY

We have not in the past paid, and do not expect for the foreseeable future, to pay dividends on our Class A common stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, and other factors that our Board of Directors may deem relevant. Because we are a holding company and have no direct operations, we will only be able to pay dividends from funds we receive from our subsidiaries, including Holdings. See “Risk Factors—We are a holding company with no operations of our own and, as such, depend on our subsidiaries for cash to fund all of our operations and expenses, including future dividend payments, if any.” Our ability to pay dividends will be limited by covenants in our existing indebtedness, which limit the ability of Holdings to make distributions to the Issuer that it will need to pay dividends, and the agreements governing other indebtedness we or our subsidiaries incur in the future may include similar restrictions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

 

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CAPITALIZATION

The following table sets forth our combined cash and cash equivalents and capitalization as of June 30, 2018:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to the Combination and our entering into our new Term Loan Facility; and

 

   

on a pro forma as adjusted basis to give effect to:

 

   

the Reorganization;

 

   

the sale by us of            shares of Class A common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus; and

 

   

the application of net proceeds from this offering as described under “Use of Proceeds;”

in each case, as if such transaction had occurred on June 30, 2018.

You should read this table in conjunction with the information contained in “Use of Proceeds,” “Selected Historical Combined Financial Data,” “The Reorganization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our audited combined financial statements included elsewhere in this prospectus and the notes thereto included elsewhere in this prospectus.

 

 

 

     AS OF JUNE 30, 2018  
     ACTUAL      PRO FORMA      PRO FORMA AS
ADJUSTED (1)
 
     (in millions, except share and per share data)  

Cash and cash equivalents

   $                        $                        $                    
  

 

 

    

 

 

    

 

 

 

Long-term debt, including current portion:

        

Term loan facility

   $        $        $    

Capital lease obligations

        

Other

        

Total debt

        

Members’ / Stockholders’ equity:

        

Class A common stock, $0.001 par value, no shares authorized, issued and outstanding, actual and pro forma;          shares authorized,          shares issued and outstanding, pro forma as adjusted

        

Class B common stock, $0.001 par value, no shares authorized, issued and outstanding, actual and pro forma;          shares authorized,          shares issued and outstanding, pro forma as adjusted

        

Additional paid-in capital

        

Accumulated other comprehensive loss, net of tax benefit

        

Members’ interest

        

Accumulated deficit

        
  

 

 

    

 

 

    

 

 

 

Total members’ / stockholders’ equity

        
  

 

 

    

 

 

    

 

 

 

Non-controlling interest

        
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $        $        $    
  

 

 

    

 

 

    

 

 

 

 

 

(1)    Each $1.00 increase or decrease in the assumed initial public offering price of $            per share would increase or decrease, as applicable, cash and cash equivalents, additional paid-in capital, and total shareholders’ equity by approximately $            million, assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay.

 

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DILUTION

If you invest in shares of our Class A common stock in this offering, your investment will be immediately diluted to the extent of the difference between the initial public offering price per share of Class A common stock and the pro forma net tangible book value per share of Class A common stock after this offering. Dilution results from the fact that the per share offering price of the shares of Class A common stock is substantially in excess of the net tangible book value per share attributable to the existing equity holders.

Our net tangible book value as of June 30, 2018 was approximately $            million, or $            per share of Class A common stock. Net tangible book value represents the amount of total tangible assets less total liabilities of Holdings, after giving effect to the Reorganization (but not this offering or the use of proceeds therefrom), and net tangible book value per share represents net tangible book value divided by the number of shares of Class A common stock outstanding, after giving effect to the Reorganization (but not this offering or the use of proceeds therefrom) and assuming that all of the Legacy Holders exchanged their LLC Interests (with automatic cancellation of an equal number of shares of Class B common stock) for newly-issued shares of our Class A common stock on a one-for-one basis. Based on these assumptions, we would have            shares of Class A common stock outstanding.

After giving further effect to our sale of shares of Class A common stock in this offering at an assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses payable by us, our pro forma net tangible book value as of June 30, 2018 would have been $            million, or $            per share of Class A common stock. This represents an immediate increase in net tangible book value of $            per share to our existing equity holders and an immediate and substantial dilution in net tangible book value of $            per share to investors in this offering at the assumed initial public offering price.

The following table illustrates this dilution on a per share basis assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock.

 

 

 

Assumed initial public offering price per share of Class A common stock

      $                

Net tangible book value per share of Class A common stock as of June 30, 2018

   $                   

Increase in net tangible book value per share of common stock attributable to investors in this offering

   $       
  

 

 

    

Pro forma net tangible book value per share of Class A common stock, as adjusted to give effect to this offering

      $    
     

 

 

 

Dilution in pro forma net tangible book value per share of Class A common stock to new investors in this offering

      $    
     

 

 

 

 

 

A $1.00 increase in the assumed initial public offering price of $            per share would increase our pro forma net tangible book value after giving to the offering by $            million, or by $            per share, assuming the number of shares offered by us remains the same and after deducting the underwriting discount and the estimated offering expenses payable by us. A $1.00 decrease in the assumed initial public offering price per share would result in an equal decrease in our pro forma net tangible book value.

If the underwriters fully exercise their option to purchase additional shares, the pro forma net tangible book value per share of our Class A common stock after giving effect to this offering would be $            per share, and the dilution in net tangible book value per share to investors in this offering would be $            per share.

The following table summarizes, on the same pro forma basis, as of June 30, 2018, the total number of shares of Class A common stock purchased from us, the total cash consideration paid to us, and the average price per share paid by the Legacy Holders and by new investors purchasing shares in this offering, assuming that all of the Legacy Holders exchanged their LLC Interests (with automatic cancellation of an equal number of shares of Class B common stock) for shares of our Class A common stock on a one-for-one basis. As the table illustrates, new investors

 

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purchasing shares in this offering will pay an average price per share substantially higher than our existing equity holders paid. The table below assumes an initial public offering price of $            per share, the midpoint of the range set forth on the cover of this prospectus, for shares purchased in this offering and excludes underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

 

                                                                                                             
     SHARES OF CLASS A
COMMON STOCK PURCHASED
     TOTAL CONSIDERATION      AVERAGE
PRICE PER
SHARE
 
         NUMBER              PERCENT          AMOUNT      PERCENT  
     (dollars in millions, except per share amounts)  

Investors prior to this offering

        %      $          %      $                        

Investors in this offering

               $    
  

 

 

    

 

 

    

 

 

    

 

 

    

Total

        %      $          %     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

Each $1.00 increase in the assumed offering price of $            per share would increase or decrease total consideration paid by investors in this offering and total consideration paid by all investors by approximately $            million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

The following tables set forth the selected historical combined financial data for Caliburn Holdings LLC (“Holdings”) and its subsidiaries for the periods and as of the dates indicated. Holdings is the predecessor of Caliburn International Corporation (the “Issuer”) for financial reporting purposes. We do not present selected financial data for the Issuer as it is a newly incorporated entity that has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this section.

We derived the selected statement of operations data for the years ended December 31, 2016 and 2017 and the selected balance sheet data as of December 31, 2016 and 2017 from the audited combined financial statements of Holdings included elsewhere in this prospectus. We derived the selected historical combined statement of operations data and selected historical combined statement of cash flows data for the six months ended June 30, 2017 and 2018 and the historical selected combined balance sheet data as of June 30, 2018 from the unaudited combined financial statements of Holdings included elsewhere in this prospectus. We prepared those unaudited combined financial statements on the same basis as the audited combined financial statement and included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to fairly state the financial information set forth in those statements.

Our historical results are not necessarily indicative of the results expected for any future period. You should read the selected combined financial data below together with our audited combined financial statements included elsewhere in this prospectus including the related notes thereto appearing elsewhere in this prospectus, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information included elsewhere in this prospectus.

 

 

 

     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
(in thousands, except per share data and percentages)    2016     2017     2017      2018  

Statement of Operations Data:

         

Revenue

   $ 513,143     $ 381,592     $                        $                    

Cost of revenue

     436,780       324,232       
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     76,363       57,360       

Operating expenses

         

Indirect expenses

     47,956       47,137       

Depreciation and amortization

     3,471       4,526       
  

 

 

   

 

 

   

 

 

    

 

 

 

Income from operations

     24,936       5,697       

Other expenses

         

Interest expense, net

     (8,398     (9,502     

Loss on extinguishment of debt

           (725     

Other (income)/expense, net

     (1,355     (9     
  

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before provision for income taxes

     15,184       (4,539     

Provision for income taxes

     9,734       (452     
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

   $ 5,449     $ (4,087   $        $    
  

 

 

   

 

 

   

 

 

    

 

 

 

Less: Income attributable to non-controlling interest

     103       15       
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) attributable to Caliburn Holdings LLC

   $ 5,346     $ (4,102   $        $    
  

 

 

   

 

 

   

 

 

    

 

 

 

 

 

 

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     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
(in thousands, except per share data and percentages)    2016     2017     2017      2018  

Per Share Data:

         

Net income (loss) per common share:

         

Basic

   $                   $                   $                    $                

Diluted

         

Weighted average shares outstanding:

         

Basic

         

Diluted

         

Other Data:

         

Adjusted EBITDA (1)

   $ 37,059     $ 40,211     $        $    

Adjusted EBITDA margin (1)

     7     11     %        %  

 

 

(1)   Adjusted EBITDA and adjusted EBITDA margin are financial measures that are not calculated in accordance with U.S. GAAP. See the section titled “Summary—Summary Pro Forma and Historical Combined Financial Data—Non-GAAP Financial Measures.”

 

 

 

     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
(in thousands)    2016     2017     2017      2018  

Statement of Cash Flow Data:

         

Net cash provided by (used in):

         

Operating activities

   $ 3,964     $ (53,556   $                    $                

Investing activities

     (2,557     (176,637     

Financing activities

     3,951       233,939       

 

 

 

 

 

     AS OF DECEMBER 31,      AS OF
JUNE 30,

2018
 
(in thousands)    2016      2017  

Balance Sheet Data:

        

Cash and cash equivalents

   $ 11,800      $ 15,514      $                

Net working capital

     77,544        147,165     

Total assets

     317,404        534,033     

Total debt

     125,563        295,262     

Total liabilities

     292,800        448,499     

Total members’ equity

     24,604        85,534     

 

 

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

We prepared the following unaudited pro forma combined financial statements by applying certain pro forma adjustments to the historical combined financial statements of Caliburn Holdings LLC (“Holdings”) as predecessor to Caliburn International Corporation (the “Issuer”). The Issuer is a newly incorporated entity that has had no business transactions or activities to date and had no assets or liabilities during the periods for which we present financial information in this prospectus. The pro forma adjustments give effect to the following transactions (the “Transactions”):

 

   

the acquisitions (the “Acquisitions”), in unrelated transactions, of:

   

Janus on December 15, 2017;

 

   

CHS on March 22, 2018; and

 

   

PT&C on March 22, 2018;

 

   

the Combination on August 14, 2018, pursuant to which Sallyport, Janus, CHS, and PT&C became subsidiaries of Holdings pursuant to a reorganization of entities under common control, and Holdings issued five separate classes of membership interests: Classes A, C, E, G and AA, with the Class AA membership interests entitling their holders to a preferred yield;

 

   

our entry into new senior secured credit facilities (the “New Credit Facilities”) on August 14, 2018, which include a $380 million Term Loan (the “Term Loan Facility”) and a $75 million revolving credit facility (the “Revolving Credit Facility”), our drawdown of approximately $15 million under our Revolving Credit Facility, and our use of the proceeds from that drawdown and borrowings under our Term Loan Facility to repay existing indebtedness, repay bridge equity, make certain cash distributions to equityholders and pay related fees and expenses;

 

   

the Reorganization, which will include this offering and pursuant to which:

   

holders of existing membership interests in Holdings will exchange those membership interests for new common membership interests in Holdings;

 

   

the Issuer will become the sole managing member of Holdings and begin to consolidate Holdings in its combined financial statements;

 

   

the Issuer will amend its certificate of organization to provide for two classes of common stock, Class A common stock and Class B common stock, and issue shares of its Class B common stock to holders of LLC Interests in Holdings on a one-to-one basis for nominal consideration; and

 

   

the Issuer and Holdings will enter into the Tax Receivable Agreement with the TRA Parties, pursuant to which the Issuer will agree to pay the Original Caliburn Holders and the Blocker Shareholders 85% of the cash savings, if any, in United States federal, state and local taxes that the Issuer realizes or is deemed to realize as a result of (i) having directly purchased LLC Interests from the Original Caliburn Holders in this offering, (ii) the increases in the tax basis of assets of Holdings resulting from any future redemptions or exchanges of LLC Interests from the Original Caliburn Holders as described under “Certain Relationships and Related Party Transactions—Reorganization Transactions—Common Unit Redemption Right,” (iii) any existing tax attributes associated with the Original Caliburn Holders’ LLC Interests, the benefit of which is available to us following our acquisition of such LLC Interests, (iv) any existing net operating losses or other tax attributes available as a result of the Blocker Merger, and (v) certain other tax benefits related to our making payments under the TRA;

 

   

the Issuer will complete this offering and use of proceeds from the offering as described in “Use of Proceeds,” including to acquire LLC Interests from Holding and from certain holders of membership interests in Holdings (the “Exchanging Members”) and Holdings will make a cash payment to redeem the Class AA membership interests in Holdings, including a payment of the accrued preferred yield in respect of those membership interests.

The unaudited pro forma combined statements of income for the year ended December 31, 2017 and the six months ended June 30, 2017 and 2018 give effect to the Transactions as if each of them had occurred on January 1, 2017. The unaudited pro forma condensed combined balance sheet as of June 30, 2018 gives effect to the Transactions, other than the Acquisitions, as if each of them had occurred on June 30, 2018. The historical financial statements of the Issuer, Holdings, Janus and CHS appear elsewhere in this prospectus.

 

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We have based the pro forma adjustments upon available information and certain assumptions that we believe are reasonable under the circumstances. We describe in greater detail the assumptions underlying the pro forma adjustments in the accompanying notes, which you should read in conjunction with these unaudited pro forma combined financial statements. In many cases, we based these assumptions on preliminary information and estimates. The actual adjustments to our audited combined financial statements will depend upon a number of factors and additional information that will be available on or after the closing date of this offering. Accordingly, the actual adjustments that will appear in our financial statements will differ from these pro forma adjustments, and those differences may be material.

We provide these unaudited pro forma combined financial statements for informational purposes only. These unaudited pro forma combined financial statements do not purport to represent what our results of operations or financial condition would have been had the Transactions actually occurred on the assumed dates, nor do they purport to project our results of operations or financial condition for any future period or future date. You should read these unaudited pro forma combined financial statements in conjunction with “Use of Proceeds”, “Capitalization”, “Selected Historical Financial and Operating Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and the historical financial statements, including the related notes thereto, appearing elsewhere in this prospectus.

 

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Unaudited Combined Pro Forma Statement of Income

for the six months ended June 30, 2017

 

 

 

    HISTORICAL     ADJUSTMENTS           COMBINED
PRO FORMA
OF
CALIBURN
 
($ thousands except per share amounts)   HOLDINGS     JANUS     PT&C     CHS     ACQUISITIONS           COMBINATION
AND
FINANCING
          REORGANIZATION
AND OFFERING
       

Revenue

                                  (3a                      

Cost of revenue (exclusive of depreciation shown separately below)

                                  (3a                      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Gross profit

                                                     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Operating expenses:

                     

Indirect expenses

                                  (3b                      

Depreciation and amortization

                                  (3c                      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Income from operations

                                                     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Interest expense, net

                                          (4a              

Loss on extinguishment of debt

                                                     

Other income / (expense), net

                                                     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

(Loss) income before provision for income taxes

                                                     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

(Benefit) provision for income taxes

                                  (3d           (4b           (5a      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Net (loss) income

                                                     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Less: Income (loss) attributable to noncontrolling interests

                                                  (5b      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Net (loss) income attributable to Caliburn

                                                     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Earnings per share

                     

Basic (Note 6)

                      $  

Diluted (Note 6)

                      $  

Weighted average shares outstanding—Basic

                     

Weighted average shares outstanding—Diluted

                     

 

 

 

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Unaudited Combined Pro Forma Statement of Income

for the year ended December 31, 2017

 

 

 

    HISTORICAL     ADJUSTMENTS           COMBINED
PRO
FORMA OF
CALIBURN
 
($ thousands except per share
amounts)
  HOLDINGS     JANUS (a)     PT&C     CHS     ACQUISITIONS           COMBINATION
AND
FINANCING
          REORGANIZATION
AND OFFERING
       

Revenue

    381,592       187,561       28,360       205,718       (18,337     (3a                     784,894  

Cost of revenue (exclusive of depreciation shown separately below)

    324,232       135,106       17,483       136,346       (18,337     (3a                     594,830  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Gross profit

    57,360       52,455       10,877       69,372                               190,064  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Operating expenses:

                     

Indirect expenses

    47,137       51,076       7,388       37,098       (9,683     (3b                     133,016  

Depreciation and amortization

    4,526       7,345       441       2,487       24,275       (3c                     39,074  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Income from
operations

    5,697       (5,966     3,048       29,787       (14,592                       17,974  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Interest expense, net

    (9,502     (5,432     (2,173     (46             (14,542     (4a             (31,695

Loss on extinguishment of debt

    (725                                               (725

Other income / (expense), net

    (9     1,584       (71     (30                             1,474  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

(Loss) income before provision for income taxes

    (4,539     (9,814     804       29,711       (14,592       (14,542               (12,972
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

(Benefit) provision for income taxes

    (452     4,360       40             (743     (3d     (774     (4b           (5a     2,431  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Net (loss) income

    (4,087     (14,174     764       29,711       (13,849       (13,768               (15,403
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Less: Income (loss) attributable to noncontrolling interests

    15       (103                                       (5b     (88
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Net (loss) income attributable to Caliburn

    (4,102     (14,071     764       29,711       (13,849       (13,768               (15,315
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Earnings per share

                     

Basic (Note 6)

                      $  

Diluted (Note 6)

                      $  

Weighted average shares outstanding-
Basic

                     

Weighted average shares outstanding-
Diluted

                     

 

 

(a)   Includes period from January 1, 2017 until December 15, 2017, the date of the acquisition of Janus. Janus’ operations during the period from December 16, 2017 until December 31, 2017 are reflected in the historical financial statements of Holdings.

 

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Unaudited Combined Pro Forma Statement of Income

for the six months ended June 30, 2018

 

 

 

    HISTORICAL     ADJUSTMENTS           COMBINED
PRO FORMA
OF CALIBURN
 
($ thousands except per share amounts)   HOLDINGS     PT&C (A)     CHS (A)     ACQUISITIONS           COMBINATION
AND
FINANCING
          REORGANIZATION
AND OFFERING
       

Revenue

    —         —         —         —         (3a     —           —           —    

Cost of revenue (exclusive of depreciation shown separately below)

    —         —         —         —         (3a     —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Gross profit

    —         —         —         —           —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Operating expenses:

                   

Indirect expenses

    —         —         —         —         (3b     —           —           —    

Depreciation and amortization

    —         —         —         —         (3c     —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Income from operations

    —         —         —         —           —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Interest expense, net

    —         —         —         —           —         (4a     —           —    

Loss on extinguishment of debt

    —         —         —         —           —           —           —    

Other income / (expense), net

    —         —         —         —           —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

(Loss) income before provision for income taxes

    —         —         —         —           —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

(Benefit) provision for income taxes

    —         —         —         —         (3d     —         (4b     —         (5a     —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Net (loss) income

    —         —         —         —           —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Less: Income (loss) attributable to noncontrolling interests

    —         —         —         —           —           —         (5b     —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Net (loss) income attributable to Caliburn

    —         —         —         —           —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Earnings per share

                   

Basic (Note 6)

                    $ —    

Diluted (Note 6)

                    $ —    

Weighted average shares outstanding—Basic

                   

Weighted average shares outstanding—Diluted

                   

 

 

(a)    Includes period from January 1, 2018 until March 21, 2018, the date of the acquisitions of PT&C and CHS. Operations of PT&C and CHS during the period from March 22, 2018 until June 30, 2018 are reflected in the historical financial statements of Holdings.

 

 

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Unaudited Combined Pro Forma Balance Sheet

as of June 30, 2018

 

 

 

     Holdings
Historical
     Combination
and
Financing
Adjustments
           Reorganization
and Offering
Adjustments
           Combined
Pro
Forma of
Caliburn
 

($ thousands)

     
               

ASSETS

               

Cash and cash equivalents

     —          —          (4c     —          (5c     —    

Accounts receivable, net

     —          —            —            —    

Related party receivable

     —          —            —            —    

Other current assets

     —          —            —          (5d     —    
  

 

 

    

 

 

      

 

 

      

 

 

 

Total current assets

     —          —            —            —    
  

 

 

    

 

 

      

 

 

      

 

 

 

Property, plant and equipment, net

     —          —            —            —    

Goodwill

     —          —            —            —    

Other intangible assets, net of accumulated amortization

     —          —            —            —    

Deferred income tax assets, net

     —          —            —            —    

Other long-term assets

     —          —          (4d     —          (5e     —    
  

 

 

    

 

 

      

 

 

      

 

 

 

TOTAL ASSETS

     —          —            —            —    

LIABILITIES AND MEMBERS’ EQUITY

               

Current revolving credit facility

     —          —          (4e     —            —    

Current maturities of long-term debt

     —          —          (4e     —            —    

Accounts payable

     —          —            —            —    

Accrued salaries and leave

     —          —            —            —    

Deferred revenue

     —          —            —            —    

Other accrued expenses and other current liabilities

     —          —            —            —    

Income taxes payable

     —          —            —            —    

Related party payable

     —          —            —            —    
  

 

 

    

 

 

      

 

 

      

 

 

 

Total current liabilities

     —          —            —            —    
  

 

 

    

 

 

      

 

 

      

 

 

 

Revolving Credit Facility

     —          —          (4e     —            —    

Long Term Debt, net of debt issuance costs and discount

     —          —          (4e     —            —    

Deferred income taxes

     —          —            —            —    

Other long-term liabilities

     —          —            —          (5e     —    
  

 

 

    

 

 

      

 

 

      

 

 

 

Total liabilities

     —          —            —            —    
  

 

 

    

 

 

      

 

 

      

 

 

 

Stockholders’ Equity

               

Member’s equity

     —          —          (4f     —          (5f     —    

Class A Common stock, par value

     —          —            —          5f       —    

Class B Common stock, par value

     —          —            —          5f       —    

Additional paid in capital

     —          —            —          (5e ),(5f)      —    

Accumulated (deficit) / earnings

     —          —            —            —    

Accumulated other comprehensive income (loss)

     —          —            —            —    
  

 

 

    

 

 

      

 

 

      

 

 

 

Member’s equity / Total stockholders’ equity attributable to Caliburn

     —          —            —            —    

Non-controlling interests

     —          —            —          (5g     —    
  

 

 

    

 

 

      

 

 

      

 

 

 

Total stockholders’ equity

     —          —            —            —    
  

 

 

    

 

 

      

 

 

      

 

 

 

Total liabilities and stockholders’ equity

     —          —            —            —    
  

 

 

    

 

 

      

 

 

      

 

 

 

 

 

 

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Notes to Unaudited Pro Forma Combined Financial Statements

(dollars in thousands, except share and per share data)

1. Basis of Presentation

The unaudited pro forma combined income statements give effect to the Transactions as if the Transactions occurred on January 1, 2017 and the unaudited pro forma combined balance sheet gives effect to the Transactions as if the Transactions occurred on June 30, 2018. The unaudited pro forma combined financial statements for the year ended December 31, 2017, for the six months ended June 30, 2018 and 2017 and as of June 30, 2018 are based on and should be read in conjunction with the historical financial statements of the Issuer, Holdings, Janus and CHS, which appear elsewhere in this prospectus. Certain reclassifications have been made to the historical presentation of Janus and CHS to conform to the financial statement presentation of the Issuer, including Holdings as its predecessor, as further discussed in Note 2.

The business owned and operated by Holdings was formed from the combination of four companies under the control of DC Capital:

 

   

Sallyport, which was a subsidiary of Michael Baker International, LLC, was acquired by DC Capital in 2011;

 

   

Janus, which DC Capital acquired on December 15, 2017 for total consideration of $182.2 million (excluding $10.0 million of possible future contingent consideration);

 

   

CHS, which DC Capital acquired on March 22, 2018 for total consideration of $131.4 million; and

 

   

PT&C, which DC Capital acquired on March 22, 2018 for total consideration of $27.5 million (excluding $5.0 million of possible future contingent consideration).

On August 14, 2018, Sallyport, PT&C, CHS and Janus became subsidiaries of Holdings. We refer to the transaction in which the four entities became subsidiaries of Holdings as the “Combination.” The Combination was accounted for as a reorganization of entities under common control. The combined historical financial statements of Holdings, as predecessor to the Issuer, reflect the combined operations of Sallyport, PT&C, CHS and Janus for the periods that they were under common control. In connection with the Combination, Holdings entered into the Credit Facilities, which include a new $380 million Term Loan Facility and a $75 million Revolving Credit Facility, of which approximately $15 million was drawn at closing of the Combination. The proceeds from the refinancing were used to repay the existing indebtedness of the combining entities, make certain cash distributions to equity holders and pay related fees and expenses. We describe the pro forma adjustments associated with the Combination and the New Credit Facilities in Note 4.

The historical financial statements of Holdings do not reflect the operating results of Janus, CHS or PT&C prior to their acquisitions. The acquisitions of PT&C, CHS and Janus are accounted for as business combinations, and require the application of the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, the total consideration paid is allocated to an acquired company’s tangible and intangible assets and liabilities based on their estimated fair values as of the date of the given transaction. As of the date of this prospectus, we have not finalized the valuation studies necessary to estimate the fair values of the assets acquired and liabilities assumed and the related allocation of purchase price. Accordingly, the values of the assets and liabilities set forth in these unaudited pro forma combined financial statements are preliminary, and once we complete our final valuation processes, we may report changes to the book value of the assets we acquired and liabilities we assumed, as well as the amount of goodwill, and those changes could differ materially from what we present here. We discuss the pro forma adjustments related to the acquisitions in Note 3.

At or prior to the closing of this offering, the Issuer will become a holding company whose only material asset will be a     % economic interest in Holdings, which holds the operating entities that comprise our business. The Issuer will also become the sole managing member of Holdings and will thereby control all of the management and operations of Holdings and its subsidiaries. The Legacy Holders will continue to own the LLC Interests they received in exchange for their existing membership interests in Holdings and will have no economic interests in the Issuer despite their ownership of Class B common stock. As a result, we will consolidate Holdings in our combined financial statements and will report a non-controlling interest related to the LLC Interests held by the Legacy Holders

 

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Table of Contents

on our combined financial statements. We refer to the transactions that will result in this organizational structure as the “Reorganization,” and we describe them in greater detail in “Our Organizational Structure” elsewhere in this prospectus.

Upon consummation of the Reorganization and the closing of this offering, the Legacy Holders will own LLC Interests representing     % of the economic interest in Holdings (or     %, if the underwriters fully exercise their option to purchase additional shares of Class A common stock). Each Legacy Holder may exchange the LLC Interests it holds for newly-issued shares of Class A common stock on a one-for-one basis, with an automatic cancellation of an equal number of such holder’s Class B common stock. In addition, the Issuer will execute a Tax Receivable Agreement, which is expected to provide the Original Caliburn Holders and the Blocker Shareholders with 85% of the cash savings, if any, in United States federal, state and local taxes that the Issuer realizes or is deemed to realize as a result of the Original Caliburn Holders and the Blocker Shareholders (i) having directly purchased LLC Interests from the Original Caliburn Holders in this offering, (ii) the increases in the tax basis of assets of Holdings resulting from any future redemptions or exchanges of LLC Interests from the Original Caliburn Holders as described under “Certain Relationships and Related Party Transactions—Reorganization Transactions—Common Unit Redemption Right,” (iii) any existing tax attributes associated with the Original Caliburn Holders’ LLC Interests, the benefit of which is available to us following our acquisition of such LLC Interests, (iv) any existing net operating losses or other tax attributes available as a result of the Blocker Merger, and (v) certain other tax benefits related to our making payments under the TRA. We discuss the pro forma adjustments related to the reorganization and offering transactions in Note 5.

The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to the Transactions, are factually supportable and, for purposes of the pro forma statements of earnings, are expected to have a continuing impact on the combined results. As a result, the unaudited pro forma combined financial information does not give effect to non-recurring adjustments in the pro forma combined statement of earnings even through such adjustments are reflected in the pro forma combined balance sheet. The unaudited pro forma combined financial information does not reflect any synergies or integration activities of the businesses that may be realized from the Transactions because they are not factually supportable.

Following the closing of this offering, we expect to grant stock-based awards under a long-term incentive plan. However, the number and terms of these awards have not yet been determined and will not be finalized at the time of offering. Therefore, pro forma adjustments to reflect additional compensation expense or adjust the historical employee compensation expenses related to legacy stock compensation plans (including employee stock option plan expense) are not considered factually supportable or reflected within the pro forma combined income statements.

2. Reclassifications

We have made certain reclassifications directly to the pre-acquisition historical financial statements of Janus and CHS, presented elsewhere in this prospectus, to conform to the financial statement presentation of Holdings.

 

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Janus reclassifications in the unaudited pro forma combined income statement are as follows.

 

 

 

     Janus Reclassification Adjustments  
     January 1, 2017 – June 30, 2017      January 1, 2017 – December 16, 2017  
     Before
Reclassification
     Reclassification      Notes      After
Reclassification
     Before
Reclassification
    Reclassification     Notes     After
Reclassification
 

Revenues:

                    

Contract Revenue

                 187,561       (187,561     (i     —    

Revenue

                   187,561       (i     187,561  
  

 

 

    

 

 

       

 

 

    

 

 

   

 

 

     

 

 

 

Cost of revenue:

                    

Labor

                 54,594       (54,594     (ii     —